Monthly Review (As on 30th April 2019)
Equity Market review
Monthly Review
The Nifty-50 index rose by 1.1% in April, accompanied by high volatility, with rising crude oil prices and the ongoing Lok Sabha Elections. However, the broad markets weakened considerably, with the Nifty Midcap-100 index falling by 3.8% in April. International crude oil prices rose by 6%, partly due to the announcement by the US Government, that no waivers on sanctions would be granted effective early May, to some countries (including India) who have been importing part of their crude oil requirements from Iran. Foreign funds continued to be large buyers, of US$ 1.7 bn in equities, while domestic institutions continued to be sellers, of equities worth US$ 0.6 bn for the month.
Bond prices fell in April, with the 10-year G-Sec yield rising by 6 bps to 7.41%. A rise in US treasury yields, higher crude oil prices, and selling in bonds by foreign funds, were some of the factors influencing the fall in bond prices in April. Spreads of corporate bonds over the 10 year G-Sec widened again, from 76 bps to 91 bps, due to the sales of corporate debt by the FIIs.
Outlook for Markets
Equity Market
Corporate earnings for the fourth quarter of FY 18-19, thus far have been in line with market expectations: strong numbers witnessed from banks, and poor numbers reported by automobile companies due to sluggish demand and high inventories. The technology sector reported a mixed set of numbers. It is important to assess the picture after all the results are declared, to see if there is a change in the trend in terms of downgrades vs upgrades, which we have been witnessing since the past few years. The continuing downgrades in corporate debt ratings by credit rating agencies since the past 7-8 months, is concerning.
Markets are likely to see volatility continuing in the short-term, and the longer-term trend would be influenced by the results of the Lok Sabha elections as well as by a revival in corporate earnings. There has been a massive surge in the buying from foreign institutions in the past few months, due to inflows in emerging markets, in general, and the increasing expectations of the present Government continuing to retain power in India, in particular. A strong outcome in this direction, could lead to a broad basing of the rally which has thus far been very narrow since the past one year.
Monthly Review (As on 30th April 2019)
Debt Market review
Monthly Review
The Nifty-50 index rose by 1.1% in April, accompanied by high volatility, with rising crude oil prices and the ongoing Lok Sabha Elections. However, the broad markets weakened considerably, with the Nifty Midcap-100 index falling by 3.8% in April. International crude oil prices rose by 6%, partly due to the announcement by the US Government, that no waivers on sanctions would be granted effective early May, to some countries (including India) who have been importing part of their crude oil requirements from Iran. Foreign funds continued to be large buyers, of US$ 1.7 bn in equities, while domestic institutions continued to be sellers, of equities worth US$ 0.6 bn for the month.
Bond prices fell in April, with the 10-year G-Sec yield rising by 6 bps to 7.41%. A rise in US treasury yields, higher crude oil prices, and selling in bonds by foreign funds, were some of the factors influencing the fall in bond prices in April. Spreads of corporate bonds over the 10 year G-Sec widened again, from 76 bps to 91 bps, due to the sales of corporate debt by the FIIs.
Outlook for Markets
Fixed Income Market
There have been some positive signs in the global economy, with some economic indicators in US and China surprising on the upside, though Europe remains a laggard. In the US, the Federal Reserve maintained a status quo pause in interest rates, and lowered its inflation assessment. In India, the Monetary Policy Committee (MPC) cut the Repo rate by 25 bps while keeping the stance unchanged. Consumer inflation moved up to 2.86% on the back of food and fuel prices, though core inflation eased further. Trade deficit for March worsened as compared to February, primarily due to gold and oil imports. The Indian Meteorological Department has forecast ‘near-normal’ monsoons for India in 2019, with the seasonal rainfall expected to be 96% of the Long Period Average; thus the monsoon may not be as weak as was feared earlier.
Fixed income markets are concerned with the escalation in populist announcements, which could lead to pressure on the fiscal front and could lead to a rise in bond yields if implemented. However, a decline in core inflation, a significant deterioration in growth outlook, any sharp fall in crude prices (after the recent up move) and a normal monsoon can create some space for a further fall in yields. We remain cognizant of the above factors, and have therefore maintained our portfolio positioning towards the front end of curve, with an increased exposure to selective corporate debt. We would look to increase duration depending upon how the above developments shape up. In the near term, the 10 year Gsec expected to trade in the range of 7.25% - 7.50%.
