MARKET UPDATE .... April 2016
Economic Data
January's Index of Industrial Production (IIP) has dwindled by 1.5% in comparison to 1.3% in December. This fall has been recorded for the 3rd consecutive month as manufacturing activities declined by 2.8% in January.
February's Consumer Price Index (CPI) was at 5.2% in relation to 5.7% in January. This fall was at a four-month low led by a sudden drop in food inflation (vegetables and pulses). Wholesale Price Index (WPI) shrunk for the 16th consecutive month as February's Wholesale Price Index (WPI) came in at -0.91% in contrast to -0.9% in January as inflation in food articles declined in tandem with Consumer Price Index (CPI) data.
February's trade deficit narrowed further to $6.5bn in comparison to $7.6bn in January on account of weak exports and imports.
The Reserve Bank of India (RBI), in its policy meet held on 5th April, trimmed the repo rate by 25bps to 6.50% as per market expectations.
The Indian Rupee appreciated by 3.2% during the month to ₹ 66.25 per Dollar by the end of March 2016.
Equity Market Update
Indian equity markets rallied in the month of March, led by Foreign Institutional Investments (FII) buying and positive sentiment generated by the Union Budget. BSE100 Index rose by 10.7% in March. Foreign Institutional Investments (FII) turned net buyers to the tune of ₹ 211bn, whereas mutual funds turned net sellers to the tune of ₹ 102bn.
For the financial year, as a whole, Foreign Institutional Investments (FII) turned net sellers to the tune of ₹ 142bn.
Sectors that outperformed were realty, banking, capital goods, auto, utilities, oil & gas and IT. Sectors that underperformed were healthcare and FMCG.
Outlook
The new fiscal year is beginning on very similar aggregate growth expectations as the last fiscal. Expectations on Gross Domestic Product (GDP), aggregate earnings growth and analysts' recommendations are quite similar. Earnings growth is likely to be the key for this year's performance as well, where we expect 15-17% growth in earnings.
Earnings in 4QFY16 are likely to be a mixed bag with weak earnings expected from the industrial sector (lower execution), IT services (currency), banks (write-downs) and telecom (higher spectrum amortization) while large cap pharma, cement (seasonally strong, good base) and autos (2 wheelers) could report strong earnings.
The government is already in a relatively strong fiscal footing for FY16 and we expect government expenditure to accelerate as the financial year progresses. We believe the reviving investment cycle remains critical for recovery in Gross Domestic Product (GDP) growth and market earnings growth.
RBI's monetary policy stance will be largely 'accommodative' and we expect further rate cuts as inflation moderates. We expect benign commodity prices and lower interest rates to boost earnings growth.
The current market valuation at about 15.3 x FY17 earnings, for Sensex, is attractive. We continue to remain optimistic from a medium to long term perspective.
Fixed Income Market
Bond markets had a stellar month in March as a string of positive developments pushed yields lower. The Union Budget at the end of February provided the trigger for the initial move, as the government delivered on its commitment to fiscal consolidation.
The positive sentiments got a boost during the month, as the Consumer Price Index (CPI) inflation for February eased, as anticipated, due to a fall in food prices. The fiscal consolidation along with the lower inflation led the market to price in a rate cut from the Reserve Bank of India (RBI) as part of its April monetary policy.
Global developments were also supportive of the lower yields. The US FOMC meeting statement was relatively more favorable than the market expectations as the committee revised down its forecast of the number of rate hikes for the year.
Foreign Institutional Investments (FII) flows to the domestic Bond market turned positive again after outflows in February..
In the second half of the month, the Reserve Bank of India (RBI) resorted to Open Market Operations (OMO) purchases of Government Securities (G-Secs) to address the liquidity deficit in the Banking system. The Open Market Operations (OMO) purchases added to the softening trend in Bond yields.
The 10-year benchmark Bond ended the month at 7.46%, considerably lower than the 7.63% at the end of the previous month.
Market Outlook
The fiscal restraint by the government is a big positive from the Government Securities (G-Secs) supply perspective.
The second positive development has been the revamping of the liquidity management framework by the Reserve Bank of India (RBI) as outlined in the April monetary policy. The new regime shows that the Reserve Bank of India (RBI) is far more inclined towards Open Market Operations (OMO) for managing liquidity.
Inflation trends are expected to range between the 5.00 – 5.50% for the year with risks aligned on both sides. Positive developments on the monsoon rains, along with continued low commodity prices, will augur well for a benign inflation environment.
The global factor that would prove supportive is a continuation of the risk appetite for emerging market assets and consequent capital flows to these assets. A gradual pace of US rate hikes, along with stability in the prices of commodities will prove to be supportive of the global risk appetite.
However, in spite of a confluence of positive factors, the Reserve Bank of India (RBI) is expected to have only limited room for further interest rate easing and overall yields are likely to trade within a range..
Happy Investing
Source: Bloomberg
Economic Data
January's Index of Industrial Production (IIP) has dwindled by 1.5% in comparison to 1.3% in December. This fall has been recorded for the 3rd consecutive month as manufacturing activities declined by 2.8% in January.
February's Consumer Price Index (CPI) was at 5.2% in relation to 5.7% in January. This fall was at a four-month low led by a sudden drop in food inflation (vegetables and pulses). Wholesale Price Index (WPI) shrunk for the 16th consecutive month as February's Wholesale Price Index (WPI) came in at -0.91% in contrast to -0.9% in January as inflation in food articles declined in tandem with Consumer Price Index (CPI) data.
February's trade deficit narrowed further to $6.5bn in comparison to $7.6bn in January on account of weak exports and imports.
The Reserve Bank of India (RBI), in its policy meet held on 5th April, trimmed the repo rate by 25bps to 6.50% as per market expectations.
The Indian Rupee appreciated by 3.2% during the month to ₹ 66.25 per Dollar by the end of March 2016.
Equity Market Update
Indian equity markets rallied in the month of March, led by Foreign Institutional Investments (FII) buying and positive sentiment generated by the Union Budget. BSE100 Index rose by 10.7% in March. Foreign Institutional Investments (FII) turned net buyers to the tune of ₹ 211bn, whereas mutual funds turned net sellers to the tune of ₹ 102bn.
For the financial year, as a whole, Foreign Institutional Investments (FII) turned net sellers to the tune of ₹ 142bn.
Sectors that outperformed were realty, banking, capital goods, auto, utilities, oil & gas and IT. Sectors that underperformed were healthcare and FMCG.
Outlook
The new fiscal year is beginning on very similar aggregate growth expectations as the last fiscal. Expectations on Gross Domestic Product (GDP), aggregate earnings growth and analysts' recommendations are quite similar. Earnings growth is likely to be the key for this year's performance as well, where we expect 15-17% growth in earnings.
Earnings in 4QFY16 are likely to be a mixed bag with weak earnings expected from the industrial sector (lower execution), IT services (currency), banks (write-downs) and telecom (higher spectrum amortization) while large cap pharma, cement (seasonally strong, good base) and autos (2 wheelers) could report strong earnings.
The government is already in a relatively strong fiscal footing for FY16 and we expect government expenditure to accelerate as the financial year progresses. We believe the reviving investment cycle remains critical for recovery in Gross Domestic Product (GDP) growth and market earnings growth.
RBI's monetary policy stance will be largely 'accommodative' and we expect further rate cuts as inflation moderates. We expect benign commodity prices and lower interest rates to boost earnings growth.
The current market valuation at about 15.3 x FY17 earnings, for Sensex, is attractive. We continue to remain optimistic from a medium to long term perspective.
Fixed Income Market
Bond markets had a stellar month in March as a string of positive developments pushed yields lower. The Union Budget at the end of February provided the trigger for the initial move, as the government delivered on its commitment to fiscal consolidation.
The positive sentiments got a boost during the month, as the Consumer Price Index (CPI) inflation for February eased, as anticipated, due to a fall in food prices. The fiscal consolidation along with the lower inflation led the market to price in a rate cut from the Reserve Bank of India (RBI) as part of its April monetary policy.
Global developments were also supportive of the lower yields. The US FOMC meeting statement was relatively more favorable than the market expectations as the committee revised down its forecast of the number of rate hikes for the year.
Foreign Institutional Investments (FII) flows to the domestic Bond market turned positive again after outflows in February..
In the second half of the month, the Reserve Bank of India (RBI) resorted to Open Market Operations (OMO) purchases of Government Securities (G-Secs) to address the liquidity deficit in the Banking system. The Open Market Operations (OMO) purchases added to the softening trend in Bond yields.
The 10-year benchmark Bond ended the month at 7.46%, considerably lower than the 7.63% at the end of the previous month.
Market Outlook
The fiscal restraint by the government is a big positive from the Government Securities (G-Secs) supply perspective.
The second positive development has been the revamping of the liquidity management framework by the Reserve Bank of India (RBI) as outlined in the April monetary policy. The new regime shows that the Reserve Bank of India (RBI) is far more inclined towards Open Market Operations (OMO) for managing liquidity.
Inflation trends are expected to range between the 5.00 – 5.50% for the year with risks aligned on both sides. Positive developments on the monsoon rains, along with continued low commodity prices, will augur well for a benign inflation environment.
The global factor that would prove supportive is a continuation of the risk appetite for emerging market assets and consequent capital flows to these assets. A gradual pace of US rate hikes, along with stability in the prices of commodities will prove to be supportive of the global risk appetite.
However, in spite of a confluence of positive factors, the Reserve Bank of India (RBI) is expected to have only limited room for further interest rate easing and overall yields are likely to trade within a range..
Happy Investing
Source: Bloomberg
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