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The month of Sep'18 saw the Indian equity indices trading in a negative trajectory and Nifty 50 index closing below the 11000 mark. This was on back of undesirable global cues arising from the trade conflict between the two major economies of the world, the depreciating rupee and the ongoing concerns of the crude oil prices across the globe. The month started with equity markets declining due to the sensitive uncertainties over international trade wars. As the month passed by, the markets witnessed the rupee hitting to record fresh lows during the month majorly on back of the rising crude oil prices. The domestic investors turned cautious towards the end of the month with the further sell offs in the non-banking financial space, strengthening of the dollar and uncertainties over the US-China trade relations. The month also watched heavy selling pressure which was majorly seen in the banking and financial sector along with a rating downgrade of a major domestic infrastructure development and finance company due to the liquidity crunch faced by the company. 
 
On the domestic fixed income side, the 10 year G-sec traded range bound, in a range of 7.95% to 8.18% while closed the month at 8.02%. The start of the month saw the fixed income yields rising as market sentiments remained subdued with the rupee moving in the upward path. The situation was further exacerbated by rising oil prices, which made market participants fret over the rising inflation and the widening of the current account deficit. The rising crude oil prices across the globe, the weakening of the INR and rise in US Treasury yields kept bond yields at elevated levels. Possible monetary tightening to curb on inflation and higher INR and oil prices weighed on the market sentiments. There was a breather seen in the bond yields when the rupee recovered from its record levels post the announcement, that the government would intervene and undertake measures to prevent any further losses. The markets were further bolstered on announcement of reduction in H2FY2019, reducing the overall gross borrowing for FY2019 by Rs.70, 000 cr. On the global front, the global indices traded range bound amid the ongoing concerns over trade war between the United States and China. This was supported by the currency chaos in Argentina, Turkey and other emerging countries also placed a lot of pressure on the global markets. Overall market participants remained cautious over the trade wars, depreciating emerging market currencies and rising crude oil prices.

Market Performance*

The Indian equity markets ended the month on a negative note, on back of weak INR, concerns of rising crude oil prices and the ongoing trade wars. Nifty 50 was down by 6.42% (M-o-M) while S&P BSE Sensex was down by 6.26% (M-o-M). The S&P BSE Midcap and S&P BSE Small cap indices were also hit and were down by 12.55% (M-o-M) and 16.07% (M-o-M) respectively.

IIP^

India's Index of Industrial Production (IIP) fell at 6.6% in July'18 as compared to 6.8% (revised downwards from 7%) in June'18. The IIP grew on back of good performance by the manufacturing sector and higher offtake of capital goods and consumer durables. During the month 22 out of 23 industries in manufacturing showed positive growth. The IIP for the Mining sector registered 3.7% growth, Manufacturing registered 7% and Electricity sector registered 6.7% growth as compared to July last year.

Inflation^^

The Consumer Price Index (CPI) based inflation for the month of August'18 came down to 3.69% as compared to 4.17% in July'18. India's inflation reading came below the 4% mark for the first time in 2018, as the prices of vegetables & pulses fell sharply compared to last year. Inflation is currently below the MPC's forecast of 4.6% in the second quarter of the current financial year. The MPC has a mandate of maintaining inflation in a band of 4% (+/-2). CPI food inflation stood at 0.29% in August'18 compared to 1.37% in July'18. Within the food basket, vegetable inflation fell to -7% and inflation of pulses and products fell to -7.76 %. While on the other hand, fuel and light inflation stood at 8.47%. Fuel inflation continues to remain high because of the increase in global crude oil prices compared to last year.

Trade Deficit##

Trade deficit for India stood at $17.39 bn in August'18 as against $18.02 bn in July'18. A weaker currency is always good news for exports and that showed up in the numbers. The value of outbound shipments improved by 19.21% to $23.36 bn led by growth in export of engineering goods, petroleum products, gems and jewellery and chemicals. Imports in August'18 rose 25.41% over last year to $45.24 bn, led by higher inbound shipments of petroleum, gold and capital goods.

Triggers

  • Investors would closely track geo-political tensions especially between the two major economies US and China, the weakening movement of rupee against the dollar and volatile crude oil price which may remain a major concern for investors.
  • Rising crude oil prices continue to remain the key trigger for markets as it leads to depreciation of rupee and widening current account deficit. Further these factors can lead to higher inflation in the near term. The emerging market sell-off on back of higher US rates and a stronger dollar is likely to continue to impact foreign portfolio investment.
  • The weakening of the INR currency due to strong demand for dollar and the ongoing emerging market currency crisis would be a key event for market participants domestically and globally.
  • Investments by the foreign and domestic investors would be a key point to watch out for, which could keep sentiments elevated.
  • With the US and China having targeted each other in a fresh boom of a global trade war, India's exports, like that of many others, could come under pressure.

Source:
* Bloomberg
^ mospi.nic.in
^^ ICRA & RBI
## Ministry of commerce

Disclaimer:
The information used towards formulating the outlook has been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc. assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

The holiday shortened month of September 2018 saw the market witnessing losses to the fore, initially the continued spectrum of rupee volatility, US-China trade war tension and finally financial industry turbulence. The key indices suffered losses throughout the month as investors opted for selling from day one as selling pressure in most of the sectors, fear of escalation in US, China trade spat, continuing rupee woes which fell to a historic over 73 levels against the dollar impacting the trading momentum. US Fed increasing interest rates by 25 bps and the continued volatility in Crude Oil prices saw the broad market index S&P BSE Sensex revisit 36K-levels, while the broader Nifty 50 plummeted below the key 11,000-levels.
 
Amidst negativity entrenched in the markets, the fiscal deficit for the five-month period between April and August stood at Rs 5.91 lakh crore reaching 94.7% of the FY 19 target. The Narendra Modi government also announced borrowing estimates cut by whopping Rs 70,000 crore, which gave positive surprises to the participants amid the continuing challenges. FIIs were net sellers in the Indian markets with a total sell off of Rs. 11,446 however domestic market participants tried to support the markets by their Rs. 7,684 inflows.

Market Performance*

The month of Sept'18 saw negative performances by equity indices. Bell weather indices like S&P BSE Sensex & Nifty 50 were seen underperforming various other indices. The S&P BSE Sensex fell by 6.26% in Sept'18 to close at 36227.14 while Nifty 50 also fell by 6.42% to close at 10930.45. Further, S&P BSE Mid-Cap fell by 12.55% while S&P BSE Small-Cap fell by 16.07%. 
 
On the sectoral front, S&P BSE Infotech was the sectors which was marginally positive and rose by 0.52% during the month. The market was dragged down by negative sentiments across the sectoral indices with S&P BSE India Banex, S&P BSE India Auto and S&P BSE India Realty seen falling the most by 11.81%, 13.11%, and 20.48% respectively.

IIP^

Industrial production for the month of Jul'18 stood at 6.6% slightly lower than revised estimate of Jun'18 at 6.8% (previously 7.0%). On a yearly basis, broad based upward momentum was observed across Manufacturing, Electricity and Mining sectors of 7.0% (6.7% previously), 6.7% (8.5% previously) and 3.7% (6.6% previously), respectively. On the usage front, all subcategories expect consumer durable and non-durables recorded a sequential decline. Primary goods fell by 2.8% vis-à-vis contraction of 1.4% previously while capital goods contracted by 9.3% compared to an expansion of 2.8% in Jul'18.

PMI`

Manufacturing growth picked up pace in September as did goods and services tax (GST) collections, but sentiment was tempered by slower infrastructure sector growth and tepid auto sales as shown by data. The Nikkei India Manufacturing Purchasing Managers' Index strengthened in Sep'18 to 52.2 from 51.7 in Aug'18. The country's services sector expanded at a slower pace in Sep'18 as higher fuel costs and stronger US dollar made imported goods expensive. The seasonally-adjusted Nikkei India Services Business Activity Index touched 50.9 in Sep'18, down from 51.5 recorded in Aug'18, the lowest reading in the current four-month sequence of rising activity. According to the survey, companies reported that market conditions were underwhelming amid a lack of demand at a time of generally higher prices.

FPI Outflows **

Continuing the trend witnessed in the last month, FPIs (Foreign Portfolio Investor) reduced exposure to Indian equities in the month of Sept'18. On net basis foreign investors removed funds to the tune of Rs. 11,446 Crs. from the Indian equity markets; primarily led by slowing growth in corporate earnings coupled with high valuations of Indian stocks and strengthening US Dollar leading to weakness in the rupee.

Outlook

While the Indian economy and markets have been trying to adjust to global turbulence of last 6 months (trade war fears, rising oil prices, rising US dollar) and its domestic implications on currency, fiscal and current account deficits, the recent action of credit default issues at a large NBFC has created additional headwind to growth as in the immediate reaction to default, the entire NBFC sector has seen a fear of freeze in liquidity and its ability and willingness to grow. We need to remember that NBFCs have emerged as a very relevant participant in lending across assets (secured assets like home, auto, commercial vehicle and unsecured loans like consumer appliances, personal loans etc) in past 3 years as many banks have had taken a backseat driven by their own capital adequacy and asset quality issues.

Global financial markets continue to be driven by the economic factors (financial changing course of monetary policy in US, rising dollar and its implications on currencies across world) and geopolitical factors (trade wars, rising crude oil etc.) Equity markets in USA and most other developed economies have outperformed the emerging markets which are under stress. Indian markets too have been impacted though less than other emerging markets as such till the worries about NBFCs and its implication on growth emerged last month.

Domestically, Indian macro-economic variables have been impacted mainly by rising oil prices and oil at 80$ and above, the troubles have risen on fiscal deficit, current account deficit, interest rates and on economic growth. Fear of populist policy actions ahead of the general elections due in 6-8 months could act as overhang for Foreign investors. While the election outcomes are unlikely to alter the longer-term growth dynamics for Indian economy, the temporary fears could make foreign investors prefer a waiting approach.

In the near term, Indian equity markets are likely to remain volatile and the direction will primarily be driven by the credit growth and the upcoming corporate result season for Q2FY19. The management commentary accompanying the earnings would give a better clarity on the growth prospects for H2FY19.

We believe that the medium to long term growth prospects remaining strong, the issues of credit freeze and tight liquidity caused post the credit default can create some obstacle to economic growth in the short term. Despite these aberration in short term, we believe India is on track towards a period of economic growth. A strategy of continuing the SIP would be beneficial for a long-term investor in the current environment.

Source:
^ MOSPI, ICRA
` Markit
** ICRA MFI Explorer

Disclaimer: The information used towards formulating the outlook has been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Indian debt markets continued to remain volatile amidst soaring crude price and depreciating rupee. During the month of Sept'18 Indian 10-year benchmark surged to a high of 8.23%, the highest reading in the last 4 years. Uncertainty loomed over the fixed income market across the globe with US Treasury yields making market participants vigilant in addition to the concerns in Eurozone with Italy's budget and the U.K.'s impending exit from the European Union. In its Sept'18 policy meeting, the Federal Reserve increased interest rates by 25 bps and hinted towards gradual fiscal tightening due to which the US 10 Year Treasury hardened by 20 bps to 3.06% on 28th Sept'18 against 2.86% on 31st Aug'18. ECB maintained status quo and upheld its stance till next year and hinted towards gradually scaling back stimulus with inflation expected to increase on the back of rising trade as well as political risk. Bank of Japan also kept its monetary policy steady and maintained its optimistic view on the economy despite escalating global trade frictions.

 
Factors like crude oil movement and geo political issues across the globe have continued to put pressure on the Indian rupee. As a result, the Indian rupee depreciated by INR/USD 1.50 with INR/USD 72.49 on 28th Sept'18 v/s INR/USD 71.00 on 31st Aug'18. With demand surge and OPEC decision to not increase the output, Brent crude prices rose by ~$5/barrel to $82.72/barrel by the end of Sept'18 from $77.42/barrel at the end of Aug'18. As a result of all these, fixed income yields hardened marginally by 7bps to 8.02% on 28th Sept'18 as against 7.95% on 31st Aug'18.

RBI maintains status quo^:

The RBI, in its Oct'18 policy, decided to maintain status quo and kept the repo rate unchanged at 6.50% amidst subdued economic activity across the globe in addition to weakening global trade and domestic retail inflation. Anticipation of a rate hike had increased in the past month as oil prices climbed, the rupee's slide accelerated and concerns on liquidity emerged; however, RBI surprised markets and refrained from making any changes in the Interest rates. A steep rise in crude prices and hike in minimum support price (MSP) for agri-commodities had stoke inflation concerns, however, 5 of six MPC member voted in favour of status quo.

Inflation continues to ease#:

Retail inflation eased to 3.69% in Aug'18 from 4.17% in Jul'18 to reduce to a 10-month low amidst food price reducing significantly to 0.29% in Aug'18 from 1.30% in Jul'18. Among the key components, fuel and light grew 8.47% for the month of Aug'18 as against a growth of 7.96% in Jul '18. Inflation in housing came in at 7.59% as against 8.30% in Jul'18. WPI based inflation eased to 4.53% in Aug'18 from 5.09% in Jul'18 as prices of food articles, mainly vegetables reduced significantly. According to the data released, food articles registered deflation at 4.04% in Aug'18 with deflation in vegetables at 20.18% in Aug'18, as against 14.07% in the previous month.

Current Account Deficit (CAD) Q1 FY19^:

India's Current Account Deficit as a percentage of GDP rose to $15.8 bn or 2.4% of GDP in Q1FY19, up from $15.0 bn or 2.5% of GDP in Q1FY18. The widening of the CAD was driven by higher trade deficit that came in at $45.7 bn as against $41.9 bn in the previous year period. Net services receipts grew 2.1% YoY mainly due to rise in net earnings from software and financial services.

Outlook:

On the global front, Fed is expected to gradually increase the federal funds rate and to be in line with sustained expansion of economic activity, strong labor market conditions and inflation numbers. In the Eurozone, ECB continue to remain status quo in short to medium term and reduce the GDP growth forecasts for year.

Global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook of the country and is expected to keep the rupee movement under check.

Rising crude oil prices and other input costs may also drag down investment activity and could impact the profit margins of corporates. In addition, depreciating rupee and trade related conflict could impact the export growth which could lead to a further widening of India's CAD in FY19.

With RBI maintaining the status quo projected Retail inflation at 4.6% in Q2FY19, 4.8% in H2FY19 and 5.0% in Q1FY20, with risks evenly balanced. Going forward, inflation trajectory could be impacted by factors such as food price due to uneven rainfall, volatile crude price, depreciating EM currency and dissipating effect of HRA.

RBI is back with OMO and has done Rs 20,000 cr OMO in Sep'18 and has announced Rs 36,000 cr additional support in the month of Oct'18. We believe that though this step from RBI is to support the hardening yields and the depreciating rupee, OMO timing and choice of stock could be critical.

The Government has announced a sharp decrease in H2 borrowing program. On the other hand, RBI announced OMO calendar for the month of October worth Rs 36,000 cr which has helped the yields rally to 7.95%. We believe it will be difficult for the yields bond to breech 8.50% and sustain in an environment where INR is deprecating, and crude is rising. Hence, it presents the investors with a good opportunity to invest at such levels.

Source:
#MOSPI
*MFI Explorer
^RBI
@Bloomberg

Disclaimer: The information used towards formulating the outlook has been obtained from sources published by third parties. While such publications are believed to be reliable, however, neither the AMC, its officers, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy of such information. CRMF, its sponsors, its trustees, CRAMC, its employees, officer, directors, etc. assume no financial liability whatsoever to the user of this document. Mutual Fund Investments are subject to market risk. Investors are requested to read the Scheme related documents carefully before investing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.