CitiChoice. Snapshot: April to June, 2018 Suitable for Investor Rating 1

Transcription

1 CitiChoice Snapshot: April to June, 2018 Suitable for Investor Rating 1

2 Dear Customer, January 2018 started with a big bang for equity investors as markets shrugged off all inhibitions and Nifty delivered ~4.7% returns in just 1 month. However, the dream run was cut short with the LTCG tax on equity announced in the budget followed by global equity market volatility triggered by an inflation scare and rising bond yields in US. More volatility ensued as trade tensions escalated between US and China and both countries retaliated by announcing tariff measures on imports. The news of the largest banking fraud in the history of Indian banking also negatively impacted the already fragile sentiment. By March, markets had corrected ~10% from the peak achieved in January. On the economic front, India s 3Q GDP rebounded to 7.2% as negative supply shocks on account of the demonetization and GST faded. While bond markets experienced rising yields on account of technical factors, the Reserve Bank of India however maintained a neutral stance keeping key policy rates unchanged. We provide a quick snapshot of the key events that influenced markets over the previous quarter. Quarter Update (Q4FY18) India Economic News ŸLTCG Tax on equity announced in February budget proposal ŸIndia s 3Q GDP rebounded to 7.2% ŸRBI Kept policy rates unchanged ŸJan trade deficit widened to US$ 16.3bn ŸPNB Reported the massive banking fraud amounting to ~US$ 2bn ŸMSCI puts india on watch on account of NSE & BSE deciding to terminate data sharing contract with SGX ŸConsumer price inflation rose by 5.07% in January and 4.44% in February, year-on-year ŸIndian 10 yr G-sec yields rose to a two year high of 7.77% Key Global Events ŸGlobal output grew by 3.7%, as per IMF data ŸAs anticipated, US Fed raised the Fed Funds target rate by 25 bps ŸUS announced a levy of $50bn of tariffs on Chinese imports, on top of earlier announced Steel and Aluminium tariff As we head into Q1 of FY19, global growth is expected to remain robust and broad-based, driven by industrial activity and investment. However, activity has moderated at the margin and sentiment surveys are topping out. Advanced economy inflation is slowly rising, but remains subdued despite robust growth and tight labor markets. Gradual broad based monetary policy tightening is also expected across advanced economies going forward. While these developments are expected to take place gradually and be communicated in advance, monetary policy is tightening at a time when financial market valuations have become more expensive. On the domestic front, the key variables to watch in the near term are earnings, State elections, GST collections and crude price spike. We are delighted to bring to you our latest issue of CitiChoice. This issue includes an update on the markets along with the list of equity and fixed-income schemes that have been shortlisted using various qualitative and quantitative parameters. As you may be aware, there is an ongoing re-categorization & rationalization of all MF schemes by AMCs pursuant to SEBI circular (SEBI/HO/IMD/DF3/CIR/P/2017/114). Hence some of the MF schemes that you are holding, may undergo a change in name/strategy/attributes, including merger of schemes in the near future. For further information on the same, please contact your relationship manager. We would like to thank you for continuing to place your trust in us and look forward to your continued patronage. Sincerely, INVESTMENT PRODUCTS: NO BANK GUARANTEE: NOT GOVERNMENT INSURED: SUBJECT TO MARKET RISK: POSSIBLE LOSS OF PRINCIPAL: PLEASE READ THE OFFER DOCUMENT(S) BEFORE INVESTING.

3 INDIA MARKET UPDATE INDIA MARKET RETURNS ( Jan Mar 2018) After hitting a low of 5.7% in 1Q of due to the demonetization and GST implementation related disruptions, the 3Q real GDP growth had rebounded to 7.2% as per data released by ministry of statistics and programme implementation. This was in line with Citi economist s expectation of 7.1% for the given period. The pace of surge of reported investment growth to 13% YoY from 8.9%YoY last quarter was quite a positive surprise, despite the general anticipation of acceleration basis high frequency indicators (CV Sales, credit growth, railways freight traffic etc.) and a favorable low base. The recovery in 3Q real GDP also assumes significance given that it is despite the net exports acting as a drag, subtracting 140bps of growth versus a positive contribution of 20bps in 2Q. This cyclical upturn in economic activity seems to be carrying forward in 4Q with industrial production growth climbing to 7.5%YoY in January from average 5.9% in 3Q. The trend is broadly consistent with Citi economist s projection of 7% growth for FY19 and hence they see no compelling reason to revise their GDP growth expectations. The fear of monetary policy tightening in near term was allayed to some extent after recent print in CPI suggested broader decline in food and underlying inflation trends. The Feb CPI at 4.4% is tracking 40-50bps lower than the MPC projection. Citi economists continue to believe that RBI will refrain from embarking on a pre-emptive hiking cycle, and expect rates to remain unchanged in 2018 with the base case that MSP hike, which could potentially add 40-50bps to CPI inflation, is relatively non-disruptive. However, the risks of negative output gap closing faster than expected and with continued pressure on fiscal front, the MPC is likely to maintain its vigilant stance in the April policy. On the external front, even while trade deficit has somewhat normalized in Feb the capital flows have come under pressure on negative news flow in banking sector. Foreign portfolio turned negative in February and March and net FDI trends remain weak. Citi analysts expect basic balance for FY19 to rise to a deficit of US$20bn which could put pressure on the exchange rate front. Indian Rupee is likely to underperform the EM basket and could trade in range over 6-12 months From an equity perspective, while 3Q earnings were decent (+20% yoy - BSE100), it remains to be seen whether the trend will sustain. India s valuation premium is high, despite the underperformance this year. Intra-stock correlations have also spiked and earnings yield gap has shrunk further. Post the correction and with the negative sentiment, any improvement in macro could be a positive, at the margin. Earnings recovery and continued strength in domestic flows remain the key. Any slowdown in flows could be a key risk to the markets in CY18. Other risks emanate from state elections, GST collections, Crude oil shock and prolonged trade tensions. (Source: Citi Research) MARKET DATA & ABSOLUTE RETURNS ( Jan Mar 2018) Sensex Nifty BSE 100 Nifty Mid Cap BSE Mcap BSE Scap BSE 200 BSE 500 Auto Banks Cons Dur Cap Goods FMCG -3.2% -4.0% -4.8% -11.2% -10.4% -11.6% -5.3% -5.8% -10.1% -5.7% -1.9% -3.4% -3.8% USDINR Rate 10-Yr G-Sec 1-Yr Bank CD 3-Month T-Bill 29-Dec % 6.75% 6.20 % 28-Mar I-SEC Gilt Crisil STBEX Crisil MIPEX Crisil Liquifex Crisil Compbex Crisil Balancex -2.80% 1.52% 1.84% 1.78% 0.24% 1.15% Healthcare IT Metal Oil & Gas Power Realty -11.1% -10.8% -10.2% -10.7% -14.5% 7.3% -4.00% -2.00%0.00% 2.00% 4.00% -20% -10% 0.0% 10% (Source: CRISIL Fund Analyzer, Bloomberg)

4 GLOBAL MARKET UPDATE UNITED STATES SNAPSHOT While reported earnings and economic trends continue to remain favorable but the euphoric sentiment has moderated. Citi analysts recently raised their S&P 500 EPS estimate to $ (from $146), suggesting near 14% y/y growth, with $9.00 being attributable to the corporate tax rate cut. They believe that some valuation metrics are looking stretched and in their opinion the upside seems limited. They expect financials to take lead from IT due to easing regulations and rising bond yields. They also believe that Value will outperform growth and prefer cyclicals over defensives. Despite the higher EPS estimates, Citi analysts believe that due to the potential risks emanating from inflation, rising yields and trade tensions, PE ratios would remain restrained and hence they anticipate only modest equity returns. They remain Neutral on US equities and reiterate their 2018 year end S&P 500 target of Americas Dow Jones S&P 500 NASDAQ Brazil Bovespa Actualized Returns Jan 2018 Mar 2018(%) -3.52% -2.57% 0.66% 9.78% EURO AREA SNAPSHOT Citi economists have lowered their 2018 GDP growth forecast to 2.4%, but still expect above-trend growth in The ECB remains on track to end asset purchases later this year and raise rates in 1H19. Citi analysts still expect above-trend regional and synchronized global growth to support 10% EPS growth in 2018, but upside looks less likely now to them. European equities have de-rated YTD and are back to a sub-14x 12m fwd P/E. Europe FTSE 100 CAC 40 DAX Actualized Returns Jan 2018 Mar 2018(%) -8.36% -3.43% -7.56% (Source: Citi Research) INVESTMENT PRODUCTS: NO BANK GUARANTEE: NOT GOVERNMENT INSURED: SUBJECT TO MARKET RISK: POSSIBLE LOSS OF PRINCIPAL: PLEASE READ THE OFFER DOCUMENT(S) BEFORE INVESTING.

5 GLOBAL MARKET UPDATE JAPAN SNAPSHOT Citi economists expect the economy to expand by 1.6% in 2018 and 1.2% in 2019, well above potential growth of around +0.5%. They believe monetary policy will stay unchanged in 2019 and don't expect any change to the BoJ's 10-year JGB yield target until 1H PM Abe is likely to survive the ongoing scandal, in their view. Consensus EPS growth for 2018E is around 7% and Citi analysts think this is achievable. Given that there has been little in terms of additional capex, they believe an improvement in the topline can quickly lead to a recovery in earnings growth. Japan Nikkei -7.62% Actualized Returns Jan 2018 Mar 2018(%) Strong Yen has been a headwind for the market YTD. Japanese equities have de-rated back to 13x 12m Fwd PE, a 13% discount to 10y average. EMERGING MARKETS SNAPSHOT Citi economist highlight that economic data being reported across EM continues to be stronger than expected. The Fed has tightened and yet EM policy rates have not changed. EM real rates are currently at their long run average. In EM more companies reported earnings in-line with expectations as opposed to missing or beating. For 2018 EPS growth rates have moved higher and now stand at 16% which is realistic. Citi analysts believe that valuations in aggregate are at average. They are positive on EM and continue to back value theme for 2018, as Growth stocks in EM are expensive vs value. Aisa Pacific Hang Seng Strait Times Shanghai Comp Actualized Returns Jan 2018 Mar 2018(%) 0.35% -0.59% -5.59% (Source: Citi Research) INVESTMENT PRODUCTS: NO BANK GUARANTEE: NOT GOVERNMENT INSURED: SUBJECT TO MARKET RISK: POSSIBLE LOSS OF PRINCIPAL: PLEASE READ THE OFFER DOCUMENT(S) BEFORE INVESTING.

6 Scheme Name/Index Name Inception Date^ Suitable for Minimum Investor Rating (IR) AUM (crs) as on 2018 NAV as on 2018 (`)^^ 2017 to March 28, 2018 (Absolute)^^ 2016 to 2017 (Absolute) 2015 to 2016 (Absolute) CAGR^^ Since Inception Current Value of ` 10,000^^ Volatility Measures (1 Year)^^ Std Deviation DRP Sharpe Ratio Liquid Funds* Kotak Liquid - Regular Plan - Growth 4-Nov , , % 7.21% 8.20% 7.44% 28, % HDFC Liquid Fund - Growth 17-Oct , , % 7.21% 8.23% 7.28% 34, % ICICI Prudential Liquid Plan - Growth 17-Nov , % 7.28% 8.22% 7.90% 25, % Crisil Liquid Fund Index 6.84% 7.11% 8.06% 0.11% 4.01 Source: CRISIL Limited 3 yr Risk Free Rate: 6.67% 1 yr Risk Free Rate: 6.19% ^ Regular Plan, Growth Option *For liquid funds and respective benchmark index, holiday NAVs have been considered on accrual basis ^^as of 2018 for liquid funds and respective benchmark Disclaimer: CRISIL Research, a division of CRISIL Limited (CRISIL) has taken due care and caution in preparing this Report based on the information obtained by CRISIL from sources which it considers reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This Report is not a recommendation to invest / disinvest in any entity covered in the Report and no part of this report should be construed as an investment advice. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL s Ratings Division / CRISIL Risk and Infrastructure Solutions Limited (CRIS), which may, in their regular operations, obtain information of a confidential nature. The views expressed in this Report are that of CRISIL Research and not of CRISIL s Ratings Division / CRIS. No part of this Report may be published / reproduced in any form without CRISIL s prior written approval. Source: CRISIL Limited

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