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As on 31st March 2017

Monthly Review

Equity markets continued to remain strong in March, with the Nifty rallying a further 3.3%. Remonetisation, strong gains made in state elections by the BJP government, positive global cues and strong fund-inflows led to buoyant market sentiments and all-time highs for the Nifty.

Fixed income markets, too, rallied, with bond prices rising in March (10 year bond yields fell by 19 basis points to 6.68%). The spreads of corporate bonds over the 10 year G-Sec rose to 82bps from 78bps due to higher supply in bonds. Foreign institutions were strong buyers (INR 25,355 Cr) in fixed income.

Economy

Macros continue to report an improvement; and with remonetisation gathering pace, better numbers over the next 12 months can be expected

Outlook for Markets

Equity Market

The ruling Government will be implementing one of the most significant reforms in India’s history in terms of GST implementation during FY18. A successful implementation would lead to an increase in our GDP growth in the longer-term. As the remonetisation exercise is complete and ample currency is available for circulation, we believe pent up demand may lead to a better GDP growth outlook. The Government’s focus on execution of its ongoing reforms, coupled with a likely higher spend on infrastructure and rural growth, would contribute to this positive outlook.

Corporate earnings trajectory is therefore likely to see strong uptick (in absence of any major unforeseen event) over the next 2 years, as compared to the past 3 years. However the markets are already factoring in immediate term benefits and as a result it should consolidate around current levels for some time before seeing further upside. Challenges in terms of implementation of GST, earnings disappointments in 4Q’17e, monsoons may act as immediate term risk factors to the current rally.

Monthly Review

Equity markets continued to remain strong in March, with the Nifty rallying a further 3.3%. Remonetisation, strong gains made in state elections by the BJP government, positive global cues and strong fund-inflows led to buoyant market sentiments and all-time highs for the Nifty.

Fixed income markets, too, rallied, with bond prices rising in March (10 year bond yields fell by 19 basis points to 6.68%). The spreads of corporate bonds over the 10 year G-Sec rose to 82bps from 78bps due to higher supply in bonds. Foreign institutions were strong buyers (INR 25,355 Cr) in fixed income.

Economy

Macros continue to report an improvement; and with remonetisation gathering pace, better numbers over the next 12 months can be expected.

Outlook for Markets

Fixed Income Market

Global yields, particularly US yields, remained range bound, awaiting clarity on Government proposals. Emerging market yields softened due to strong inflows from foreign institutional buyers. Domestic inflation continues to be benign and is likely to be contained in the near-term, unless there is a significant rise in commodity prices from current levels. Inflation is expected to be slightly higher in FY17-18, but foreign buying in Indian bonds is expected to continue. We therefore expect bond yields to be range-bound in the near-term.

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