Monthly Review
Equity markets continued their strong run in April too, with the Nifty index gaining another 1.4%. The month started with global geo-political concerns. However, trends in the French presidential election result and the 4QFY17 earnings season helped markets to close higher towards the end of the month. Midcaps again led the gains with CNX Midcap index gaining 5.2% for the month.
Bond yields rose in April after the highlighting of higher risks to inflation, by the RBI. (10 year bond yields rose by 28 basis points to 6.96%). The spreads of corporate bonds over the 10 year G-Sec fell to 67bps from 82bps on underperformance of 10- year G-Sec in anticipation of an issuance of a new 10-year security.
Economy
Gradual recovery in economic activities post de-monetisation continued. Import and export data (ex-oil & gold) showed a sharp jump, and port traffic data, too, showed improvement. However the picture was mixed, as petrol and diesel consumptions remained weak and steel and cement production was lacklustre. Overall, the rural economy has not recovered completely as yet, post de-monetisation.
Outlook for Markets
Equity Market
In near term, global markets will be driven by events like tax-administration reforms by the US and political developments in Europe (outcome of the French election and ECB’s exit policy).
While valuations for Indian markets have risen and the Nifty is currently trading at slightly higher than long term average multiples, this is being supported by higher liquidity and lack of alternative investment opportunities. Low interest rates (lower risk premium) and stable macros coupled with stable and a reform-focused Government (higher earnings multiple) provide comfort and support the valuation premium. Stock selection would continue to play a greater role in fund performance. There might be short term challenges in terms of GST implementation and earning pressures due to low base of input costs going away (commodity prices have rallied from lows). Investing in equities from a medium to long time horizon is likely to continue rewarding the investors even from current levels.
Monthly Review
Equity markets continued their strong run in April too, with the Nifty index gaining another 1.4%. The month started with global geo-political concerns. However, trends in the French presidential election result and the 4QFY17 earnings season helped markets to close higher towards the end of the month. Midcaps again led the gains with CNX Midcap index gaining 5.2% for the month.
Bond yields rose in April after the highlighting of higher risks to inflation, by the RBI. (10 year bond yields rose by 28 basis points to 6.96%). The spreads of corporate bonds over the 10 year G-Sec fell to 67bps from 82bps on underperformance of 10- year G-Sec in anticipation of an issuance of a new 10-year security.
Economy
Gradual recovery in economic activities post de-monetisation continued. Import and export data (ex-oil & gold) showed a sharp jump, and port traffic data, too, showed improvement. However the picture was mixed, as petrol and diesel consumptions remained weak and steel and cement production was lacklustre. Overall, the rural economy has not recovered completely as yet, post de-monetisation.
Outlook for Markets
Fixed Income Market
CPI inflation rose to 3.8% y-o-y in March from 3.7% in February mainly due to higher fuel price inflation (LPG and kerosene). Food price inflation edged down, while core inflation was steady at 4.9% y-o-y. Industrial production contracted 1.2% y-o-y in February from an upwardly revised 3.3% in January reflecting the adverse impact of de-monetisation on industrial activity. Both consumer and capital goods output growth contracted. RBI hiked the Reverse repo rate from 5.75% to 6% to realign the money market rates. Global yields, particularly US yields, eased on lack of clarity on Tax reforms. Crude remained benign on higher supply from US. FIIs poured in around Rs 20,000 Cr in debt in April on higher real yield and a stronger currency.
Going ahead inflation could remain more benign than RBI's expectation due to fall in vegetable price, stable commodity prices and a base effect.