November 30, 2015

Canara Rebeco. Mutual funds.

The month gone by was influenced by events happening in the political arena as well as macro-economic front. BJP’s defeat in Bihar elections, slowing IIP data and rising inflation numbers deterred market sentiments. November’15 also witnessed 7th pay commission recommending a wage hike of 23.6% in the salary & pension of Central Government employees. The month ended on a good note with the announcement Q2FY16 GDP data.

Market Performance*

Worries about US rate hike, muted earnings season and outcome of Bihar’s election weighed on the equity market sentiments. Conversely, the increasing possibility of GST bill getting passed in the ongoing winter session of parliament rekindled sentiments. The month saw key indices viz. S&P BSE Sensex and Nifty 50 falling by 1.92% & 1.62% respectively.


The Index of Industrial Production (IIP) clocked in a modest growth of 3.6% (Y-o-Y) in September’15, in sharp contrast of previous month’s 6.3% (revised). Weak growth in manufacturing (2.6%) and mining (3%) output was the main culprits for the subdued growth. Electricity which registered an outstanding growth of 11.4% was the only saving grace. On use-based classification, growth was led by expansion in capital goods (10.5%) and consumer durables (8.4%) output. While basic goods and intermediate goods output grew at a modest rate.


Wholesale price inflation (WPI) rose marginally to -3.81% in October’15 compared to -4.54% in September’15, marking twelfth straight month of negative reading. October’s Consumer Price Index (CPI) inched up to 5% compared to previous month’s 4.4% on account of spike in price of pulses. Core inflation (excluding food & beverages and fuel & light) rose slightly to 4.4% in October’15 from 4.34% in September’15.

Trade deficit$:

Trade deficit contracted further to a deficit of US$9.77 billion in October’15 from US$10.48 billion in September’15. Imports shrunk by 21.15% (Y-o-Y) to US$ 31.12 billion due to shrinking oil and non-oil imports. The month witnessed oil imports declining by 45.31% (Y-o-Y) due to fall in crude oil prices, while non-oil imports fell by 9.93% (Y-o-Y). Global headwinds continue to envelope exports. In October’15, Indian exports declined by 17.53% (Y-o-Y) to US$ 21.35 billion.


India economy registered a growth of 7.4% in Q2FY16 compare to 7% in Q1FY16. While the growth was better than previous quarter’s growth, it was well below 8.4% growth in corresponding period in last fiscal. Robust growth of 9.3% in manufacturing sector drove the expansion in GDP. Despite the low rainfall, agriculture retained its growth of 2.2%. Service sector grew at a modest pace of 8.8% which was lower than last quarter’s growth. Bad news came on the construction segment, which clocked in a growth of mere 2.6%. Overall GDP number presents a pleasant picture, reiterating our view that India is set on the path of recovery.

Fiscal deficit@:

The fiscal situation in April-October ‘15 showed an improvement over last year’s corresponding period. India’s fiscal deficit for April- October’15 period stood at Rs. 4.11 lakh crore or 74% of the Budget estimate for the whole year due to pick up in tax & non-tax receipts. Planned expenditure stood at 58.2% of full year target which was higher than last year’s 46.4%, reflecting Government’s attempt to boost growth through investments.


  • Markets will keenly follow the outcome of Fed’s meeting in Decmenber’15. Though markets have already factored in the impact of US rate hike, the guidance on pace of future rate hikes is likely the key on driving market sentiment.

  • OPEC meeting in first week of Decmber’15 would provide a trajectory of oil prices.

  • If the recommendations of 7th pay commission are accepted, it might have an impact on the fiscal deficit to some extent. Whether the recommendations are accepted or not by the government would be watched out for.

  • Another important trigger would be the government’s ability to pass of key legislations viz. GST bill in the ongoing winter session of the Parliament.

* Bloomberg
$ Ministry of commerce
@ Economics Times

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

The month of November’15 begun with markets anxiously waiting for the results of Bihar assembly elections and concerns over potential US interest rate hikes. The month also saw government easing norms across several key sectors including defence, construction, civil aviation and media etc. to foreign investment and the 7th pay commission submitted its recommendations which helped improving the market sentiments. The increasing possibility of a US Fed rate hike in coming month coupled with unexpected outcome of Bihar state elections resulted in the markets closing in red.

Market Performance**

Equity markets were volatile during last month. On net basis India’s bellwether indices viz. S&P BSE Sensex & Nifty 50 witnessed negative momentum losing by 1.92% & 1.62% respectively while S&P BSE Mid- cap index & S&P BSE Small-cap index rose by 0.14% & 2.83% respectively.

S&P BSE Consumer Durables, S&P BSE Consumer Disc Goods & Services and S&P BSE Energy were the top performing sectors during the month rising by 4.99%, 3.20% and 1.59% respectively. IT & realty were the major sectors under pressure.


Manufacturing production indicated by Nikkei India Manufacturing PMI fell to the 4th consecutive survey period to a 25-month low of 50.3 in November’15 from 50.7 in October’15 as demand and output continued to soften. Sub-sector data highlighted consumer goods as the best performing category, while operating conditions at intermediate goods companies deteriorated for the first time since December'13.

Input cost inflation accelerated to the strongest in six months during November’15, but remained below the long-run series average. Companies reported higher prices paid for metals, textiles and food. The rate of inflation was, however, only marginal.


The industrial growth metric for Sep-15 rose by 3.6% vs. 6.3% in Aug-15, much lower than median expectation of 5%. Double digit growth in capital goods can largely be attributed to increase in government capex spending. Sector-wise mining, manufacturing and electricity rose by 3.0%, 2.6% & 11.4% respectively. Based on Use-based classification, basic goods, capital goods and intermediate goods recorded a growth of 4.0%, 10.5% and 2.1% respectively. Overall consumer goods expanded by a mere 0.6%. The divergence in Consumer Durables and Consumer non –durables continued with Consumer durables moving steadily at 8.4% (Y-o-Y) growth while Consumer non –durables recorded a negative growth of -4.6% (Y-o-Y).

FPI Outflows**

The month saw reversal in FPI (Foreign Portfolio Investor) flows. From investing close to Rs. 6,650 Crs into the Indian equity market in October’15; FPIs pulled out Rs.7, 074 Crs from the Indian equities in the month gone by due to the expectation of increase in US Fed rate hike and the subdued quarterly earnings.


India's growth rate has remained higher than most of the other emerging market countries. Indian economy in July-Sept’15 quarter of the current fiscal grew at an annual rate of 7.4%, overtaking the China’s 6.9% in the same period due to improving domestic demand and manufacturing output.

Going ahead, the ambiguity over passage of key reforms in the winter session of the parliament and the US Fed’s decision of rate hike may add to the volatility in the markets in near term. However, steady rise in GDP, lower fiscal deficit, reducing global commodities and crude prices, low inflation are the major macro indicators which could translate into the economy strengthening from medium to long term perspective. While markets would continue to remain volatilie due to events both local and international, Investors may adopt a staggered approach to equity investments in order to even out the market volatility.

**ICRA MFI Explorer

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

In absence of any fresh triggers in the markets, November’15 witnessed fairly stable to dovish trading activity in face of the US rate hike and a reduction in demand by the domestic participants in the fixed income space. Supply side factors over shadowed the demand from various participants which further resulted in hardening of the yields. A combined result of these was the 10 Year Benchmark seen trading at the levels around the levels before the 50 basis rate cut by RBI.

CPI rises on the back of Food Inflation; WPI Still in negative territory~

October’15 headline CPI surged to 5%, higher than 4.41% noted in the previous month. A combination of adverse base effect as well as rise in prices of pulses led to food inflation coming in higher at 5.34% vs. 4.29% in Sep’15. Core inflation relatively registered contained price pressures, rising to 4.42% vs 4.34% in the previous month. Decomposing the headline into its broad sub-components shows that while food inflation surged to 5.34% Y-o-Y (4.29% in Sep’15), the other headline components recorded muted inflationary trends. Further disaggregating the data reveals that almost 41% of the rise in food inflation is on account of the rise in pulses inflation.

Wholesale inflation for Oct’15 stood at -3.81% vis-à-vis -4.54% in Sep’15, making it in the negative territory for twelve months in a row. Consequently, core WPI further delved deeper into the negative territory, coming in at -2.06% as compared to -1.93% in previous month. Though the month-on-month momentum for Primary Articles and Manufacturing Products remained unchanged, pick up in Fuel inflation largely contributed to the sequential rise in headline.

Trade deficit narrows to US$ 9.77 billion in October 2015~

The trade deficit narrowed 28.1% to USD 9.77 Billion in October 2015 from US$ 14.47 billion in October 2014. India's merchandise exports continued to decline for the eleventh straight month at 17.5% to USD 21.35 billion in October 2015 over a year ago. Meanwhile, merchandise imports also dipped 21.2% to USD 31.12 Billion. It is the lowest trade deficit since February as exports shrank 17.53 percent year-on-year while imports went down 21.15 percent. Considering April’15 to October’15, sales declined 17.62 percent and purchases decreased 15.17 percent. The total export for this April’15 to October’15 period now is around USD 154 Billion. So, that means at this rate, export is scheduled to meet the target of whatever the government has set for this fiscal.

Fiscal Deficit lower than the numbers last year^

India's fiscal deficit reached INR 4.11 trillion (USD 61.67 billion) during April 2015 -October 2015 or 74% of the full-year target. At the end of October last year the fiscal deficit stood at 89.6 per cent of the budget estimate, forcing the government to resort to cuts to stay within the budget target.

GDP sharply rebound~

India’s real GDP for Q2 FY16 noted a sharp rebound, coming in at 7.4% vis-à-vis 7% in Q1 FY16. Gross Value Addition too, stood at 7.4%, gaining 30 bps quarter-on-quarter. It was primarily manufacturing, followed by agriculture that pushed the overall headline GDP. For the first time under the new series, GDP deflator turned negative coming in at -1.3% for Q2 FY16. Q2 FY16 real GDP growth at 7.4% brings much respite to the ongoing concerns relating to the ailing growth dynamics in the economy. Furthermore, revival in manufacturing is what helps build into the overall narrative of the India growth story.

Outlook ~*

  • Indian Macros are looking out to be very positive with Q2 FY16 real GDP growth at 7.4% which brings much respite to the ongoing concerns relating to the ailing growth dynamics in the economy.

  • Furthermore, revival in manufacturing is what will help build into the overall narrative of the India growth story.

  • While retail prices inflation inched up in the current reading, these inflationary pressures do not raise caution on RBI’s Jan-16 targets. With the RBI itself displaying comfort on the Jan-end target, concerns on the same seem largely addressed. Furthermore, in its policy release, RBI sought to shift its goalposts to its medium term target of 5% by Jan-17.

  • While the Indian Bond Market has recently been treading with hardening bias as increasing number of participants factor in a December’15 US Fed rate hike. With various Fed committee members expressing renewed confidence in the growth story of the US economy, US Fed seems on track to raise its rates by ~25 bps in its December’15 meet. While the bond market is expected to witness volatility in the near short term, the new set of FPI limits which open up on 01- Jan-16 might render support to market dynamics.

  • On the forward guidance front, we expect a neutral stance with US policy normalization and inflation being the key determinants of future policy decisions. However, post the tabling of Budget in Feb’16; RBI may ease rates by 25 bps in its Feb’16 / Apr’16 policy meeting.


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