Market Outlook

June 2019

1

Equity Roundup - Movement in May

IndexClosing Value

1-Month Return (%)

1 Year Return (%)

U.S

S&P 500 2752 -6.58 1.73

Nasdaq 7453 -7.93 0.15

Dow Jones 24815 -6.69 1.64

Europe

DAX 11727 -5.00 -6.97

FTSE 100 7162 -3.46 -6.73

Asia/Pacific

Nikkei 20601 -7.45 -7.21

KOSPI 2042 -7.34 -15.74

Hang Seng 26901 -9.42 -11.71

Domestic

Sensex 39714 1.75 12.43

Nifty 11923 1.49 11.05

BSE Mid cap TRI 17912 1.43 -4.79

BSE Small cap TRI 17489 1.70 -13.10

BSE 100 TRI 14315 1.61 10.42

BSE 200 TRI 5922 1.56 8.41

BSE 500 TRI 18396 1.58 6.32

Data as on 31 May 2019TRI – Total Return Index

*S&P BSE Sectoral Indices movement between 30 Apr’19 to 31 May’19 in % terms

• A strong mandate to the incumbent government cheered the markets. Niftyand Sensex ended with (+1.5%) and (+1.7%) returns, respectively.

• BSE sectoral indices recorded mix performances. Capital goods was topperforming sector, gaining by 10.6%. Realty, Banking, PSU, ConsumerDurables, Oil & Gas and Power outperformed Nifty, all surging between 2-10%. Healthcare was the worst performing sector, down by over 7%.

(7.4)(6.6)

(3.0)(2.1)(2.1)

(1.7)1.4 1.7 1.7 2.1

2.5 3.5

5.1 5.8

9.6 10.6

(9.0) (6.0) (3.0) 0.0 3.0 6.0 9.0 12.0

Heath CareMetals

ITFMCG

AutoEnergy

Mid Cap TRISmall Cap TRI

SensexPower

Oil & GasConsumer Durables

PSUBankexRealty

Capital Goods

2

3

Equity Market Roundup - Key Takeaways

• Factors which affected Indian Equity Markets: The election result hogged the limelight during the month and the Sensex andNifty breached all-time highs. Expectations that the government would continue with the previous reform measures and focusmore on structural reforms and job creation to support the growth trajectory also supported the domestic indices.

• Moreover, buying by domestic institutional investors (DIIs) and foreign institutional investors (FIIs) buoyed the market further.

• During the month, Sensex and Nifty hit the all-time high of 40,312 mark and 12,103 levels, respectively.

• However, gains were restricted on profit booking amid concerns about possible global economic slowdown, weak US economiccues, and uncertainty over Brexit were some of the major global factors that weighed on the domestic indices.

• Performance: Nifty and Sensex ended with (+1.5%) and (+1.7%) returns in May, respectively. BSE Mid cap and BSE Small capindices performed in line with its larger peers. BSE Mid cap and BSE Small cap indices ended with (+1.4%) and (+1.7%) returns,respectively.

• Other data points: India's fiscal deficit in April 2019 stood at Rs 1.57 trillion ($22.52 billion), or 22.3% of the budgeted targetfor the current fiscal year. The fiscal deficit for 2018-19 came in at 3.39% of GDP, marginally lower than 3.4% estimated in therevised estimates of the budget due to increase in non-tax revenue and lower expenditure.

• India’s economic growth fell to 5.8% in the January-March period of 2018-19, the lowest in 20 quarters, due to a sharpslowdown in investment and manufacturing growth as well as a contraction in agricultural production. This pulled down the GDPexpansion to 6.8% in FY19.

• IIP for the month of March slowed to 21-month low as growth in industrial activity contracted by 0.1% on continuedslowdown in manufacturing sector.

4

Growth Numbers Slowing Down

• The growth of the Gross Domestic Product (GDP) of India’s economy slowed to 5.8% in the quarter ended Mar 2019 from 6.6%in the previous quarter and 8.1% in the same period of the previous year. This was the slowest rate since the quarter endedMar 2014. The fall was due to a sharp slowdown in investment and manufacturing growth as well as a contraction inagricultural production.

• For the entire fiscal, India’s GDP grew 6.8%, slower than the growth of 7.2% in the previous fiscal, marking the slowest growthrate in the last five years.

5.6%6.3%

7.0%7.7%

8.2%

7.1%6.6%

5.8%

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Mar

-19

GDP Growth Rate (Q-o-Q)

5

Election Results 2014 v/s 2019

BJP+ 336

Congress+ 60

Non-aligned 147

BJP+ 353

Non-aligned

97

Congress+ 92

2014 2019

Data as on 23 May 2019

6

Performance of Equity Markets post Election results from 2009 - 2014 and 2014 - 2019

• During 2009, when the incumbent government was re-elected for thesecond time, markets cheered the verdict due to the formation of astable government and saw a short term spurt in returns (19.0%) inthe following year. In the subsequent 4 years, the markets delivered9.4% CAGR and for the entire five-year period; the market generated11.3% CAGR.

11000

13000

15000

17000

19000

21000

23000

18

-May

-09

18

-Mar

-10

18

-Jan

-11

18

-No

v-1

1

18

-Se

p-1

2

18

-Ju

l-1

3

18

-May

-14

BSE Sensex Movement

1 Yr AbsReturn 18.97%

4 Yr CAGR9.38%

5 Yr CAGR 11.26%

22000

25000

28000

31000

34000

37000

40000

16

-May

-14

16

-Mar

-15

16

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-16

16

-No

v-1

6

16

-Se

p-1

7

16

-Ju

l-1

8

16

-May

-19

BSE Sensex Movement

1 Yr Abs Return 14.80%

4 Yr CAGR 9.17%

5 Yr CAGR 10.25%

• In 2014, when the new government was elected with a significantmajority, market euphoria again led to a short term spurt in returns(14.8%) in the following year. In the subsequent 4 years, the marketsdelivered 9.2% CAGR and for the five-year period, market delivered10.3% CAGR.

Hence, it can be observed from the above instances that whenever the election outcome is favourable, there tends to be a short term spurt in market returns.

However, over long term, markets seek direction from macro-economic indicators which highlight the overall health of the economy.

7

Macro Indicators

signifies positive movement over Q-o-Q signifies negative movement over Q-o-Q

Current Quarter Ago Year Ago

Consumer Price Index (CPI) 2.92% (Apr-19) 2.05% (Jan-19) 4.58% (Apr-18)

Wholesale Price Index (WPI) 3.07% (Apr-19) 2.76% (Jan-19) 3.62% (Apr-18)

Industrial Production (IIP) 0.1% (Mar-19) 2.40% (Dec-18) 4.4% (Mar-18)

GDP 5.80% (Mar-19) 6.60% (Dec-18) 8.10% (Mar-18)

Trade Deficit ($ bn) 15.33 (Apr-19) 14.73 (Jan-19) 13.72 (Apr-18)

Commodity Market

Brent Crude ($/barrel) 64.49 66.14 77.24

Gold ($/oz) 1294.01 1318.45 1305.20

Silver ($/oz) 14.56 15.63 16.40

Currency Market

USD/INR 69.69 71.20 67.45

EURO/INR 77.73 80.98 78.79

GBP/INR 88.01 94.70 89.79

YEN/INR (per 100) 64.08 63.49 62.74

Equity Net Flows

Mutual Funds & DIIs (Rs. Cr) 5164 (May-19) 2174 (Feb-19) 12510 (May-18)

FIIs (Rs. Cr) 7920 (May-19) 17220 (Feb-19) -8979 (May-18)

8

Performance across Market Caps v/s Nifty - Small Caps outperforms in May

Data as on 31 May 2019; Source: ICRA MFI

2.3

10.4

8.77.3

12.0 11.7

2.1

7.7

5.4

-3.2

11.4

14.4

2.6

9.5

5.2

-8.2

10.9

15.6

2.1

9.6

7.8

4.8

12.7 13.0

1.5

10.59.6

11.1

13.5

10.5

-10.0

-6.0

-2.0

2.0

6.0

10.0

14.0

18.0

1 Mth 3 Mths 6 Mths 1 Yr 3 Yrs 5 Yrs

Large Cap Mid Cap Small Cap Multi Cap Nifty

9

Debt Markets - Review

10

Debt Market Roundup - Key Takeaways

• Factors which affected Bond Markets: Expectations of a rate-cut in the policy meeting in June 2019, RBI announced toconduct purchase of government securities under open market operations for an aggregate amount of Rs. 12,500 crore.Moreover, rally was further extended after the outcome of the general elections came in line with the exit polls raisingexpectations that the current government will continue with its reform agenda.

• Macro Economic Overview: Retail inflation touched a six-month high in April to 2.92% vs 2.86% in March on high foodprices. Whole Price Index (WPI)-based inflation was pegged at 3.07% in April vs 3.18% in March on cheaper fuel andmanufactured items.

• The Goods and Services Tax (GST) collection for the month of May rose 6.67 % to Rs 1,00,289 crore from a year ago periodstaying above Rs 1 lakh crore in monthly revenue mop-up.

• RBI policy: RBI reduced the Repo rate by 25 basis points to 5.75% in its June policy meeting and changed the policy stanceto “accommodative” from “neutral”.

• Performance of 10-year G-Sec Yield: The 10-year benchmark G-Sec yield closed at 7.03%, down by 38 bps from its previousclose of 7.41%.

• Outlook: Markets will track government spending and RBI measures to infuse liquidity. On the other hand, high fiscaldeficit and NBFC crisis are the ones which are more challenging issues which the investors will track and see how RBItackles these concerns. Moreover, crude oil prices will be another important trigger for markets.

• Moreover, the markets will also track USD-INR movement and monsoon risk from El Nino conditions. On the global front,markets will track US data to understand the likely stance of US Federal Reserve.

For internal circulation only

11

Debt Roundup

31 May’19 30 Apr’19 31 May’18 M-o-M Change

Interest Rates

Repo rate 6.00% 6.00% 6.00% 0 bpsSLR 19.00% 19.00% 19.50% 0 bps

CD Rates

3 month 6.40% 7.30% 7.40% -90 bps6 month 6.80% 7.55% 7.90% -75 bps1 Year 7.15% 7.78% 8.15% -63 bps

CP Rates

3 month 6.85% 7.70% 7.90% -85 bps6 month 7.65% 8.00% 8.25% -35 bps1 Year 8.00% 8.25% 8.30% -25 bps

T-Bill/G-sec

91 Days 6.16% 6.38% 6.40% -22 bps364 Days 6.30% 6.46% 6.91% -16 bps

7.26% GOI 2029 (10 Yr GOI) -New 7.06% 7.41% - -35 bps7.17% GOI 2028 (10 Yr GOI) - Old 7.20% 7.52% 7.83% -33 bps

Corporate Bonds (PSU)

3 Year 7.50% 7.95% 8.50% -45 bps5 Year 7.35% 8.10% 8.55% -75 bps

10 Year 7.97% 8.41% 8.57% -44 bps

International Markets

10 Year US Treasury Yield 2.18% 2.51% 2.86% -33 bps3 Months LIBOR 2.52% 2.58% 2.31% -6 bps

12 Months LIBOR 2.57% 2.72% 2.71% -15 bps

12

Key Highlights of Second Bi-monthly Monetary Policy Statement, 2019-20

RBI’s Stance Accommodative

Inflation and Growth projections by the RBI:

• RBI slightly increased its inflation projections for H1 FY20 to 3.0-3.1% and reduced for H2 FY20 to 3.4-3.7% (from 2.9-3.0% in H1FY20and 3.5-3.8% in H2 FY20) with risks broadly balanced.

• RBI also revised down the growth outlook to 7.0% for FY 20 with 6.4-6.7% in H1FY20 and 7.2-7.5% in H2 FY20 (as against earlierestimate of 6.8-7.1% in H1 and 7.3-7.4% in H2 FY20).

19.00

19.25

19.50

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

10-Apr-18 10-Nov-18 10-Jun-19

Repo (LHS) Reverse Repo (LHS)

CRR (LHS) SLR (RHS)

• RBI reduced the Repo rate by 25 basis points to 5.75%. This is thethird rate cut of calendar year 2019 resulting in a cumulative 75bps ofcuts till now.

• All six members voted unanimously in favour of changing the policystance to “accommodative” from “neutral”.

• Cash Reserve Ratio (CRR) remains unchanged at 4%.

• Statutory Liquidity Ratio (SLR) stands adjusted to 19.00%.

• The RBI’s Monetary Policy Committee(MPC) decision to lower rateswas brought on by in line continued low CPI inflation (2.46% averagingJan-April 2019), and due to concerns around slowdown in growth,investment activity and consumption.

13

Yields Movement Across - India and US

• 10-year India Government Bond Yield: The 10-year benchmark G-Sec yield dropped 35 bps from 7.41% in May 2019 to7.06% in April 2019 to its lowest in past one year. The rally was mainly seen owing to declining repo rate, reducedpressure on fiscal deposit with falling Brent crude oil prices.

• With RBI’s change in monetary stance from neutral to accommodative. An accommodative stance eliminates thepossibility of sudden rate hike. Looking at CPI well within RBI’s target 4% and slower than expected economic growth,further rate cate help ease liquidity.

• U.S. Treasury Yield: U.S. Treasury yields fell 33 bps to 2.18% in May compared with previous month’s close of 2.51%.Concerns about global growth improved the safe haven appeal of U.S. Treasuries during the month.

For internal circulation only

2.00

2.10

2.20

2.30

2.40

2.50

2.60

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10-Year US Bond Yield (%)

6.80

6.90

7.00

7.10

7.20

7.30

7.40

7.503

0-A

pr-

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un

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India 10-Year Government Bond Yield (New) (%)

14

INR and Brent Crude Performance

• INR Performance: The rupee settled lower against the US dollar at Rs 69.69 per dollar on May 31 as against Rs 69.56 perdollar on April 30. Fears of escalation in the US – China trade war pulled the rupee down. While, cooling crude oil prices, andgains registered by domestic equities through the month provided the rupee support. Sentiments were also boosted fromLok Sabha elections as appetite grew on hopes that the results would ensure policy continuity at the Centre and spur foreignfund inflows into the domestic financial market.

• Brent Crude: Brent crude fell sharply 11.41% from US$72.8 per barrel in April 2019 to US$64.49 per barrel in May 2019 onthe back of US waivers on Iran oil sanctions expire and following escalation in U.S.-China trade war. The prolonged battlebetween the two economies has dampened the demand outlook of the commodity.

For internal circulation only

For internal circulation only

69.0

69.4

69.8

70.2

70.6

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USD

/IN

RCurrency Movement

60

62

64

66

68

70

72

74

30

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12

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Brent Crude (USD)

pe

r b

arr

el

pe

rb

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69.18

62.00

15

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