News U Can Use. February 16, 2018

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Erick Watkins
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1 News U Can Use February 16, 2018

2 2 The Week that was 12 th February to 16 th February

3 Indian Economy The Consumer Price Index (CPI)-based inflation or retail inflation grew 5.07% in Jan 2018, down from 5.21% MoM and up from 3.17% YoY. Retail inflation growth thus surpassed Reserve Bank of India s medium-term target of 4% for the third consecutive month. The Consumer Food Price Index also grew 4.70% in Jan 2018, down from 4.96% MoM and up from 0.61% YoY. India s Index of Industrial Production (IIP) grew 7.1% in Dec 2017 as against upwardly revised growth of 8.8% in Nov 2017 (8.4% originally reported) and 2.4% in the same period of the previous year. The manufacturing sector also surged 8.4% in Dec 2017 from 0.6% in the same period of the previous year. However, IIP growth for Apr to Dec 2017 slowed to 3.7% from 5.1% in the same period of the previous fiscal. India s export during the month of Jan 2018 increased 9.07% YoY to $24.38 billion from $22.36 billion in Jan Similarly, import grew 26.10% YoY to $40.68 billion from $32.26 billion in the same period of the previous year. Trade deficit widened to $16.30 billion during the period, which is the highest since May 2013, as against $9.90 billion in Jan Trade deficit widened as imports grew for petroleum, chemicals, silver, pearls and machine tools. India s Wholesale Price Index (WPI) based inflation eased to a six-month low of 2.84% in Jan 2018 owing to cheaper food articles even as vegetable prices continued to rise. The wholesale price-based inflation eased from 3.58% in Dec 2017 and 4.26% in Jan The inflation on food articles slowed to 3.00 % in Jan 2018, from 4.72 % in Dec

4 Indian Equity Market Domestic Equity Market Indices Indices 16-Feb-18 1 Week Return YTD Return S&P BSE Sensex 34, % 0.59% Nifty 50 10, % 0.16% S&P BSE Mid-Cap 16, % -6.92% S&P BSE Small-Cap 18, % -6.45% Source: MFI Explorer Ratios NSE Advance/Decline Ratio Date Advances Declines Advance/Decline Ratio 12-Feb Feb Feb Feb Source: NSE S&P BSE Sensex Nifty 50 S&P BSE Mid Cap S&P BSE Small Cap P/E P/B Dividend Yield Source: BSE, NSE Value as on Feb 16, 2018 Indian equity closed on a flat note after witnessing volatility over the week. Markets initially took positive cues from Wall Street as concerns over U.S. political deadlock eased to some extent. U.S. policymakers managed to end a brief government shutdown with a bill raising spending caps and funding the government until Mar 23. Gains were largely erased after a major state-owned bank detected fraudulent and unauthorised transactions worth about Rs 1.13 trillion ($1, million) at one of its branches in Mumbai. Meanwhile, investors shrugged off speculation over faster than expected interest rate hike by the U.S. Federal Reserve, thereby restricting the downturn. 4

5 Indian Equity Market (contd.) 5 Indices Sectoral Indices Last Returns (in %) Closing 1-Wk 1-Mth S&P BSE Auto 24, % -4.56% S&P BSE Bankex 28, % -3.27% S&P BSE CD 20, % % S&P BSE CG 19, % -3.15% S&P BSE FMCG 10, % -1.38% S&P BSE HC 14, % -3.61% S&P BSE IT 12, % 0.58% S&P BSE Metal 15, % -1.99% S&P BSE Oil & Gas 15, % -2.53% Source: Thomson Reuters Eikon Value as on Feb 16, 2018 Indian Derivatives Market Review On the BSE sectoral front, majority of the indices closed in the red. S&P BSE Bankex was the major loser, down 1.68%, followed by S&P BSE Consumer Durables and S&P BSE Auto, which slipped 1.21% and 1.08%, respectively. Banking stocks came under selling pressure during the week following unauthorized transactions detected by a major stateowned bank. Meanwhile, S&P BSE Metal was the top gainer, up 0.16%, followed by S&P BSE FMCG and S&P BSE Oil & Gas, which rose 0.10% and 0.03%, respectively. Nifty Feb 2018 Futures were at 10, points, a premium of 1.05 points above the spot closing of 10, The turnover on NSE s Futures and Options segment stood at Rs lakh crore as against Rs lakh crore in the week to Feb 9. The Put-Call ratio stood at 0.82 compared with the previous week s close of The Nifty Put-Call ratio stood at 1.07 compared with the previous week s close of 1.09.

6 Domestic Debt Market Debt Indicators (%) Current Value 1-Wk Ago 1-Mth Ago 6-Mth Ago Call Rate Day T-Bill % 2021, (5 Yr GOI) % 2028, (10 Yr GOI) Source: Thomson Reuters Eikon Value as on Feb 16, 2018 Yield in % Source: CCIL 10 -Yr Benchmark Bond ( % ) 12-Feb 14-Feb 15-Feb 16-Feb Bond yields rose amid fresh supply of state government debt and rising U.S Treasury yields. Rise in international crude oil prices also weighed on the bond market. Also, investors deferred purchases of domestic bonds ahead of an extended weekend as domestic bond market will remain closed on Feb 19. Yield on the 10-year benchmark paper (7.17% GS 2028) rose 9 bps to close at 7.58% from the previous week s close of 7.49% after trading in a range of 7.45% to 7.61%. Data from RBI showed that India's foreign exchange reserves fell after rising for last eight consecutive week to $ billion as on Feb 9, 2018, from $ billion in the previous week. 6

7 Domestic Debt Market (Spread Analysis) Maturity G-Sec Yield (%) Corporate Yield (%) Spread bps 1 Year Year Year Year Source: Thomson Reuters Eikon Value as on Feb 16, 2018 Yields on gilt securities fell on 2- and 15- year maturities by 2 bps each. Yield on the remaining maturities increased by up to 9 bps, barring 1- and 6-year maturities that closed steady. Corporate bond yields increased across the maturities by up to 5 bps. Spread between AAA corporate bond and gilt expanded on 1 to 4 years maturities and 15-year paper in the range of 2 bps to 4 bps. Spread closed steady on 5- and 6- year maturities and contracted by 3 bps or 5 bps across 7 to 10 years maturities. Yield in % India Yield Curve Shift (%) (W-o-W) Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs Change in bps 16-Feb Feb-18 Source: Thomson Reuters Eikon Change in bps 7

8 Regulatory Updates in India The Securities and Exchange Board of India (SEBI) is set to crack down on companies whose financial statements have either been falsified or incorrect business records have been approved by auditors. It is mandatory under law to report to the government and report any fraud they come across while auditing the books of accounts of companies. The Reserve Bank of India (RBI) has scrapped several loan restructuring programmes prevalent among banks to restructure defaulted loans. Almost all the schemes such as the Corporate Debt Restructuring, Sustainable Structuring of Stressed Assets or S4A, Strategic Debt Restructuring, and Flexible Structuring of Existing Long-Term Project Loans have been abolished by RBI. Also, RBI has made resolution of defaults time bound with the Insolvency and Bankruptcy Code becoming the main tool to deal with defaulters. Also, the central bank has warned banks of monetary penalties and higher provisions if banks are found to have violated or found evergreening accounts to escape its stringent new norms on fixing defaults. The finance ministry has proposed to merge Government Savings Certificates Act, 1959 and Public Provident Fund Act, 1968 with the Government Savings Banks Act, 1873 to bring more governance and minimise government control. The legislative changes proposed in the Finance Bill 2018 are aimed at adding flexibility in operation of the account under Small Savings Schemes (SSS). This will also allow premature closure of Public Provident Fund (PPF) accounts. 8

9 Regulatory Updates in India (contd..) RBI has stated that it is ready to inject more liquidity in the economy during end of Mar 2018, if required, as the liquidity situation moves from surplus to neutral going ahead. The central bank would be taking such action to address any additional demand for liquidity because of increase in currency in circulation and advance tax payments by corporates and to provide flexibility to the banking system. The Ministry of Statistics and Implementation, GoI has proposed to revise the base year for gross domestic product (GDP) and index of industrial production (IIP) to and 2018 for consumer price inflation (CPI). The revision in the base year will be done to accommodate and factor in the changes that took place in the economic scenario of the country. With a view to reduce confusion among investors and expedite scheme consolidation, the SEBI reportedly asked mutual fund houses not to use the word opportunities in their large-cap and multi-cap funds. However, the sales head of a large fund house reported that SEBI will not have issue with the use of opportunities in mid-cap and small-cap funds. Earlier, the capital market regulator asked fund houses to do away with the word prudence from their balanced fund, following which 3 of 5 fund houses changed the name of their prudence fund to aggressive hybrid fund. 9

10 Global News/Economy A report from the Labor department showed that U.S. consumer price index came in higher than market expectations in Jan U.S. consumer price index grew 0.5% in Jan 2018 as against a revised gain of 0.2% (0.1% gain originally reported) in Dec The bigger than expected increase was partly due to an increase in energy prices that grew 3.0% in Jan 2018 as against a decline of 0.2% in Dec Core consumer prices (excluding food and energy prices) grew 0.3% in Jan 2018 as against a gain of 0.2% in Dec According to a report from the Commerce Department, U.S. retail sales missed market expectations and fell 0.3% in Jan 2018 as against revised unchanged retail sales (0.4% gain originally reported) in Dec The unexpected decline reflects steep drop in sales by motor vehicle and parts dealers that fell 1.3% in Jan 2018 as against a decline of 0.1% in Dec A preliminary report from the Cabinet Office showed that Japan s gross domestic product rose less than expected by 0.1% in the fourth quarter of 2017 and less than 0.6% growth in the third quarter of On an annual basis, GDP rose 0.4% compared with downwardly revised 2.2% growth in the prior quarter. According to Eurostat, eurozone s Gross Domestic Product (GDP) rose as previously estimated by 0.6% in the Dec quarter of 2017, in line with expectations and slower than 0.7% increase in the Sep quarter of On a yearly basis, GDP growth slowed to 2.7% from 2.8% in the preceding period. 10

11 Global Equity Markets Indices 11 Global Indices 16-Feb-18 1-Week Return YTD Return Dow Jones 25, % 1.59% Nasdaq 100 6, % 3.98% FTSE 100 7, % -4.62% DAX Index 12, % -3.26% Nikkei Average 21, % -7.60% Straits Times 3, % 1.19% Source: Thomson Reuters Eikon Value as on Feb 16, 2018 Europe U.S. U.S. markets gained over the week following better than expected key economic data. However, gains were capped as market participants perceived that rise in inflation might lead to faster interest rate hikes by the Federal Reserve. Unexpected decrease in retail sales in Jan 2018 also limited the upside. European markets traded up following GDP data from Germany and the eurozone that came in-line with market expectations. Car-maker companies also got support after European Automobile Manufacturers' Association reported rebound in Europe s car registration in Jan Asia Asian markets gained after the People's Bank of China mentioned that the Chinese banks lent a record amount of new yuan loans in Jan 2018 and Japanese industrial production in Dec 2017 came higher than expected. Gains were enhanced on expectations that easing monetary policy will be continued after the present Bank of Japan Governor was nominated for the second five-year term.

12 Global Debt (U.S.) 2.94 US 10-Year Treasury Yield Movement Yield on the 10-year U.S. Treasury bond rose 5 bps to close at 2.88% from the previous week s close of 2.83%. Yield in % Feb 13-Feb 14-Feb 15-Feb 16-Feb U.S. Treasury prices fell initially as improving risk appetite diminished the safe-haven appeal of U.S. debt, which can be attributed to strong U.S. economic growth prospects and global central banks normalizing years of easy monetary policy. Source: Thomson Reuters Eikon Losses were extended after data showed that U.S. consumer prices rose more than expected in Jan 2018 posting its biggest gain in a year, which increased the possibility of a faster pace of interest rate hikes from the U.S. Federal Reserve. 12

13 Commodities Market Rebased to 10 Global Commodity Prices Global Commodity Movement % 1.93% % Jan-18 1-Feb Feb-18 Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl) Source: Thomson Reuters Eikon Performance of various commodities Commodities Last Closing 1-Week Ago Brent Crude($/Barrel) Gold ($/Oz) 1, , Gold (Rs/10 gm) 30,693 30,007 Silver ($/Oz) Silver (Rs/Kg) 38,709 37,792 Source: Thomson Reuters Eikon Value as on Feb 16, 2018 Gold Gold prices traded on a positive terrain because of concerns over rise in fiscal deficit in the U.S. following the recent announcement of infrastructure spending and large corporate tax cuts. Mixed economic data from the U.S. also raised uncertainty about the U.S. Federal Reserve s policy stance. Crude Brent crude prices grew on growing endeavours of OPEC and non-opec members towards curbing supply glut by means of production cut. Investors took positive cues from Saudi Arabia Energy Minister s statement that the country will remain committed with its policy to withhold production throughout Baltic Dry Index The Baltic Dry Index fell on the back of lower capesize and panamax activities. 13

14 Currencies Markets Currency Prices ( in terms of INR) Movement of Rupee vs Other Currencies Currency Last Closing 1-Wk Ago US Dollar Pound Sterling EURO JPY Source: RBI Figures in INR, Value as on Feb 16, Rebased to % % Jan Jan-18 6-Feb Feb-18 Source: RBI Currency Movement USD GBP Euro JPY 2.37% 0.67% Rupee The Indian rupee gained against the U.S. dollar amid easing of consumer inflation in Jan 2018 against previous month and positive Index of Industrial Production data for Dec Euro Euro rose against the greenback due to growing possibility that the European Central Bank will scale back its stimulus in 2018 amid strong recovery in the euro zone. Pound Pound strengthened against the greenback as strong U.K. inflation data for Jan 2018 raised possibility that the Bank of England will raise interest rates again in May Yen Yen surged against the broadly weak U.S. dollar because of concerns over rise in fiscal deficit in the U.S.

15 15 The Week that was 12 th February to 16 th February

16 The Week that was (Feb 12 Feb 16) Date Events Present Value Previous Value Monday, Feb 12, 2018 Tuesday, Feb 13, 2018 India s Industrial Production YoY (Dec) 7.1% 8.8% India s Consumer Price Index Inflation Rate YoY (Jan) 5.1% 5.2% U.K. Consumer Price Index (YoY) (Jan) 3.0% 3.0% Japan Gross Domestic Product Annualized (QoQ) (4Q P) 0.5% 2.2% Japan Machine Tool Orders (YoY) (Jan P) Germany Gross Domestic Product w.d.a. (YoY) (4Q P) 2.9% 2.8% Eurozone Gross Domestic Product (YoY) (4Q P) 2.7% 2.7% Wednesday, Feb 14, 2018 U.S. Consumer Price Index (YoY) (Jan) 2.1% 2.1% Germany Consumer Price Index (YoY) (Jan) 1.6% 1.6% Eurozone Industrial Production (YoY) (Dec) 5.2% 3.7% U.S. Retail Sales (MoM) (Jan) -0.3% 0.0% Japan Machinery Orders (YoY) (Dec) -5.0% 4.1% India s Wholesale Price Index Inflation YoY (Jan) 2.84% 3.58% Thursday, Feb 15, 2018 India s Trade Deficit (Jan) $16.30B $14.88B U.S. Initial Jobless Claims (10 Feb) 230K 223K U.S. Industrial Production (MoM) (Jan) -0.1% 0.4% Friday, Feb 16, 2018 U.S. University of Michigan Sentiment (Feb P) U.K. Retail Sales (YoY) (Jan) 1.6% 1.5% U.S. Housing Starts (MoM) (Jan) 1.326M 1.209M 16

17 17 The Week Ahead 19 th February to 23 rd February

18 The Week Ahead Day Monday, February 19, 2018 Event Japan Trade Balance (Jan) Eurozone Current Account s.a. (euros) (Dec) U.K. Rightmove House Prices (YoY) (Feb) Tuesday, February 20, 2018 Eurozone Consumer Confidence (Feb A) German ZEW Survey Expectations (Feb) Eurozone ZEW Survey (Economic Sentiment) (Feb) Wednesday, February 21, 2018 Thursday, February 22, 2018 Japan Nikkei Japan PMI Manufacturing (Feb P) Japan All Industry Activity Index (MoM) (Dec) Markit Eurozone Composite PMI (Feb P) Markit US Composite PMI (Feb P) U.K. Public Sector Net Borrowing (Jan) U.S. Existing Home Sales (Jan) U.K. Gross Domestic Product (YoY) (4Q P) U.S. Leading Index (Jan) Japan National Consumer Price Index (YoY) (Jan) Friday, February 23, 2018 Eurozone Consumer Price Index (YoY) (Jan F) German Gross Domestic Product w.d.a. (YoY) (4Q F) 18

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News U Can Use. February 17, 2017

News U Can Use. February 17, 2017 News U Can Use February 17, 2017 The Week that was 13 th February to 17 th February Slide 2 Indian Economy India s trade deficit widened to $9.84 billion in Jan 2017 from $7.67 billion in the corresponding