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As on 28th October 2016

Monthly Review

Equity markets remained almost flat with 0.3% gains for the Nifty in October amidst volatility during the month while mid- caps fared relatively better with 2.8% gains for the Nifty Midcap index. Strong sales numbers from the automobile sector and RBI cutting the repo rate by 25 bps helped the market commence the month on a strong note. However, markets reacted negatively to weak Chinese export data and the increasing possibility of the next rate hike by the Federal Reserve in the US, in December.

Fixed income markets traded cautiously: bond yields eased mildly by only 3bps despite a sharp fall in Consumer Price Inflation to 4.31% y-o-y in September from 5.05% in August aided by softening food prices. The spreads of corporate bonds over the 10 year G-Sec rose to 60bps from 55bps on higher supply.

Economy

Industrial production continued to contract, (-)0.7% in August as against (-)2.4% in July. September WPI inflation slowed marginally to 3.57% compared to 3.74% in August. The Rupee continues to have much lower volatility than experienced by other Emerging market currencies reflecting India’s improving fundamentals.

Outlook for Markets

Equity Market

Markets are likely to be volatile in near term due to the US election outcome and the decision on interest rates in the US in December. Geopolitical tension could also weigh on markets. We remain positive on the longer term basis given the recovery cycle being in early stages and the beneficial impacts of lower interest rates, low consumer inflation and increasing consumer demand, coupled with a GDP growth boosted by GST implementation.

Monthly Review

Equity markets remained almost flat with 0.3% gains for the Nifty in October amidst volatility during the month while mid- caps fared relatively better with 2.8% gains for the Nifty Midcap index. Strong sales numbers from the automobile sector and RBI cutting the repo rate by 25 bps helped the market commence the month on a strong note. However, markets reacted negatively to weak Chinese export data and the increasing possibility of the next rate hike by the Federal Reserve in the US, in December.

Fixed income markets traded cautiously: bond yields eased mildly by only 3bps despite a sharp fall in Consumer Price Inflation to 4.31% y-o-y in September from 5.05% in August aided by softening food prices. The spreads of corporate bonds over the 10 year G-Sec rose to 60bps from 55bps on higher supply.

Economy

Industrial production continued to contract, (-)0.7% in August as against (-)2.4% in July. September WPI inflation slowed marginally to 3.57% compared to 3.74% in August. The Rupee continues to have much lower volatility than experienced by other Emerging market currencies reflecting India’s improving fundamentals.

Outlook for Markets

Fixed Income Market

Consumer inflation data was better (lower) than expected, and is likely to remain subdued for the next few months during this financial year. The CPI is expected to average around 4.50-4.75% for the remaining part of the year, and the potential outcome for this is positive for prices of bonds. However there is chance that that the global environment turns more volatile with yields rising from lows. While the Indian market would remain a relatively strong one, it would be difficult to remain immune from volatility under such global conditions. In the medium term we do expect bond prices to rise and yields to soften from the current levels, though not significantly.

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