Monthly Review (As on 30th June 2019)
Equity Market review
Monthly Review
The Nifty-50 index fell by 1.1% in June, on concerns of a slowdown in growth, geopolitical and trade tensions, continuation of liquidity issues in the NBFC sector and some other corporates, and the delay in the monsoon.
The broader Indian market continued to underperform the Nifty-50, with the Nifty Midcap-100 falling by 1.8% in June. For the first quarter of the current financial year, the Nifty Midcap-100 has fallen 3.3% as compared to a rise of 1.4% in the Nifty-50, and the divergence witnessed in the previous financial year has thus continued.
Bond prices rallied sharply in Jun, with the 10-year G-Sec yield falling by 15 bps to 6.88%. A sharp fall in US treasury yields , and dovish Central Banks were the main factors influencing the fall in bond yields in Jun. The spreads of corporate bonds over the 10 year G-Sec widened, from 82 bps to 90 bps, due to a lack of demand for corporate bonds.
Outlook for Markets
Equity Market
The measures announced by the Government could provide some relief to the ailing NBFC sector and to curtail the adverse impact on other segments of the economy. With a limited available fiscal space in the Budget, there is a reliance on a larger disinvestment program and some increases in taxes on certain segments (in terms of some sectors as well as on the highest income-earning segments of the population) and a shortfall in expected revenues could lead to a curtailment of the Government spending: this has resulted in an initial negative reaction in the equity markets immediately post the Budget.
Markets will keenly await a recovery in sectors such as auto and FMCG, and a normalisation of the monsoon. The upcoming corporate earnings season would play a key role in light of the sluggish earnings growth and higher valuations in the equity market. Post the initial negative reaction post the Budget, we expect the equity markets to stabilise, and we could subsequently see a selective broadening of the market rally, as compared to the narrow rally witnessed over the past 15 months, over the next year, even though headline indices themselves may post limited gains. We therefore remain overweight on equities in our hybrid ULIPs.
Monthly Review (As on 30th June 2019)
Debt Market review
Monthly Review
The Nifty-50 index fell by 1.1% in June, on concerns of a slowdown in growth, geopolitical and trade tensions, continuation of liquidity issues in the NBFC sector and some other corporates, and the delay in the monsoon.
The broader Indian market continued to under-perform the Nifty-50, with the Nifty Midcap-100 falling by 1.8% in June. For the first quarter of the current financial year, the Nifty Midcap-100 has fallen 3.3% as compared to a rise of 1.4% in the Nifty-50, and the divergence witnessed in the previous financial year has thus continued.
Bond prices rallied sharply in Jun, with the 10-year G-Sec yield falling by 15 bps to 6.88%. A sharp fall in US treasury yields, and dovish Central Banks were the main factors influencing the fall in bond yields in Jun. The spreads of corporate bonds over the 10 year G-Sec widened, from 82 bps to 90 bps, due to a lack of demand for corporate bonds.
Outlook for Markets
Fixed Income Market
Consumer inflation rose slightly in May to 3.05% on the back of higher food prices, but core inflation trended lower, at 4.2%. The GDP growth dipped to a 20-quarter low for Q4 FY2019 with a reading of 5.8% YoY, due to a poor performance of industrial growth and a contraction in the agriculture sector.
The Union Budget has surprised the market with the fiscal deficit target being reduced to 3.3% of GDP for FY20 from 3.4% in FY19. The Government has also announced that it will raise part of its market borrowing by issuing bonds in overseas markets. It is expected that RBI would be focusing on growth, which indicates a low interest rate environment going ahead. We expect another 25-50 bps cut in the policy rates for the rest of the year. The Bimal Jalan committee report will be a key event to watch later this month, and if the report indeed does suggest a large transfer from the RBI’s excess reserves to the Government, bond prices could sustain the post-Budget rally. We expect bond yields to remain soft, with the 10 year Gsec likely to trade in a range of 6.50% to 6.75% in the near term.
