Monthly Review May 2018

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Hector Griffith
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1 Monthly Review May 2018

2 Key Domestic Market Highlights Indian equity markets managed to end the month on a flattish note after witnessing considerable volatility. Key global events that impacted buying interest included U.S.-China trade talks, the upcoming summit between U.S. and North Korea, U.S. sanctions on Iran, political uncertainty in Italy and Spain and the U.S. Federal Reserve s interest rate outlook. On the domestic front, election results in Karnataka and the subsequent developments on government formation in the southern state kept market participants jittery. Initially, buying interest was impacted by mixed set of economic data. Nikkei Manufacturing Purchasing Managers Index (PMI) rose in Apr 2018 due to faster expansions in output and new orders. However, growth of eight core sectors slowed to a 3-month low in Mar Reports that the U.S. is considering to take action to confine some Chinese companies ability to sell telecom equipment in the U.S. weighed on market sentiment. Markets soon recovered as concerns over a faster pace of rate hike by the U.S. Fed eased following weaker than expected U.S. jobs data for Apr Stock specific gains further improved market sentiment. Gains soon started to erode as stocks of oil marketing companies came under pressure due to U.S. President s sanctions on Iran and the resultant increase in global crude oil prices. In the interim period, markets witnessed sharp decline after the ruling party reportedly fell short of majority in the Karnataka state elections. Increase in both wholesale and retail price inflation raised concerns over rate hike by the Monetary Policy Committee (MPC) in its forthcoming meetings. Towards month-end investors shifted their focus towards global cues. MPC in its bi-monthly meeting held on Jun 6, 2018, raised interest rates by 25 basis points to 6.25%, the first hike in more than four years. The step was taken to combat the high inflation and the weakness in rupee.

3 Index values change in YoY % Apr-17 Domestic Economic Indicators % Growth in YoY % change in YoY % Apr-17 Mar-17 GDP growth accelerated 7.7% YoY in Q4 of FY18 from 5.6%, 6.3% and 7.0% in the first three quarters of FY18, respectively India Composite PMI & GDP Growth Industrial production touched five-month low and grew 4.4% in Mar Manufacturing sector surged 4.4% in Mar from 3.3% growth in the same period of the previous year Index of Industrial production (IIP) India GDP Growth India Composite PMI Index ; PMI >50 denotes expansion and <50 is contraction Consumer inflation accelerated to 4.58% YoY in Apr 2018, both on sequential and yearly basis due to increase in prices of fruits and vegetables by 9.65% and 7.29%, respectively Wholesale inflation rose sharply to four-month high of 3.18% in Apr 2018 from a provisional 2.47% in Mar Consumer Price Index 6 Wholesale Price Index

4 Index values % 3QFY16 4QFY16 1QFY17 2QFY17 Domestic Economic Indicators 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Index values Exports and Imports ($ bn) Apr-17 The Nikkei Manufacturing Purchasing Managers Index (PMI) fell to 51.2 in May 2018 from 51.6 in Apr 2018 due to weaker expansion in output, new orders and employment India Manufacturing PMI The seasonally adjusted Nikkei India Services Business Activity Index fell from 51.4 to 49.6 in May Employment rose at the slowest rate in 2018 and cost pressures intensified amid higher fuel costs India Service PMI ; PMI >50 denotes expansion and <50 is contraction India s Current Account Deficit expanded to $13.5 billion (2% of GDP) in Q3 of FY18 from $7.2 billion (1.1% of GDP) in the preceding quarter and $8.0 billion (1.4% of GDP) in the same quarter of the previous fiscal Current Account Balance as % of GDP ; PMI >50 denotes expansion and <50 is contraction Trade deficit widened to $13.72 billion in Apr 2018 as against $13.25 billion in Apr 2017 and $13.69 billion in Mar Trade Data Source: Thomson Reuters Rikon Exports Imports Trade Deficit

5 FII/FPI Movement (INR Cr) May-16 Sep-16 Jan-17 Domestic Equity Market S&P BSE Sensex Movement FII/FPI & DII Movement (INR Cr) S&P BSE Sensex Movement Key benchmark indices S&P BSE Sensex rose 0.46% and Nifty 50 remained unchanged to close at 35, and 10,739.35, respectively Price to Earning Per Share (P/E) (LHS) Nifty 50 (RHS) ,300 10,600 9,900 9,200 Both Nifty Midcap 100 and Nifty Smallcap 100 plunged 6.84% and 6.68%, respectively Price to Earning Per Share (P/E) (LHS) Nifty Midcap 100 (RHS) ,200 20,300 17, , ,500 Source: NSE Source: NSE Foreign portfolio investors were net sellers of domestic stocks worth Rs. 10,060 crore in Apr 2018, higher than net selling of Rs. 5,552 crore recorded in the previous month. Domestic mutual funds remained net buyers in the equity segment to the tune of Rs. 13,619 crore in May FII/FPI Investment and S&P BSE Sensex - Last 24 Months DII, FII/FPI Investment and S&P BSE Sensex - During the 1700 Month FII/ FPI Net Investment Source : MFI Explorer S&P BSE Sensex FII/ FPI Net Investment DII Net S&P BSE Sensex Source : MFI Explorer

6 Yield (%) Yield (%) Domestic Debt Market Change in bps Rates ( %) Spread (in bps) May-15 Nov-15 May-16 Nov-16 Jun-18 Bond yields rose in May 2018 following increase in global crude oil prices and more than expected increase in domestic inflationary pressures in Apr 2018 MPC in its second bi-monthly policy review for FY19 increased key policy repo rate by 25 bps to 6.25% but retained its neutral stance Yr Benchmark Bond Movements of Key Policy Rates in India Source: RBI Reverse Repo Repo CRR Yield on gilt securities increased across maturities in the range of 2 bps to 29 bps Yield on corporate bonds increased across maturities in the range of 11 bps to 47 bps 8.30 India Yield Curve Shift (Month-on-Month) Year Corporate Bond Spread (for AAA & AA bonds) Yr 5 Yr 10 Yr 20 Yr 30 Yr Change in bps AAA Bond Spread AA Bond Spread 66.58

7 Global Market Highlights U.S. markets initially got support on stronger global crude oil prices that gained following the U.S. President s decision to withdraw from the Iran nuclear deal. Further, U.S. Labour Department s stronger than expected job growth in May, 2018 instilled confidence among investors about the strength of the U.S. economy to withstand further rate hikes. However, the upside was limited in the wake of the latest protectionist move adopted by the U.S administration. According to media reports, the White House is planning to impose steel and aluminium tariffs on Canada, Mexico and the European Union. Concerns over trade war between U.S. and China renewed following media reports stating that U.S. is considering imposing new duties on Chinese automobile imports. European markets mostly traded weak over the political situation in Italy and Spain. Later, markets breathed a sigh of relief after reports that Italy has managed to form a new government, thereby averting the prospects of the snap election. The Bank of England s decision to maintain status quo on interest rates, but downgrading its growth outlook for the U.K. economy, also kept investors wary. The U.S. government s protectionist moves further acted as a spoilsport. However, a slew of upbeat quarterly earnings from industry majors restricted the fall. Asian markets remained subdued as speculations over a global trade war resurfaced on media reports stating that U.S. is considering imposing new duties on automobile imports and is likely to impose steel and aluminium tariffs on Canada, Mexico and the European Union. Political uncertainty in Italy also raised concerns although later two political parties renewed efforts to form a coalition government. U.S. President cancelling the planned historic summit with North Korea too kept investors wary. But in a latest development, the U.S. President indicated that the country is open to discussion with North Korea.

8 YoY % Index values Apr-17 Global Economic Indicators YoY % YoY % Index values YoY % U.S. Composite PMI Output Index rose to 56.6 in May from 54.9 in Apr due to stronger growth in the services sector Eurozone PMI Composite Output Index fell to its lowest level since Nov 2016 at 54.1 in May 2018 from 55.1 in the previous month due to fall in services business activity index US Composite PMI & GDP Growth Euro zone Composite PMI & GDP Growth US GDP US Composite PMI, fxstreet; PMI > 50 denotes expansion and < 50 is contraction U.S. Consumer prices accelerated in Apr 2018 compared with year ago figure partly due to surge in energy prices Eurozone GDP Eurozone Composite PMI, fxstreet; PMI > 50 denotes expansion and < 50 is contraction Preliminary euro zone inflation came in higher than market expectations and grew 1.9% in May 2018 as against rise of 1.2% in Apr 2018 due to surge in energy prices U.S. Inflation Eurozone Inflation

9 YoY % Index values Apr-17 Global Economic Indicators YoY % % Index values YoY % China s manufacturing PMI remained unchanged in May 2018 as growth in production and new orders picked up slightly, while firms reported a further fall in new export sales Japan manufacturing PMI fell in May 2018 as total new order growth slows, but new export sales rise at quicker pace China Manufacturing PMI & GDP Growth Japan Manufacturing PMI & GDP Growth China GDP China Composite PMI Source: Reuters, fxstreet; PMI > 50 denotes expansion and < 50 is contraction China s consumer inflation slowed to 1.8% in Apr 2018 from 2.1% rise in Mar 2018, marking the lowest inflation rate since Jan 2018 due to weak food price growth Japan GDP Japan Manufacturing PMI Source: Reuters, fxstreet; PMI > 50 denotes expansion and < 50 is contraction Interest rates in major developed countries remained steady during May China Inflation Interest Rates in Major Developed Economies Source: Reuters Source: Reuters ECB Refinance rate US Fed rate Japan Interest rate

10 Index Value Index Value Global Equity Markets P/E P/E Index values Index Values P/E P/E US market rose on stronger global crude oil prices and upbeat jobs data but gains were limited in the wake of the latest protectionist move adopted by the U.S. President on the trade front. European markets mostly traded weak over the political situations in Italy and Spain. Euro zone private sector grew at the weakest pace in one and half years in May U.S. Dow Jones Index and PE ratio Euro Stoxx Index and PE ratio Dow Jones PE ratio Euro Stoxx 50 PE ratio China s equity market fell on concerns over a global trade war and political uncertainty in Italy 3700 China Shanghai Index and PE 18 Japan s equity market fell on concerns over a global trade war, political uncertainty in Italy and U.S. President cancelling the planned historic summit with North Korea Japan Nikkei Index and PE ratio China Equity Market PE ratio Japan Equity Market PE Ratio

11 Yield (%) Yield (%) Global Debt Yield (%) Yield (%) 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 7 Years 10 Years 30 Years Change in bps Yield on the 10-year U.S. Treasury bond fell 12 bps during the month to close at 2.82% compared with the previous month s close of 2.94% U.S. 10 Year Treasury Yield 2.82 U.S. Treasury prices rose following political turmoil in Italy and imposition of tariffs on steel and aluminium imports to U.S U.S. Treasury Yield Curve Shift (Month-on Month) Change in bps Bund yields fell as political risk in Italy boosted its safe-haven appeal while the same reason lead to surge in Spanish bond yields German & Spanish 10 Yr Treasury Yield Japanese 10-year yield fell from 0.05% in Apr 2018 to 0.03% in May Japan 10 Yr Benchmark Yield German 10 Year Yield Spanish 10 Year Yield

12 $ Ounce $ Ounce Global Commodity Market Index value $ Barrel Gold prices fell on expectations that the U.S. Federal Reserve will raise rates for the second time in 2018 in Jun. However, the downside was limited on renewed trade tensions following U.S. s latest announcement. Brent crude rose because of U.S. sanctions on Iran. However, gains trimmed as OPEC and non-opec country Russia indicated to raise production level to meet the shortfall in supply from Iran and Venezuela Gold 82 Brent Crude Silver prices edged higher following growing speculation over global trade war in the wake of latest protectionist move by the U.S. President. The Baltic Dry Index moved down 18.72% MoM in May owing to lower capesize and panamax activities Silver 1900 Baltic Dry Index

13 Global Currency Market The Indian rupee weakened against the U.S. dollar and touched 16- month low due to continuous demand for greenback from oil importers and corporates. Pound fell against the U.S. dollar after survey data showed U.K. manufacturing growth slid to a 17-month low and inflation growth came in weaker than expected in Apr USD/INR GBP/USD Euro plunged against the greenback as rising bond yields in Italy made investors nervous, while developing political instability in Spain also weighed on sentiment Yen gained against the greenback after U.S. President called off a summit meeting with North Korea and political turmoil hit Italy 1.30 EUR/USD USD/YEN

14 Mutual Fund News As per data from the Association of Mutual Funds in India (AMFI), the Assets Under Management (AUM) of mutual fund industry came in at Rs lakh crore in May 2018 from Rs lakh crore in Apr 2018, registering a decline of 2.83%. Overall, outflow in mutual fund schemes stood at Rs. 50,000 crore in May, 2018 compared with an inflow of Rs. 1,37,428 crore in the preceding month. Liquid funds saw maximum net outflow of Rs. 46,724 crore during the month followed by income category, which witnessed net outflow of Rs. 20,407 crore. Meanwhile, equity schemes (excluding arbitrage funds) and ELSS categories saw total net inflow of Rs. 11,350 crore in the month under review. According to media reports, some mutual fund houses have reduced their minimum application size from Rs. 5,000 to Rs. 1,000 to make mutual funds more attractive for retail investors, especially in B30 cities. According to data from the Securities and Exchange Board of India (SEBI), total folio count of mutual fund industry stood at 7.22 crore as on Apr 2018, reflecting a 28.58% YoY growth from 5.61 crore in the same period last year. During the month of Apr, the industry saw an addition of 8.39 lakh folios. Over the month, equity-oriented scheme category witnessed an increase of 1.37% or 7.36 lakh folios to 5.43 crore folios as on Apr According to media reports, SEBI lowered the additional expense charged by mutual fund schemes with effect from May 29, The announcement was in line with SEBI s board meeting held in Mar. Accordingly, schemes charging an exit load (open-ended schemes without lock-in) can levy the additional 5 basis points charge. Earlier, the regulator had permitted mutual funds to charge up to 20 basis points of scheme AUM as a compensation for exit load. The move is expected to reduce the cost of investing in mutual funds. However, it may result in lower commission for distributors.

15 Real Estate and Private Equity News India s largest realty firm DLF has sold about 48,000 square feet (sq. ft.) of prime office space in Gurugram for about Rs. 150 crore, signalling growing demand for commercial properties. The company has now only a little over 1 lakh sq ft left in this commercial project for sale. DLF is also boosting its rental portfolio with plans to build nearly 10 million sq. ft. of commercial real estate in the coming five to seven years. According to the chief executive officer of real estate giant Shapoorji Pallonji, the company is looking to develop a project under the Joyville banner aiming towards middle income group, with a ticket size of Rs lakh. The company is also planning to launch another project with ticket size of Rs. 90 lakh and above. IIFL Asset Management Ltd has announced the launch of IIFL India Private Equity Fund, aiming to support professional entrepreneurs in sectors such as financial services, consumer, healthcare and technology. The fund is a close-ended Category II Alternative Investment Fund (AIF) registered under the Securities and Exchange Board of India. The fund plans to raise around Rs. 1,500-2,000 crore. Goldman Sachs Group Inc. announced to divest $600 million worth stake in ReNew Power Ventures Pvt. Ltd., marking the biggest exit for a PE fund in India. ReNew Power expects to sell shares worth around Rs. 7,500-8,000 crore through Initial Public Offering (IPO). The volume of shares intended to be sold could get modified considering market conditions and investor demand at the time of the IPO launch. According to Ernst & Young s private equity monthly deal tracker, Indian PE and venture capital firms invested $7.9 billion across 180 deals in the quarter ended Mar 31, 2018, driven by large transactions in the infrastructure and real estate sectors. This is the second highest quarterly investment since the third quarter of 2017, when investments stood at a record $8.7 billion, the report said. Source: Livemint

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17 Disclaimer All information contained in this document has been obtained by ICRA Online Limited from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and ICRA Online Limited in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and ICRA Online Limited shall not be liable for any losses incurred by users from any use of this document or its contents in any manner. Opinions expressed in this document are not the opinions of our holding company, ICRA Limited (ICRA), and should not be construed as any indication of credit rating or grading of ICRA for any instruments that have been issued or are to be issued by any entity. This newsletter is for customer information only and does not constitute an investment advice or an offer to purchase or sell securities. Persons accessing this document are advised to obtain independent professional advice wherever necessary. All rights of the newsletter are reserved with ICRA Online Ltd, the provider of the newsletter. Trust-Plutus Wealth Managers (India) Private Limited and TrustPlutus Family Office & Investment Advisers (India) Private Limited is not responsible for any error or omission in the data or for any losses suffered on account of information contained in this newsletter. Mutual fund investments are subject to market risk. Please read the offer document before investing into mutual funds. This document may not be reproduced, distributed or published for any purpose.

Monthly Review March 2018

Monthly Review March 2018 Monthly Review March 218 Key Domestic Market Highlights Indian equity markets ended the last month of FY18 in the red after witnessing volatility. The menace of banking frauds proved costly for the domestic