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 equity markets during the month. Walk out of the regional party of Andhra Pradesh from the Central ruling coalition kept investors jittery. Weak global cues too played spoilsport with the U.S. President imposing hefty tariff on imports of steel and aluminium products and growing speculations over political tensions in the U.S. Worries of a probable trade war between the U.S. and China hit market sentiment, although the same eased when both the nations agreed to negotiate. On the economic front, factors affecting buying interest included India s current account deficit data for the third quarter FY18 widening to 2% of gross domestic product, or $13.5 billion, driven by higher imports. Additionally, India's fiscal deficit widened to Rs. 7.15 lakh crore at the end of Feb 218, exceeding the revised target of Rs. 5.94 lakh crore for the entire 217-18 fiscal. For the Apr 217-Feb 218 period, it stood at 12% of the revised estimates due to increased expenditure and subdued revenue receipts. Nonetheless, India s strong GDP data for the third quarter of FY18 and eight core industries data for Jan 218 provided some respite. Encouraging industrial output data for Jan 218 and retail inflation data for Feb 218 eased investor concerns over rate hikes by the Reserve Bank of India (RBI) in the near-term, thereby supporting the indices. Sentiment got further support when the government announced lower than expected borrowing programme for the first half of FY19. The government will borrow Rs. 2.88 lakh crore during the Apr-Sep 218 period. The metal sector was hit hard during the period as global risk sentiment turned sour after the U.S. President announced to impose 25% tariff on steel imports and 1% tariff on aluminum imports. The announcement raised concerns of a global trade war that weighed on markets.
Index values change in YoY % Feb-17 Domestic Economic Indicators % Growth in YoY % change in YoY % Feb-17 Jan-17 Nikkei India Composite PMI Output Index rose because of an acceleration in the services sector Industrial production growth accelerated 7.5% YoY in Jan 218 due to 8.7% surge in the manufacturing sector 56 52 48 44 6.1 India Composite PMI & GDP Growth 7.2 6.5 5.7 5.8 9 8 7 6 5 4 1 8 6 4 2 3. Index of Industrial production (IIP) 8.8 4.8 4.1 4.1 3.2 2.9 1.8.8 1. 7.1 7.5 India GDP Growth India Composite PMI Index ; PMI >5 denotes expansion and <5 is contraction Consumer inflation grew 4.44% in Feb 218, down from 5.7% in the previous month and up from 3.65% a year ago Wholesale inflation slowed to a 7-month low in Feb 218 due to slower growth in food and fuel prices 7 Consumer Price Index 6 Wholesale Price Index 5 4 3 4.44 2 2.48 1
Index values % 3QFY16 4QFY16 1QFY17 2QFY17 Domestic Economic Indicators 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Index values Exports and Imports ($ bn) Feb-17 India s Manufacturing PMI in Mar 218 fell at the weakest pace since Oct 217 reflecting softer expansions in new work and output, and a decline in employment for the first time in eight months. 56 54 52 5 48 46 44 52.5 52.5 51.6 5.9 India Manufacturing PMI 47.9 51.2 51.2 5.3 52.6 54.7 52.4 52.1 51 Services sector expanded in Mar 218 after a modest contraction in Feb 218, underpinned by greater inflows of new work 54 52 5 48 46 44 42 52.2 53.1 51.5 5.2 45.9 India Service PMI 47.5 51.7 5.7 48.5 5.9 51.7 47.8 5.3 ; PMI >5 denotes expansion and <5 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. billion (1.4% of GDP) in the same quarter of the previous fiscal. ; PMI >5 denotes expansion and <5 is contraction Trade deficit in Feb 218 widened on a yearly basis due to slower rise in exports compared to imports 3 2 1 1.3 Current Account Balance as % of GDP 1.4.6.6.1.1 2.4 1.2 2 45 36 27 18 9 Trade Data -3-6 -9-12 -15-18 Source: Thomson Reuters Rikon Exports Imports Trade Deficit
FII/FPI Movement (INR Cr) Mar-16 Jul-16 Nov-16 Domestic Equity Market S&P BSE Sensex Movement FII/FPI & DII Movement (INR Cr) 1-1- 19-28- S&P BSE Sensex Movement Key benchmark indices S&P BSE Sensex and Nifty 5 fell 3.56% and 3.61% to close at 32,968.68 and 1,113.7, respectively. Both Nifty Midcap 1 and Nifty Smallcap 1 plunged 4.62% and 6.76%, respectively. 3 28 Price to Earning Per Share (P/E) (LHS) Nifty 5 (RHS) 1114 11,3 1,6 62 5 Price to Earning Per Share (P/E) (LHS) Nifty Midcap 1 (RHS) 46.87 23,2 2,3 26 9,9 24 24.66 9,2 38 18757 17,4 22 8,5 26 14,5 Source: NSE Source: NSE Foreign portfolio investors were net buyers of domestic stocks worth Rs. 11,654 crore in Mar 218 as against net sale of Rs. 11,37 crore recorded in the previous month. Domestic mutual funds remained net buyers in the equity segment to the tune of Rs. 9,256 crore in Mar 218. 37 FII/FPI Investment and S&P BSE Sensex - Last 24 Months 37 DII, FII/FPI Investment and S&P BSE Sensex - During the 6 Month 342 18-1 32 27 32 4 333-2 22-24 324 FII/ FPI Net Investment Source : MFI Explorer S&P BSE Sensex FII/ FPI Net Investment DII Net S&P BSE Sensex Source : MFI Explorer
Yield (%) Yield (%) Domestic Debt Market Change in bps Rates ( %) Spread (in bps) Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Apr-18 Bond yields plunged in Mar 218 after the Indian government unexpectedly lowered its borrowings for the first six months of 218-19 MPC in its first bi-monthly policy review of FY19 kept its policy rates unchanged and lowered its inflation projections for FY19 8. 1-Yr Benchmark Bond 9 Movements of Key Policy Rates in India 7.4 7 6. 6.8 7.4 5 5.75 6.2 3 4. Source: RBI Reverse Repo Repo CRR Yield on gilt securities fell across maturities in the range of 6 bps to 38 bps. The maximum fall was witnessed on 13-year paper and the minimum on 1-year paper. 8.2 India Yield Curve Shift (Month-on-Month) Yield on corporate bonds fell across maturities in the range of 2 bps to 4 bps. The maximum fall was witnessed on 1-year paper and the minimum on 4-year paper. 18 1 Year Corporate Bond Spread (for AAA & AA bonds) 7.6 7. -15-15 -1-2 -3 12 6-33 -32-34 6.4 1 Yr 5 Yr 1 Yr 2 Yr 3 Yr Change in bps -4 AAA Bond Spread AA Bond Spread
Global Market Highlights U.S. markets initially traded higher after the U.S. Labor Department released a report showing much stronger than expected job growth in Feb 218. Later, market moved down on trade tensions between the U.S. and China after the U.S. government decided to put heavy tariffs on Chinese imports. China also retaliated by announcing it would levy additional duties on up to $3 billion of U.S. imports of agricultural goods. Geopolitical tensions deepened after the U.S. said it would expel 6 Russian diplomats and Russia indicated to take harsh measures. Meanwhile, the U.S. Fed raised interest rates by 25 basis points. Towards the end, investors were comforted to some extent after the U.S. Treasury secretary said that the nation shall proceed with plans to impose tariffs on Chinese imports but kept room for negotiations. European markets initially remained stable amid easing geopolitical tensions as North Korean leader offered to halt nuclear missile tests and agreed to meet with the U.S. President through South Korean national security adviser. The European Central Bank s (ECB) policy decision too generated positive vibes. Positive economic data from the euro zone and Germany also helped sentiment. Later, market gave up gains on growing concerns over a potential global trade war. However, losses were restricted as trade worries eased after officials of U.S. and China indicated willingness to negotiate. Asian markets initially got support after the Bank of Japan kept its policy rates unchanged. Additionally, positive Japanese and Chinese economic data helped sentiment. However, gains could not sustain following political worries in the U.S. and the U.S. President announcing a protectionist trade policy. Chinese market moved down further after the country revealed a massive cabinet reshuffle plan and decided to merge the banking and insurance regulators.
YoY % Index values Feb-17 Global Economic Indicators YoY % YoY % Index values Feb-17 YoY % U.S. Composite PMI Output Index fell to 54.2 in Mar 218 from 55.8 in Feb 218 due to slower growth in both manufacturing and service sector Eurozone Composite PMI Output Index declined to 55.2 in Mar 218 from 57.1 in Feb 218 due to slower growth in both manufacturing and service sector US Composite PMI & GDP Growth Euro zone Composite PMI & GDP Growth 57 54 2.6 3. 2.9 54.2 3.6 2.4 61 59 57 2.6 3. 2.7 3.5 3 2.5 2 51.7 1.2 55 53.7 55.2 1.5 1.5 48 51 US GDP US Composite PMI, fxstreet; PMI > 5 denotes expansion and < 5 is contraction U.S. consumer inflation stood at 2.2% in Feb 218, higher than previous month s figure but much lower than a year ago period. Eurozone GDP Eurozone Composite PMI, fxstreet; PMI > 5 denotes expansion and < 5 is contraction Euro zone s inflation growth slowed to 1.1% (revised) in Feb 218 as against 1.3% in Jan 218 and 1.2% rise as per initial expectations. 3. 2. 1. 2.74 U.S. Inflation 2.38 2.2 2.23 2.2 1.87 1.94 2.4 2.1 2.1 2.2 1.63 1.73 3. 2. 1. 2. 1.5 1.9 Eurozone Inflation 1.4 1.3 1.3 1.5 1.5 1.4 1.5 1.4 1.3 1.1..
YoY % Index values Feb-17 Global Economic Indicators YoY % Index values % YoY % China s Manufacturing PMI fell to 51. in Mar 218, down from 51.6 in Feb 218 as production and total new orders both expanded at the weakest rates for four months. Japan Manufacturing PMI fell to 53.1 in Mar 218 from 54.1 in Feb 218 signaling slower improvement in operating conditions for Japanese manufacturers. 53. 51.5 5. China Manufacturing PMI & GDP Growth 6.9 6.9 6.8 6.8 51 7 6.9 6.8 6.7 57. 55. 53. 51. Japan Manufacturing PMI & GDP Growth 4 53.1 2.2 2.2 1.6 4.8 3.6 2.4 48.5 6.6 49. 1.2 47. 6.5 47. China GDP China Composite PMI Source: Reuters, fxstreet; PMI > 5 denotes expansion and < 5 is contraction China s inflation grew at its highest pace since Nov 213 as food prices surged 4.4% and non-food prices grew 2.5% in Feb 218. Japan GDP Japan Manufacturing PMI Source: Reuters, fxstreet; PMI > 5 denotes expansion and < 5 is contraction The U.S. Federal Reserve increased interest rates by 25 bps to 1.75%, attributed to strong labor market and strength in the broader economy 4. 3. 2. 1. China Inflation.8.9 1.2 1.5 1.5 1.8 1.9 1.6 1.7 1.8 1.4 1.5 2.9 2.1 1.8 1.5 1.2.9.6.3 -.3 Interest Rates in Major Developed Economies 1.75 -.1. Source: Reuters Source: Reuters ECB Refinance rate US Fed rate Japan Interest rate
Index Value Index Value Global Equity Markets P/E P/E Index values Index Values P/E P/E U.S. market fell on trade tensions between the U.S. and China and also due to the rising geopolitical tensions between the U.S. and Russia. European market declined on growing concerns over a potential global trade war between the U.S. and China 28 U.S. Dow Jones Index and PE ratio 2413.11 29 42 Euro Stoxx Index and PE ratio 19 25 25 39 373.99 17 22 19 2.83 21 17 36 33 14.32 15 13 Dow Jones PE ratio Euro Stoxx 5 PE ratio Chinese market dropped on growing concerns over a potential global trade war between the U.S. and China Japanese market went down on growing concerns over a potential global trade war between the U.S. and China China Shanghai Index and PE Japan Nikkei Index and PE ratio 37 34 3168.9 18 16 26 23 21454.3 2 18 31 28 14.16 14 12 2 17 15.48 16 14 China Equity Market PE ratio Japan Equity Market PE Ratio
Yield (%) Yield (%) Global Debt Yield (%) Yield (%) 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 7 Years 1 Years 3 Years Change in bps Yield on the 1-year U.S. Treasury bond fell 13 bps to close at 2.74% compared to the previous month s close of 2.87%. U.S. Treasury prices rose due to trade war concerns between the U.S. and China 3.2 2.8 U.S. 1 Year Treasury Yield 2.74 3.6 2.6 U.S. Treasury Yield Curve Shift (Month-on Month) 11 16 6 7 2 1 4 2.4 2. 1.6.6-3 -9-11 -12-16 -8-2 Bund yields plunged due to trade war concerns and subdued euro zone inflation while Spanish bond yields fell after a major credit rating agency upgraded Spain's credit rating from BBB+ to A- 2.1 1.4.7. German & Spanish 1 Yr Treasury Yield 1.16.49 Change in bps 29-28- Japanese 1-year yield remained unchanged at.43% in Feb 218 from.4% in Jan 218.1.8.6.4.2. -.2 Japan 1 Yr Benchmark Yield.43 German 1 Year Yeild Spanish 1 Year Yeild
$ Ounce $ Ounce Global Commodity Market $ Barrel Index value Gold prices gained over the month on probable global trade war but fears over the same eased on news that the U.S. and China might negotiate over the tariff issue. 14 Gold Brent crude prices gained over the month on geopolitical tensions and on news that production cuts by OPEC and Russia could be extended into 219. 76 Brent Crude 68.21 132 1324 64 124 52 116 4 Silver prices remained weak amid easing worries over the geo political tension in the Korean peninsula and after U.S. Fed raised interest rates by 25 bps. The Baltic Dry Index moved down 11.49% MoM in Mar owing to lower capesize and panamax activities. 2. Silver 19 Baltic Dry Index 18. 16.319 14 155 16. 9 14. 4
Global Currency Market The Indian rupee remained almost steady against the U.S dollar after moving in a narrow range during the month Pound rose against the U.S. dollar on improved risk appetite and on expectations that the Bank of England will increase interest rates 68 USD/INR 1.48 GBP/USD 1.415 66 65.15 1.38 64 1.28 62 1.18 Euro rose against the U.S. dollar on concerns of a trade war between the U.S. and China. 1.3 1.2 EUR/USD 1.2321 Yen rose on expectations that the Bank of Japan will exit from its ultra easy monetary policy but gains were limited on quarter end flows into the greenback 118. 113. USD/YEN 1.1 18. 16.26 1. 13.
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. 21.36 lakh crore in Mar 218 compared to Rs. 22.2 lakh crore in Feb 218. Overall, outflow in mutual fund schemes stood at Rs. 5,752 crore in Mar 218 compared to an inflow of Rs. 12,92 crore in the preceding month. Liquid funds saw maximum net outflow of Rs. 54,979 crore during the month followed by income funds, which saw net outflow of Rs. 13,719 crore during the period. Meanwhile, equity (including ELSS) category witnessed net inflow of Rs. 6,657 crore. Balanced and Exchange Traded Funds (excluding Gold ETF) category also saw net inflow of Rs. 6,754 crore and Rs. 5,82 crore in the month under review. According to media report, the Goods and Services Tax (GST) Council deferred the implementation of Reverse Charge Mechanism (RCM) until Jun 3, 218. The move will benefit mutual fund distributors, who do not have a GST registration number, and those who have surrendered their GST registration number. These distributors should, however, have earnings of less than Rs. 2 lakh a year. In case of distributors with GST registration, mutual fund houses shall continue to follow forward charge mechanism, i.e., AMCs will pay the gross commission to them. Meanwhile, these distributors can avail benefit of input credit. AMFI, in consultation with the Securities and Exchange Board of India, deferred the requirement of Aadhaar for fresh mutual fund transaction from Apr 1, 218, until further notice. Earlier, AMFI had reportedly asked mutual fund houses and R&T agents to insist that new mutual fund investors furnish their Aadhaar, making it mandatory for mutual fund investments from Apr 1, 218. According to a major credit rating agency, AUM of mutual funds from B15 cities (beyond top 15 cities) stood at Rs. 4.36 lakh crore at the end of Feb 218, which is over 41% higher than a year-ago period.
Real Estate and Private Equity News According to media reports, commercial real estate firm Embassy group plans to invest Rs. 1,35 crore to develop four new hotels in Bengaluru. These four new hotels, which are expected to be operational by 222, will expand Embassy group s reach in the hospitality sector. Indiabulls Real Estate Ltd plans to sell 5% ownership in its prime office assets in central Mumbai for a consideration of roughly $1.3 billion to the renowned private equity firm Blackstone Group Lp. The assets include Indiabulls Finance Centre and One Indiabulls Centre. Indiabulls is also looking to sell its residential project in Chennai for around Rs. 25-3 crore. Hospitality firm Hilton announced to have teamed up with property developer Embassy Group to develop two new hotels in Bengaluru. The property, which is expected to be located within the 1-acre Embassy TechVillage Business Park, will have two hotel brands a 3-room Hilton Hotels & Resorts and 2-room Hilton Garden Inn hotel. This is the third joint project of the firms and the construction is expected to begin in 218 and the hotels are expected to be operational by end 221. According to Bain and Co. s India Private Equity Report 218, India has experienced strong growth in Private Equity (PE) exits in 217, marking three consecutive years of strength. As per the report, PE exits in India stood at $15.7 billion in 217, up 6% YoY. PE exits in number grew 7% YoY. Godrej Fund Management (GFM), real estate private equity unit of Godrej Group, plans to invest $15 million in office investment fund and $45 million in office development fund. With these investments, the firm will make its entry into India s thriving commercial real estate space. The firm has already raised the first tranches for both the funds. Source: Livemint
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