Key Events Economic Indicators and Charts Equity Market View Fixed Income Market View Asset Class View and Strategy Model Portfolios
Indian economy grew 7.7% in the fourth quarter cementing its place as the fastest growing major economy lead by a strong rebound in manufacturing sector. Real GDP growth clocked 6.8% in fiscal year 2017-18. US pulled out of the Iran Nuclear deal and has vowed to re-introduce sanctions on Iran including sanctions on the sale of Iranian Crude. This announcement along with supply disruptions from Venezuela led to a rally in crude prices during the month. Surge in crude prices & weakening currency have been the centre of all macroeconomic discussions. Deterioration of currency account led by rising oil prices, tepid exports growth, strengthening US dollar and worsening terms of trade presents a substantial external risk. Fiscal Deficit for 2017-18 ended at 3.53% of GDP broadly in line with the government s revised estimates. Trade deficit has widened by about $50bn in FY18 and is likely to widen another $40bn to $50bn in FY19. India s net direct tax collection grew by 18% in FY18 to 10.03 Lakh Crores. The pace of increase is the fastest in the last seven fiscal years US Federal Reserve s May meeting minutes indicated two more rate hikes in 2018 & three hikes in 2019 on the back of strengthening labour market & inflation near the medium term objective. There is a high probability of a 25bps rate hike in June FOMC meeting Italy witnessed a political turmoil as after several weeks of negotiations between anti-establishment groups failed to produce a new coalition government. This caused Italian bond yields to climb to euro-era highs & caused tumult in global markets.
Market and Economic Data Current (as on) Previous (as on) Nifty 10736.15 31-May-2018 10739.4 30-Apr-2018 Sensex 35322.38 31-May-2018 35160.36 30-Apr-2018 10 year Gsec 7.826 31-May-2018 7.767 30-Apr-2018 USD/INR 67.3963 31-May-2018 66.6613 30-Apr-2018 GDP Growth 7.2% Q3FY18 7.2% Q3FY18 CPI 4.58% Apr-18 4.28% Mar-18 WPI 3.18% Apr-18 2.47% Mar-18 Trade deficit ($ bn) 13.7 Apr-18 13.7 Apr-18 IIP 4.4% Mar-18 7.1% Feb-18 FII Equity ($ bn) -1.5 31-May-2018-0.8 30-Apr-2018 FII Debt ($ bn) -2.9 31-May-2018-1.5 30-Apr-2018 WTI Crude 67.04 31-May-2018 68.57 30-Apr-2018 Brent Crude 77.59 31-May-2018 75.17 30-Apr-2018 *Data Source: as Bloomberg on 26 th Feb 2017 Source: Bloomberg
Global and Indian Indices Index Country MTD FYTD Ibovespa Brazil -10.9% -10.1% Hang Seng Hong Kong -1.1% 1.2% Sensex India 0.5% 7.1% S&P500 USA 2.2% 2.4% DJI USA 1.0% 1.3% SSE Composite China 0.4% -2.3% Nifty India 0.0% 6.2% CAC France -2.2% 4.5% DAX Germany -0.1% 4.2% Nikkei 225 Japan -1.2% 3.5% FTSE 100 UK 2.2% 8.8% Index MTD FYTD Sensex 0.5% 7.1% Nifty 0.0% 6.2% BSE 100-1.0% 5.1% BSE Small Cap -6.3% 1.5% Nifty Midcap 50-8.2% 0.8% Nifty Midcap 50-8.2% 0.8% Index MTD FYTD BSE Auto -5.3% 1.7% BSE Bank 4.7% 10.3% BSE Basic Materials -6.9% 0.0% BSE Capital Goods -3.7% 1.9% BSE Consumer Discretionary Goods and Services -3.9% 1.7% BSE Consumer Durables -7.6% -7.1% BSE Energy -2.3% 1.2% BSE Finance 2.1% 7.8% BSE FMCG -0.1% 9.7% BSE Healthcare -8.1% -1.2% BSE IT -0.8% 11.2% BSE Power -4.9% 0.2% BSE Telecom -7.1% -8.8% BSE Utilities -2.7% 0.8% *Data as on 26 31 th st May, Feb 2017 2018 Source: Bloomberg
10 year G-Sec India and USA 9 8 7 7.74 6 5 4 3 2 2.78 1 0 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 US 10 Yr India 10 Yr *Data as on 26 31 th st May, Feb 2017 2018 Source: Bloomberg
Currencies and Commodities 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Currency 12.6% 9.2% 5.4% 6.2% 3.4% 3.3% 1.1% 2.4% 1.2% 2.2% 1.4% 2.6% -0.5% -0.9% -3.4% -5.1% INR Curncy GBP Curncy JPY Curncy CNY Curncy EUR Curncy RUB Curncy THB Curncy BRL Curncy MTD FYTD Commodities 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% 10.4% 3.2% 3.2% 0.5% 0.3% 1.1% 2.5% 3.3% -2.2% -1.3% -2.0% -0.9% -5.7% -18.7% WTI Crude Brent Crude Gold Spot $/Oz Silver Spot $/Oz Copper Spot $/Oz Zinc Spot $/Oz Baltic Dry Index MTD FYTD *Data as on 26 31 th st May, Feb 2017 2018 Source: Bloomberg
Nifty posted a recovery this month to end flat/range bound after a sharp decline during the month post Karnataka election results where Congress & JD(U) formed the government. Index of Industrial Production (IIP) grew 4.4% in March against a downward revised 7% increase in the previous month. In 2017-18, IIP averaged 4.3% against 4.6% a year ago. In the current earnings season, Nifty earnings growth has been supported due to strong earnings by heavyweights-namely TCS, Reliance and HDFC Twins We are likely to see earnings play catch up and earnings multiple de-rating to take Nifty towards 17 times 1 year forward. The benchmark index may see some short term correction even though the long term growth levers remain intact. We maintain our Nifty target price for FY19 to 11,500. EPS Estimates for Nifty Index (Bloomberg consensus) for FY19, FY20, and FY21 are INR 592, INR 702, and INR 781 respectively. As per blended estimates, Index is currently trading at PE of ~17.5 times 1 year forward. We recommend investors to deploy 33% of fresh equity allocation while the remaining can get invested over a 3 to 4 month period in a staggered manner. Clients having high exposure to mid & small cap via direct equities *Data as on 26 th Feb 2017 Source: Bloomberg may look at trimming their positions & moving to large caps/managed solutions.
The 10yr benchmark G-Sec is hovering in the range of 7.58% to 7.91% on a semi-annualised basis. The bond yields have seen a rise in the last few weeks on account of a weakening rupee, rising international crude oil prices & and a rise in US treasury Yields RBI conducted the OMO(Open market operations) purchase of government securities worth 10,000 crore on May 17, 2018. Further near term OMO purchase announcements may bring down the yields. Headline CPI inflation accelerated to a 3M high of 4.6% YoY belying our and street expectations of a 4.4% increase. The rise in CPI was predominantly due to unfavourable base effect and higher non-food inflation lead by uptick in housing and service components of core inflation We expect the MPC to maintain status quo in the June policy review even though the policy stance might be hawkish in the backdrop of elevated crude prices & depreciating currency. We expect benchmark yields to remain volatile and trade in the range of 7.60% to 7.90% with an upward bias of 20 bps. Yield movement hereon will depend on a host of domestic factors like inflation trajectory, supply demand dynamics and international factors like crude oil prices & global bond yield movement. We recommend investors to allocate 100% of their fresh fixed income allocation to long dated 'buy and hold' strategies and active accrual strategies with low to medium duration.
Asset Class Change View Strategy Rationale Equity Deploy in a staggered manner and invest 33% of fresh equity allocation at current levels. Remaining can get invested over a period of 3 to 4 months. EPS Estimates for Nifty Index (Bloomberg consensus) for FY19, FY20, and FY21 are INR 592, INR 702, and INR 781 respectively. As per blended estimates, Index is currently trading at PE of ~17.5 times 1 year forward. Investment Vehicles Equity Mutual Funds, PMS, Equity AIFs Fixed Income Accrual 100% of fresh fixed income to be invested in long dated buy and hold strategy and active accrual strategy with low to moderate duration. Yields are expected to be volatile in near term; multiple short term triggers pointing towards upwards bias to benchmark yield. Hence, on risk reward basis, accrual/yield strategy looks relatively better placed. Accrual Mutual Funds, Yield focused AIFs Fixed Income Duration We do not recommend investing in duration as a strategy. Risk reward is not favorable for duration play due to multiple factors like inflation trajectory, crude oil price, auction demand supply dynamics & US bond yield movement. NA Alternatives Real Estate Aggressive clients can allocate 5%-10% of their portfolio through real estate funds Residential sales have been slow for the quarter but new launches and sales are expected to gradually rise on account of capital infusion in affordable housing space. Real Estate AIFs Alternatives Gold Investors can allocate 0-5% of their portfolio to this asset class. Investments in gold can act as a good hedging instrument in overall portfolio. Gold ETFs Positive change No change Negative change Positive Neutral Negative
Asset Class Subasset Class Security Conservative Moderate Aggressive Equity 20% 40% 55% Large Cap Mutual Fund Birla SL Frontline Equity Fund 5% 10% 10% Reliance Large Cap Fund 5% 10% 10% Multi Cap Mutual Fund MOSt Focused Multicap 35 Fund 0% 10% 5% Small and Mid Cap Mutual Fund HDFC Small Cap Fund 0% 0% 5% PMS Sage One/ Rubik Portfolio 0% 0% 10% Birla Select Sector Portfolio 0% 0% 10% Structured Product Market Linked SP Actively Managed Portfolio 10% 10% 5% Fixed Income Alternatives Accrual Mutual Fund 70% 45% 20% HDFC Credit Risk Debt Fund 20% 10% 5% Aditya Birla Medium Term Plan 20% 10% 5% Reliance Classic Bond Fund 20% 10% 0% Structured Product Fixed Coupon SP 10% 15% 10% 0% 10% 20% CAT I/II AIF Infrastructure/ Distressed Assets EISAF II Onshore Fund/Edelweiss Infrastructure Yield Plus 0% 10% 10% CAT III AIF Long Short Avendus Enhanced Return Fund/ DSP Blackrock SatCore 0% 0% 10% Cash/Liquid/ 10% 5% 5% Arbitrage Arbitrage Mutual Fund Edelweiss Arbitrage Fund 10% 5% 5% Grand Total 100% 100% 100% *Data as on 26 th Feb 2017 Above Source: weights Bloomberg are indicative only; For details, please contact your relationship manager
Model Portfolio Performance 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% ITD Returns 15.52% 12.64% 10.3% 9.6% 8.87% 8.3% Aggressive Balanced Conservative Portfolio Benchmark Returns are as on 30 th May, 2018 Inception Date 1 th Aug 2011 returns are calculated on XIRR basis. ; Benchmark: Aggressive 75% NIFTY & 25% *Data Crisilas Liquid on 26 Index; th Feb Balanced 2017-50% NIFTY & 50% Crisil Liquid Index; Conservative - 100% Crisil Liquid Index Source: Bloomberg
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