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The month of June'17 saw Indian Equity markets near their highs for the most of the month. The month started with monetary policy announcement by RBI, and as widely expected, RBI adopted a wait-and watch approach stating that progress of monsoon and its impact on inflation would be tracked before taking any decision on interest rates. US Federal Reserve increased interest rates by 25 bps and laid additional plans to tighten monetary policy and further indicated that it would start unwinding its balance sheet by end of this year, despite growing concerns over weak inflation. Lower than expected retail and wholesale inflation (base 2011-12) resulted in the yields in the 10-year benchmark marginally softening by ~ 12 bps during the month of Jun'17. Oversupply of crude, which is supposed to be the biggest problem the OPEC is facing, resulted the global crude oil prices to plunge over USD 2 per barrel during the month of Jun'17 to 47.92 USD per barrel. The USD-INR pair remained range bound trading around 64 INR/USD mark. So far this year, the Indian Rupee has gained 5% over US Dollar as foreign investors have invested Rs. 53,774 Crs and Rs. 94,462 Crs in Indian equity and debt markets, respectively.

Market Performance*

Amidst US Fed rate hike and profit booking seen in the markets at historic highs, the Indian equity markets closed lower towards the end of the month of Jun'17. Benchmarks Nifty 50 and S&P BSE Sensex lost ~1.04% and ~0.72% respectively vis-à-vis May'17. Indian equity markets remained range bound for most part of the month but tumbled post the US Fed interest rate hike. The markets also saw a dip due to the anticipation of the disruption in the economy due to the implementation of GST from 1st Jul 2017.

IIP^

Industrial production in India increased by 3.1% Y-o-Y in Apr'17, following an upwardly revised 3.8% rise in the previous month. Output rose at a slower pace for both mining (4.2% from 10.3% in Mar'17) and electricity (5.4% from 6.2%) while manufacturing production accelerated (2.6% from 2.4%). As per Usebased classification, the growth rates in Apr'17 over Apr'16 were 3.4% in Primary goods, -1.3% in Capital goods, 4.6% in Intermediate goods and 5.8% in Infrastructure/ Construction Goods. The Consumer durables and Consumer non-durables have recorded growth of -6.0% and 8.3% respectively.

Inflation ^^

In line with the RBI's projection for the first half of FY 2018, the consumer price index inflation dipped below the 2.5% mark to record just 2.18% in May 2017 — a five-year low. Retail inflation hit a new record low for the second month as food prices fell for the first time ever led by pulses and vegetables. The inflation print is expected to be low & is expected to climb up in the second half, though it is expected to be well under RBI's medium term target. In the policy RBI cut its inflation projection by 1-1.5% acknowledging the sharp drop of inflation in past few months. The wholesale inflation in India slipped to 2.17% in May'17, from 3.85% in Apr'17, due to the constantly declining food prices. Food prices dipped by 2.27% during the month under review while on a YoY basis, expenses on primary articles declined by 1.79% as compared to a rise of 4.38% during the same month a year ago. Better than expected monsoon could help result in the inflation print to be around the current levels.

Trade Deficit #

The trade balance in India stayed in negative territory, standing at ~$13.8 billion in May'17, representing an increase of 120.7% on a YoY basis. Imports stood at ~$37.9 billion, representing a 33.1% YoY rise. The rise in imports resulted from a 236.7% increase in gold imports and a 29.54% rise in oil imports in May'17, as compared to May'16. Exports in May17 stood at $24.01 billion, or 8.3% higher than in May'16 mainly on account of robust performance by sectors like petroleum, chemicals, engineering goods as well as gems and jewellery.

Triggers

  • On the global front, the decision of the trajectory of interest rates will be decided in the US Fed's upcoming meeting based on release of key economic data.
  • Eurozone elections in Italy, BOE's policy decision and the events surrounding Brexit could be seen as key trigger points for the direction of global markets
  • Geopolitical issues would dampen the moods of the market participants as it may see flow of funds away from the emerging markets.
  • With IMD's forecast, expectations of normal monsoon have increased. The progress of monsoon is likely to help in determining the inflation trajectory going forward.
  • The implementation of GST and the upcoming RBI policy might be closely tracked by the market participants in the time to come.

Source:
# http://commerce.nic.in/tradestats/filedisplay.aspx?id=1;
^ mospi.nic.in
^^ ICRA
* 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.

After touching the historical level of 31 000 in the month of May'17, Indian equity markets showed a marginal downturn in the month of Jun'17. The sharp run up during the previous months coupled with the uncertainty ahead of GST implementation resulted in marginal pull back in Indian equity markets. The release of GDP data showing a slowdown in growth in the fourth quarter dented the sentiments further. Gross Domestic Product (GDP) grew 6.1% in Mar'17 quarter which was slower than the provisional 7.0% rise in the previous quarter but better than 5.6% in the corresponding period of last year. In FY17, GDP grew 7.1%, slower than revised 8% in FY16. Markets across the globe displayed a mixed pattern as some markets posted modest losses due to the weakness in global stocks as investors stepped back from risky assets following the Federal Reserve's policy decision of hiking the rate by a quarter point. For the month of Jun'17, Nikkei and Dow Jones were the major gainer with 1.81% and 1.52% respectively while FTSE and NASDAQ were seen trading lower than their previous month's close by 2.84% and 1.01% respectively.

Amid the hawkish move from US Fed, Indian equity markets showed a marginal downturn and the key market indices i.e. S&P BSE Sensex and Nifty 50 turned negative for the month. For the month, INR remained flat and closed at 64.58 per USD on 30th Jun'17 against 64.51 per USD on 31st May'17 whereas, crude reduced by USD 2.39 per barrel from USD 50.31 per barrel on 31st May'17 to USD 47.92 per barrel on 30th Jun'17.

Market Performance**

The Indian Equity markets for the month of Jun'17 turned negative as investors booked profit on the recent gains. On net basis India's bellwether indices viz. S&P BSE Sensex & Nifty 50 were seen trading lower by 0.76% and 1.08% respectively while S&P BSE Mid- Cap & S&P BSE Small-Cap showed a gain of 1.07% and 3.26% on month on month basis, respectively. On sectoral front, most of the sectoral indices were seen in green with S&P BSE Realty, S&P BSE HealthCare, S&P BSE Consumer Durables, S&P BSE FMCG remained the top gainers by 6.84%, 4.98%, 4.79% and 3.55% respectively. Other sectors which fell during the month of Jun'17 were S&P BSE Auto, S&P BSE Consumer Goods, S&P BSE IT and S&P BSE Oil & Gas by 2.45%, 2.77%, 4.61% and 7.08% respectively.

Growth'

Domestically, macro-economic variables continued to paint a healthy picture. India's Nikkei Manufacturing Purchasing Managers Index (PMI) in May'17 was seen at 51.6, lower than Apr'17 print of 52.5. The Services Purchasing Managers Index (PMI) was seen at 52.2 in May'17 majorly due to strong upsurge in new work as job creation accelerated in May'17.

India's April IIP growth slows^

India's factory output slowed acting as a hurdle for the economic growth path. Index of Industrial Production slowed marginally to 3.1% in April'17 as compared to 3.8% in Mar'17 due to the reduction in production of mining and easing of electricity generation based on the data released by the CSO.

Industrial activity is likely to expand in FY18 owing to improved demand across various segments. With the increase in government expenditure and pick-up in private sector investment, industrial sector is expected to provide opportunity in near term. Also, the consumer durables segment is likely to pick up in the second half of FY17-18 owing to good monsoon and farm harvest.

FPI Inflows**

With the stable reform oriented governance in the centre, India subcontinent continues to provide better investment prospect for the foreign investors. During the month of Jun'17, the Indian equity markets witnessed positive FPI (Foreign Portfolio Investor) as well as domestic flows. FPIs and the domestic investors invested in the equity markets to the tune of Rs. 3,617 crores and Rs. 7,723 crores respectively, into the Indian equities in the month gone by. The recent relaxation norms announced by the regulator regarding the investment by the FPIs (Foreign Portfolio Investor) could provide impetus and further boost foreign investor sentiment.

Outlook

Going forward the Indian equity markets performance would be based on domestic earnings growth trajectory and global macroeconomic and geo-political factors. The recent domestic and international political developments and robust domestic variables have made Indian equity markets to be one of the preferred investment destinations compared to other emerging markets. On the global front, uncertainties around major economies cannot be ruled out as we could expect near term volatility to continue.

Implementation of GST could cause short term disruptions but is expected to be beneficial for India's economic growth and corporate profitability in medium to long term. Multi-tiered tax structure under GST is expected to make business more organized and could be an opportunity for certain sectors to perform better than the others.

An expectation of a better than normal monsoon has led to higher-than-normal sowing of crops across the country which is expected to increase rural income.

Our economy with structural improvement continues to provide a period of sustainable growth and with the pick–up in corporate earnings in upcoming quarters could offer better investment opportunities and investor could increase exposure to equities.

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.

During the month of Jun'17, Indian debt markets rallied after the Indian central bank lowered the inflation target in its second bimonthly policy while keeping the interest rate unchanged, indicating a softening bias. Market participants remained observant of the macro data release in the first half of the month. Yields in the second half of the month hardened marginally due to global and domestic factors i.e. the US Fed increasing the interest rates and decision of farm loan waiver by key states domestically. The US Fed continued to remain vigilant with the inflation numbers and continued its stance of two more interest rate hikes this year whereas, BoE maintains status quo due to the slowdown in growth and changing economic outlook. Due to the ongoing geopolitical and economic issues, markets across the globe remained volatile during the last month.

Despite the US Fed rate hike and other geo-political tensions, the Indian 10 year continued its downward trend and softened to 6.51% (GS 2027) on 30th Jun'17 as compared to 6.66% on 31st May'17 thanks to the constantly declining crude prices (from USD 50.31 per barrel on 31st May'17 to USD 47.92 per barrel on 30th Jun'17), lowering inflation, and foreign flows. Volatile global financial situation and strong domestic macro variable continued to strengthen the Indian fixed income markets and augured well for the Foreign as well as domestic participants to remain invested in the month of Jun'17.

RBI second bi-monthly policy^:

In its second bi-monthly monetary policy for FY18, RBI continued its neutral stance in consonance with the objective of achieving its medium term inflation target though tone of the policy was dovish. RBI, since the last policy has been very watchful of the global as well as domestic macro-economic data and has reasoned its stance of remaining neutral. RBI also has cut the growth projection for current fiscal to 7.3% from 7.4% and projects the inflation in 2-3.5% range for first half of 2017-18 and 3.5-4.5% for second half, much lower than the projections in the last policy statement, due to the surprise fall in Apr'17 CPI inflation.

Retail Inflation inched downward with a new base#:

The retail inflation for the month of May'17 dropped to 2.18% as compared to 2.99% in Apr'17 majorly due to the reduction in food prices. Hence, the average inflation for FY2018 is likely to be well within RBI's 4% medium term target. However, the WPI based inflation showed a significant decrease and stood at 2.17% for the month of May'17 as compared to 3.85% for the previous month.

CAD reduced on y-o-y basis^:

The recent release of data from RBI showed that India's Current Account Deficit (CAD) narrowed to USD 3.4 billion (0.6% of GDP) in Q4FY17-18 from USD 8.0 billion (1.4% of GDP) in the preceding quarter. However, it was higher than USD 0.3 billion (0.1% of GDP) in Q4FY2015-16, primarily on account of a higher trade deficit (USD 29.7 billion) due to an increase in merchandise imports relative to exports. On a cumulative basis, CAD narrowed to 0.7% of GDP in FY16-17 from 1.1% in FY15-16 on the back of the contraction in the trade deficit to USD 112.4 billion (FY16-17) from USD 130.1 billion (FY15-16).

Outlook:

The Indian economy continues to remain a preferred investment destination on the back of robust regulatory framework, improved corporate governance with stable currency and good economic growth. One key measure of healthy macros is reducing CAD and this coupled with reducing commodity price & improving trade dynamics, our balance of payments account could remain healthy over the medium term. Given the current market environment, & the reducing interest rates scenario, the government's push towards improving infrastructure may benefit domestic cyclicals on the medium to long term.

Stable macro-economic environment, increased efficiency and transparency in the economy as a result of policy and taxation reforms provides fundamental strength to the domestic markets. This may help markets to strengthen further and gain momentum in long run. The progress of monsoon may remain the key events which could boost the markets in near term. Also, the uncertainty triggered by implementation of GST could impact some businesses in informal sector but remains good for the overall economy in long run.

After the Jun'17 interest rate hike by Fed, market participants expects the policymakers to take into account the growing risk of future financial instability before deciding another rate increase in the remained of 2017. Political uncertainty around the European region as well as the delay in US government decision pertaining to key reforms would keep the global market volatile in near term.

The global volatile environment and the domestic healthy financial atmosphere provides a better investment opportunity turns out to be positive for the Indian debt market. In short term, markets are expected to remain volatile due to global headwinds; however, on the domestic front, with strong GDP growth and better macroeconomic condition Indian economy is expected to improve going forward. With macro-economic factors continuing to remain strong, over the long term yields are likely to continue to trend lower.

Source:
#MOSPI
^RBI
*MFI Explorer
~Controller General of Accounts
@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.