Monthly Presentation Outlook_Dec...Indian stock market snapshot: November 2018 Source: Bloomberg,...
41
Monthly Presentation December 2018
Transcript of Monthly Presentation Outlook_Dec...Indian stock market snapshot: November 2018 Source: Bloomberg,...
Monthly Presentation
December 2018
EQUITY MARKET
Global equity market snapshot: November 2018
Source: Bloomberg, SBIMF Research
Performance in November 2018 (local currency returns) Performance YTD - local currency returns
Performance in November 2018 (US$ returns) Performance YTD - US$ returns
-3-2 -2 -2
-1 0
1 1 2 2 2 2 23 3 4 4 4
56
-4-3-2-101234567
PAKI
STAN U
KFR
ANCE
GER
MAN
YCH
INA
RUSS
IATA
IWAN
SRI L
ANKA
DOW
JON
ESS&
P 50
0JA
PAN
MSC
I EM
- EU
ROPE
BRAZ
ILPH
ILIP
PIN
ESKO
REA
INDO
NES
IAM
SCI I
ndia
MSC
I EM
INDI
A N
IFTY
HAN
G S
ENG
% m-o-m (local currency terms)
-22-15 -14 -14 -13 -13 -11 -9 -7 -6 -5 -5 -2 -2 0
03 3 3
17
-25-20-15-10
-505
101520
CHIN
AKO
REA
MSC
I EM
PHIL
IPPI
NES
MSC
I EM
- EU
ROPE
GER
MAN
YHA
NG
SEN
G UK
TAIW
ANFR
ANCE
SRI L
ANKA
INDO
NES
IARU
SSIA
JAPA
NM
SCI I
ndia
PAKI
STAN
S&P
500
INDI
A N
IFTY
DOW
JON
ESBR
AZIL
% YTD (local currency terms)
-6
-2 -2 -2 -1 -1 0 0
1 1 2 2 24 5 5 6
10 10 11
-8-6-4-202468
101214
PAKI
STAN U
KFR
ANCE
GER
MAN
YBR
AZIL
SRI L
ANKA
CHIN
ARU
SSIA
TAIW
ANJA
PAN
DOW
JON
ESS&
P 50
0M
SCI E
M -
EURO
PEM
SCI E
MPH
ILIP
PIN
ESKO
REA
HAN
G S
ENG
INDO
NES
IAM
SCI I
ndia
INDI
A N
IFTY
% m-o-m (US$ returns)
-27
-19 -19 -19 -18 -18-14 -14 -13 -12 -11 -11 -10 -9
-5-3 -2
03 3
-30-25-20-15-10
-505
CHIN
APA
KIST
ANSR
I LAN
KAKO
REA
GER
MAN
YPH
ILIP
PIN
ES UK
MSC
I EM
MSC
I EM
- EU
ROPE
HAN
G S
ENG
FRAN
CETA
IWAN
INDO
NES
IAM
SCI I
ndia
INDI
A N
IFTY
JAPA
NRU
SSIA
BRAZ
ILS&
P 50
0DO
W JO
NES
% YTD (US$ returns)
Indian stock market snapshot: November 2018
Source: Bloomberg, SBIMF Research
Performance in November 2018 (local currency returns) Performance YTD - local currency returns
• Indian equity market delivered positive returns across most of the sectors in November. Sensex and Nifty were up by nearly5% each during the month. YTD, Nifty is up 3% while Sensex is up by 6%.
• Large caps outperformed mid and small cap for yet another month. Mid-cap index and small-cap index were up by nearly 3%and 2% respectively. YTD, mid and small caps have under-performed NIFTY (Mid cap: -16% YTD, Small Cap: -25% YTD).
• Consumer durables and Real estate were the best performing sectors during the month while metals and PSUs under-performed.
• On YTD basis, IT continues to be the best performing sector. Telecom and Real Estate are the laggards on YTD basis (down41% and 31% respectively).
-6-3 -3 -2 -2
0
1 23 4 4 5 5 5 5 6 7 7 7
-8-6-4-202468
MET
ALS
PSU
HEAL
THCA
RE
POW
ER IT
OIL
& G
AS
TELE
COM
SMAL
L CA
P
MID
CAP
BSE
500
BSE
100
FMCG
NIF
TY
SEN
SEX
AUTO
BAN
KEX
CAP
GOO
DS
REAL
EST
ATE
CON
SUM
ER D
URA
BLES
% m-o-m
-41-31
-25 -25 -22 -21 -20 -19 -16-10 -4 -3 -3
1 3 4 6 9
27
-50-40-30-20-10
010203040
TELE
COM
REAL
EST
ATE
PSU
SMAL
L CA
P
AUTO
MET
ALS
POW
ER
OIL
& G
AS
MID
CAP
CON
SUM
ER D
URA
BLES
BSE
500
HEAL
THCA
RE
CAP
GOO
DS
BSE
100
NIF
TY
BAN
KEX
SEN
SEX
FMCG IT
% YTD
Source: CMIE economic outlook, SBIMF Research,
Q2 FY19 GDP growth moderated to 7.1%
• After four successive quarters of improvement, Q2 FY19 GDP moderated to 7.1% vs. 8.2% inQ1 FY19. Softness in the growth came on the back of moderation in consumption growth anddoubling of import growth even as the exports maintained its growth momentum. On the otherhand, government spending and investment improved.
• GVA growth softened to 6.9% due to reduced agricultural and industrial output while theservices improved. Within industries, mining output depicted a de-growth, manufacturing andconstruction output softened while utilities improved.
After four successive quarters of improvement, GDP growth softened to 7.1% in Q2 FY19
Source: CMIE economic outlook, SBIMF Research;
Lower consumption and higher imports drove Q2 GDP lower
Growth moderated to 7.1% in 2Q FY19 on account of lower consumption and drag from net exports. From supply side, agriculture and industrial output softened.
Growth (% y-o-y) % of GDP (1 yr avg.) FY17 FY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Real gross value addition and its componentsAgriculture 14.6 6.3 3.4 2.6 3.1 4.5 5.3 3.8Industry 31.4 6.8 5.5 6.1 7.1 8.8 10.3 6.8
Mining and quarrying 3.1 13.0 2.9 6.9 1.4 2.7 0.1 -2.4Manufacturing 18.3 7.9 5.7 7.1 8.5 9.1 13.5 7.4Utilities 2.2 9.2 7.2 7.7 6.1 7.7 7.3 9.2Construction 7.8 1.3 5.7 3.1 6.6 11.5 8.7 7.8
Services 54.0 7.5 7.9 6.8 7.7 7.7 7.3 7.5Trade, hotels, transport, storage and communication 19.2 7.2 8.0 8.5 8.5 6.8 6.7 6.8Financial services, real estate and business services 21.7 6.0 6.6 6.1 6.9 5.0 6.5 6.3Community, social and personal services 13.2 10.7 10.0 6.1 7.7 13.3 9.9 10.9
GVA at basic price 7.1 6.5 6.1 6.6 7.6 8.0 6.9GDP by expenditurePrivate consumption expenditure (PCE) 55.8 7.3 6.6 6.8 5.9 6.7 8.6 7.0Government consumption expenditure (GCE) 10.9 12.2 10.9 3.8 6.8 16.9 7.6 12.7Gross capital formation (GCF) 34.6 4.7 9.6 8.0 10.1 14.9 8.6 12.9
Gross fixed capital formation (GFCF) 31.9 10.1 7.6 6.1 9.1 14.4 10.0 12.5Exports 20.7 5.0 5.6 6.8 6.2 3.6 12.7 13.4Imports 23.8 4.0 12.4 10.0 10.5 10.9 12.5 25.6GDP at market price 7.1 6.7 6.3 7.0 7.7 8.2 7.1
Source: CMIE economic outlook, RBI SBIMF Research; NB: Pink highlighted cells denoted moderation in growth than previous month and Green denotes an improvement in growth than previous month.
Economic activity improved in OctoberWe see some signs of improvement in the economic activity during October led by investment/industrial activity related indicators.Barring steel production (perhaps due to limited free capacity), most infrastructure indicators are holding strong. Bank industriallending showing nascent signs of revival. Growth in tractor sales and 2 wheeler sale – indicator of rural demand – rose in double-digits but mostly on account of extremely favorable base. AUM of MFs slowed down sharply in the last two consecutive months.Service sector, on the other hand, continued to paint the mixed picture. Some moderation seen in air-traffic.
% growth May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 5yr averageIndicators that are Robust
Bank retail loans 18.6 17.9 16.7 18.2 15.1 16.8 16.3Currency in circulation 29.8 27.7 25.1 22.7 21.2 20.0 11.2Domestic air traffic 16.1 17.8 21.6 16.9 18.0 13.1 17.4Domestic capital goods production 6.4 9.7 2.8 9.3 5.8 - 2.4Imports of capital goods 36.0 26.4 32.0 45.7 7.0 11.9 4.2Domestic sale of commercial vehicles 43.1 41.7 29.7 29.6 24.1 24.8 8.5Imports of consumption goods 7.7 1.7 9.8 12.6 1.1 17.6 10.3Services exports 20.4 26.0 33.2 20.6 19.3 - 5.7Total freight handled 5.0 5.7 4.4 6.7 4.2 8.2 3.6Cement production 13.0 14.2 11.2 14.7 11.8 18.4 5.2Bitumen consumption 5.1 23.0 38.6 -0.6 43.8 42.9 8.1
Indicators that have recently turned positiveDomestic industrial production 3.9 7.0 6.5 4.7 4.5 - 4.2Coal production 12.1 11.5 9.7 2.4 6.3 10.6 4.8Electricity production 4.1 8.4 6.7 7.6 8.2 11.4 7.7Merchandise exports 20.4 18.0 16.2 19.3 -2.2 17.9 1.6Bank industrial credit 1.4 0.9 0.3 1.9 2.3 3.7 3.6
Indicators that have weakened in recent monthsDomestic sale of two-wheelers 9.2 22.3 8.2 2.9 4.1 17.2 9.0Domestic sale of passenger Cars 19.6 34.2 -0.4 -1.0 -5.6 0.4 4.7Fertilizers production 8.4 1.0 1.3 -5.3 2.5 -11.5 2.1Mining production 5.8 6.5 3.4 -0.5 0.2 - 2.9Tractor sales 20.1 34.7 16.9 12.7 -10.5 23.6 7.3Foreign tourist arrivals -2.6 2.7 3.5 9.1 -0.1 1.7 9.1AUM of MFs 18.7 20.6 15.5 22.4 8.0 3.8 23.5Steel production -0.1 4.2 6.9 4.0 3.2 2.2 5.4
Indicators that are weak for longRural wage growth 3.2 3.5 3.0 3.6 - - 6.0
120
143 15
2
149
151
147
142
160
162
164
100110120130140150160170
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
*
FY19
**
Total Kharif production*4th Advance Estimates; **1st Advance estimates
…Kharif production is likely to be 5.4% higher than last year
Source: CMIE Economic Outlook, imd.gov.in, pib.nic.in, cwc.gov.in, SBIMF Research
Agriculture output healthy; weak food prices
Rabi sowing (till 7th Dec) is ~6% lower than last year. We expect the sowing of Rabi crops to improve
Despite the weakness in the rainfall…
-7
-21
2
-13
-1 -1
5
-2
-22
3 1
-8
5
-13 -15
-3-5
-10
-25-20-15-10
-505
10
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Southwest Monsoon (% deviation from LPA)
47,363
43,781
44,887 44,176
41,449
38,000
39,000
40,000
41,000
42,000
43,000
44,000
45,000
46,000
47,000
48,000
2014 2015 2016 2017 2018
Progress of Sowing of Rabi Crops ('000 hectare)
As of 7th December
-2-10123456789
10
Jan-
14
Apr-
14
Jul-1
4
Oct
-14
Jan-
15
Apr-
15
Jul-1
5
Oct
-15
Jan-
16
Apr-
16
Jul-1
6
Oct
-16
Jan-
17
Apr-
17
Jul-1
7
Oct
-17
Jan-
18
Apr-
18
Jul-1
8
Oct
-18
Food Inflation (% y-o-y)
Depressed food prices is affecting farm income
Two-wheeler and Tractor sales showing the nascent signs of growth moderation
Source: CMIE economic outlook, Ministry of Agriculture, SBIMF Research
Rural demand showing nascent signs of moderation
FMCG Sales growth grew by ~24% y-o-y in Q2FY19 vs. 21% y-o-y in Q1 FY19
• Rural demand indicators have depicted nascent signs of moderation in demand. The sale of 2-wheelers and tractors which act asa good gauge of rural spending ability have softened in the recent months. The demand for consumer staples and lower-end whitegoods, on the other hand, continue to grow.
• In the last two years, we could gauge a broad-based rise in agricultural output across the Indian geography. On the other hand,this year, the signals have been relatively mixed. The western belt had suffered from weak rain and hence crop damages andlower yield. Further, the challenges in the NBFC could lead to some slowdown in credit financed consumption of auto, mortgagesand consumer durables.
• On the positive side, the rural oriented schemes and government spending is likely to remain up-beat in a pre-election year. Tosum, while the overall rural demand looks supported, some moderation cannot be ruled out.
Source: RBI, FICCI, CMIE economic outlook, SBIMF Research,
Capacity utilization improved to 76.1% in Q2 FY19
Investment is yet to see a meaningful recoveryTextiles, Electronics, Chemicals, Paper, Metals and Capital good industries show higher capacity utilization
New project announcement is lack-lustreFDI inflows stands at US$18 billion in 1H FY19
Source: CMIE economic outlook, SBIMF Research,
FY19 growth is expected at 7.4%
FY19 GDP growth is expected at 7.4% y-o-y
• A year back, we had couple of favorable working factors such as fading of GST and demonetization related disruption, pick up inglobal growth, two years of good monsoon, government focusing of rural schemes and signs of improved capacity utilizationwhich had led us to believe that investment should show signs of recovery by the year end.
• Now it appears that, there are few meaningful headwinds to the future growth trajectory while the existing positive drivers maybe ebbing (such as favorable base and global growth outlook). Cost of funds has increased implying monetary tightening.Private consumption has outgrown the income growth primarily due to increased reliance on leverage. Multilateral agencies areexpecting global growth to soften by 20-30bps in 2019.
• All these would weigh on domestic growth in the near term and is likely to lead to some moderation in economic activity suchthat growth could soften to 6.5-7% over the next two quarters.
• Overall, we now expect FY19 growth to come at 7.4%.
Source: Capitaline ,SBIMF Research,
NIFTY: 2Q FY19 Earnings Review
• 2Q FY19 reported a robust growth in sales for NIFTY 50 (26%y-o-y). The growth was primarily driven by Oil& Gas andmetals sector, while most of the constituents reported apositive sales growth (except for 3 companies).
• However, it failed to translate into concomitant EBITDAgrowth, underscoring the erosion in pricing power in aninflationary input cost environment up until Q2 FY19.
• NIFTY PAT growth of 10% was marginally below marketexpectations. The growth driven by Capital goods, Metals andHealthcare.
2Q FY19 sales growth was at multi year high…
Profit growth remained unchanged at 10% y-o-y marginally lower than market expectations
1620
10 8 7
13 12 1315
4
-2
-13
-7 -9-6
1
-3
38
1611 12
15 15
2426
-20-15-10
-505
1015202530
June
-12
Sep-
12De
c-12
Mar
-13
June
-13
Sep-
13De
c-13
Mar
-14
June
-14
Sep-
14De
c-14
Mar
-15
June
-15
Sep-
15De
c-15
Mar
-16
June
-16
Sep-
16De
c-16
Mar
-17
June
-17
Sep-
17De
c-17
Mar
-18
June
-18
Sep-
18
Sales Growth (%)
-17
4
18
8 9 8
25
4 4
-6
16
3
16 14
4
20
139
4
18
11 13
25
14
-23-18-13
-8-327
12172227
June
-12
Sep-
12De
c-12
Mar
-13
June
-13
Sep-
13De
c-13
Mar
-14
June
-14
Sep-
14De
c-14
Mar
-15
June
-15
Sep-
15De
c-15
Mar
-16
June
-16
Sep-
16De
c-16
Mar
-17
June
-17
Sep-
17De
c-17
Mar
-18
Jun-
18Se
p-18
EBIDTA Growth (%)
-9
3 1
39
5
-2
-12
12
3
14
1 15 8
3
-6
15 14
610 10
-20
-10
0
10
20
30
40
Sep-
13De
c-13
Mar
-14
June
-14
Sep-
14De
c-14
Mar
-15
June
-15
Sep-
15De
c-15
Mar
-16
June
-16
Sep-
16De
c-16
Mar
-17
June
-17
Sep-
17De
c-17
Mar
-18
Jun-
18Se
p-18
PAT Growth (%)
…but EBITDA growth moderated on account of high input cost but still healthy
Source: Bloomberg, SBIFM Research;
NIFTY EPS have been downgraded 7% FTYD…
Earnings downgrade continue for seventh straight year
3% additional downgrade seen post Q2 FY19 earnings season
• As anticipated the challenges in the NBFC fructified into further downgrades in NIFTY estimates
597585
560554
390
440
490
540
590
640
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
FY15 FY16 FY17 FY18 FY19
NIFTY EPS expectation for the respective year
-8.4
-2.6
-14.7
-8.4
-6.1
-7.1
-16.0 -14.0 -12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0
2013
2014
2015
2016
2017
2018Earnings upgradedowngrade (from Apr tillNov)- % chg
Source: MOSL, Capitaline, SBIFM Research;
FY19 NIFTY EPS is expected to grow by 15-16% vs. 6% in FY18
Corporate profit as percentage of GDP is likely to have bottomed out
FY19 earnings outlook• Earnings outcome underscores improvement in overall corporate
profitability. Revenue growth is at multi-year high. EBITDA growthmoderated but continues to be healthy. The recent softness incommodity prices and containing of rupee depreciation should help tosustain the EBITDA growth/margin going ahead.
• PAT growth was marginally below expectation. This coupled withNBFC sector issues had led to further downgrade in earningsestimate by markets. FYTD the downgrades stand at ~7%.
• Key sectoral trends of 2QFY19:• Auto volumes have moderated, with the near-term demand
trajectory also appearing slightly uncertain due to the rising cost ofownership.
• Global Cyclical (metals and Oil & Gas) continue driving earnings.• Information Technology posted multi-quarter-high profit growth,
with stable commentary around the demand trends.• Capital Goods sector delivered a healthy performance, with
commentary suggesting incipient signs of capex revival.• FMCG posted a steady quarter, albeit signs of margin pressures
are now evident.• Asset quality for corporate banks are improving. This is important
as corporate banks were driving weak earnings in last few years
• Therefore, while the underlying earnings story is improving (betterrevenue growth trends, corporate banks’ asset quality turning around,etc.), new risks to earnings are also emerging (Autos, NBFC).
• That said, our expectations continues to hold at 15-16% EPS growthfor NIFTY 50. Corporate profit as percentage of GDP has hit anextremely low point and should logically mean revert.
3.0
4.75.4
6.2
7.37.8
5.5
6.5 6.2
4.9 4.6 4.33.8
3.13.5
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Average of 5.1%
Liquidity: Both FIIs and DIIs were net investors in NovemberFIIs invested US$ 0.67 billion during the month
Source: Bloomberg, SBIMF Research;
Mutual funds continue to invest in Indian equities Insurance companies were net sellers during the month
-6
-4
-2
0
2
4
6
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
Sep-
15N
ov-1
5Ja
n-16
Mar
-16
May
-16
Jul-1
6Se
p-16
Nov
-16
Jan-
17M
ar-1
7M
ay-1
7Ju
l-17
Sep-
17N
ov-1
7Ja
n-18
Mar
-18
May
-18
Jul-1
8Se
p-18
Nov
-18
Net FII Investment (US$ billion)
-2
-1
0
1
2
3
4
May
-15
Aug-
15
Nov
-15
Feb-
16
May
-16
Aug-
16
Nov
-16
Feb-
17
May
-17
Aug-
17
Nov
-17
Feb-
18
May
-18
Aug-
18
Nov
-18Net Domestic MF Investment (US$ billion)
-2.0
-1.5
-1.0
-0.5
-
0.5
1.0
May
-15
Aug-
15
Nov
-15
Feb-
16
May
-16
Aug-
16
Nov
-16
Feb-
17
May
-17
Aug-
17
Nov
-17
Feb-
18
May
-18
Aug-
18
Nov
-18
Net Domestic Insurance Investment (US$ billion)
SIPs and retail investment in Indian equity is holding up
Net new SIPs added in 2018 (till Sep) is 6.2 million
Source: Bloomberg, SBIMF Research;
Average SIP inflows for Mutual Funds remain robust
2.1 3.5 4.4 5.5 5.2 6.3
8.7 11.8
18.7
24.9
-
5.0
10.0
15.0
20.0
25.0
30.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(till
Sep)Total SIP with MFs (count in million)
• Even though the equity market returns have fell considerably in last two months, the domestic investor participation in equitymutual fund continues to hold strong
• Monthly Systematic Investment Plans (SIP) inflow for the mutual fund industry has grown by ~50% and clocks monthly collectionof Rs 75-80 billion per month. SIP investments by retails participants tend to be sticky and their continued growth is marketpositive.
4.1 6.1 11.4 11.2 12.0 13.7
22.0 30.0
48.5
72.5
-20.0
-
20.0
40.0
60.0
80.0
100.0
- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(till
Sep)
Avg. Monthly SIP Inflow for MF Industry (In Rs. billion)
Avg. Monthly SIP Inflow for MF Industry (% growth)- RHS
Source: Bloomberg, SBIMF Research,
Indian Equity Valuations relative to emerging markets
India MSCI P/E compared to MSCI EM index is at 65% premium which is relatively high…
…and the relative return on equity (RoE) has fallen
05
1015202530354045
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
Jul-1
6
Jan-
17
Jul-1
7
Jan-
18
Jul-1
8
MSCI India- ROE relative to EM
% premium
0
10
20
30
40
50
60
70
80
Jan-
10Ju
n-10
Nov
-10
Apr-
11Se
p-11
Feb-
12Ju
l-12
Dec-
12M
ay-1
3O
ct-1
3M
ar-1
4Au
g-14
Jan-
15Ju
n-15
Nov
-15
Apr-
16Se
p-16
Feb-
17Ju
l-17
Dec-
17M
ay-1
8O
ct-1
8MSCI India's 1 year Fwd P/E prem. wrt MSCI EM
Sector-wise valuations
Valuations have increased in November. Particularly, consumers, energy, financials, industrials and telecoms saw their valuations rise
Source: Bloomberg, NB: *FY19 Earnings are based on Bloomberg Consensus estimate; Valuations are for NIFTY constituents
P/E (based on FY19 earnings*)Sectors Jan-18 Sep-18 Oct-18 Nov-18 Avg (20 years)
NIFTY Index 19.3 16.7 15.6 16.1 15.6Consumer Discretionary 22.4 16.7 15.1 16.0 15.0Consumer Staples 38.4 32.0 30.4 31.4 24.9Energy 13.9 12.8 10.8 11.4 11.1Financials 23.6 18.2 17.7 18.6 14.4Health Care 32.3 26.8 25.0 22.1 23.0Industrials 25.1 18.9 18.9 20.7 20.2Information Technology 16.4 19.3 17.8 17.4 17.9Materials 13.1 12.6 11.4 11.6 12.2Telecommunication Services 81.3 51.4 45.1 44.6 27.2Utilities 12.2 10.8 10.4 9.5 12.7
Green implies higher than long-term average
Equity Market outlook
Nifty is trading at ~17 times forward earnings
Source: Bloomberg, SBIMF Research
• November saw some recovery across key global markets after the strongcorrection in October. In India too, NIFTY improved and posted an increase of~5% during the month. The gains were even sharper at 11.2% in US$ termsaided by crude price fall which in turn drove rupee appreciation and revival ofFII sentiments in both Indian debt and equity markets. India was one of thebest performing market during the month.
• Performance down the capitalization curve was relatively muted. Mid andSmall cap delivered 2.9% and 1.6% respectively. FIIs turned net buyers (US$0.9 billion). DIIs continued to remain net investors though the quantum of freshinflows weakened (US$ 0.1 billion). Consequently valuations have increasedthough still broadly in line with the averages.
• 3QFY19 earnings came to a close. Revenue growth were at multi-year high.EBIDTA moderated and PAT (at 10%) were marginally below expectations.During November, NIFTY has seen further 3% downgrade in earningsestimate by the market. That said, underlying trends are broadly encouraging.We expect the year to end with 15-16% growth in EPS.
• The December month so far (till 11th) has seen several important events -OPEC meet, India states election outcome, resignation of the RBI governor,US-China trade reconciliation. These events have translated into marketshedding some of its November gains.
• Looking ahead, the overall global narrative is tilting in favour of emergingmarkets and India may receive its fair share. However, it will have to competeagainst some of the other beaten down markets in Latin America, China,Turkey and South Africa that are witnessing positive political/economicchanges. Indian market may continue to brace the volatility as we head intothe general election. The prospects of large supply of equity owing togovernment disinvestment plans would also have an impact.
Fixed Income Market
Developed Market Bond Yields: November 2018
Source: Bloomberg, SBIMF Research
• US bond yields softened by 16 bps in November owing to moderation in market’s expectation of 2019 rate hikes by US’Fed and indication of US economic activity slowing down in Q4 2018.
• Bond yields for all the other key developed markets too moderated during the month on weak economic sentiment andidiosyncratic factors.
• Bond yields in Italy came down by 21 bps on the back of market expectations of some reconciliations between Italiangovernment and European Union with regards to the former’s fiscal deficit stance.
10 Year Gsec Yield (% mth end) 2016 end 2017 end Aug-18 Sep-18 Oct-18 Nov-18 m-o-m change
(in bps)% change in YTD (in bps)
Developed market
US 2.44 2.41 2.86 3.06 3.14 2.99 -16 58
Germany 0.21 0.43 0.33 0.47 0.39 0.31 -7 -11
Italy 1.82 2.02 3.24 3.15 3.43 3.21 -21 120
Japan 0.05 0.05 0.11 0.13 0.13 0.09 -4 4
Spain 1.38 1.57 1.47 1.50 1.55 1.50 -5 -6
Switzerland -0.19 -0.15 -0.10 0.04 -0.01 -0.10 -9 5
Emerging market bond yields: November 2018
Source: Bloomberg, SBIMF Research
• Bond yields in the key emerging markets softened in November (barring, Malaysia, Russia and Taiwan) on account of fallingcrude oil prices and steadying currencies.
• YTD, bond yields have risen across most of the key emerging markets (except Brazil, China, South Korea and Taiwan).
• Indian bond yields inched down by 25 bps driven by softening crude prices leading to revival of FII sentiments towards Indiandebt market and hence parallel appreciation in rupee. Further, aggressive OMO purchases by the RBI since September is alsoaiding the current bond rally.
• Brazilian bond yields fell by 32 bps in November as GDP growth picked up in Q3 and the political uncertainty settled while, bondyields in Indonesia and Philippines fell by 68 bps and 89 bps respectively as their respective currencies witnessed anappreciation during the month.
10 Year Gsec Yield (% mth end) 2016 end 2017 end Aug-18 Sep-18 Oct-18 Nov-18 m-o-m change
(in bps)% change in YTD (in bps)
Emerging Market
Brazil 11.40 10.26 12.20 11.76 10.21 9.89 -32 -36
China 3.06 3.90 3.60 3.63 3.54 3.38 -16 -52
India 6.52 7.33 7.95 8.02 7.85 7.61 -25 28
Indonesia 7.91 6.29 8.16 8.06 8.50 7.82 -68 153
South Korea 2.09 2.47 2.31 2.36 2.25 2.11 -14 -36
Malaysia 4.23 3.91 4.04 4.07 4.10 4.14 4 23
Phillippines 4.64 4.93 6.38 6.49 7.85 6.96 -89 203
Russia 8.36 7.49 8.70 8.53 8.60 8.70 10 121
Taiwan 1.22 0.98 0.84 0.83 0.83 0.83 0 -15
Thailand 2.65 2.32 2.74 2.80 2.84 2.68 -15 36
Global policy rate snapshot
Source: Bloomberg, SBIMF Research; NB: * Indonesia had announced to use new policy benchmark i.e. 7-day reverse report rate as its benchmark policy rate in April 2016; Red highlighted cells indicates interest rate hike and green denotes a rate cut.
Global policy rate is on the rise across most key economies
Policy rate (in %), end period 2015 2016 2017 Mar-18 2018 (till 6th Dec)
US 0.50 0.75 1.50 1.75 2.25Canada 0.50 0.50 1.00 1.25 1.75China 4.35 4.35 4.35 4.35 4.35Japan 0.10 0.10 0.10 0.10 0.10India 6.75 6.25 6.00 6.00 6.50Australia 2.00 1.50 1.50 1.50 1.50South Korea 1.50 1.25 1.50 1.50 1.50Indonesia 4.75 4.25 4.25 5.75Taiwan 1.63 1.38 1.38 1.38 1.38Thailand 1.50 1.50 1.50 1.50 1.50Malaysia 3.25 3.00 3.00 3.25 3.25Singapore 0.08 0.08 0.08 0.08 0.08Hong Kong 0.75 1.00 1.75 2.00 2.50Philippines 4.00 3.00 3.00 3.00 9.25New Zealand 2.50 1.75 1.75 1.75 1.75Eurozone 0.05 0.00 0.00 0.00 0.00UK 0.50 0.25 0.50 0.50 0.75Switzerland -0.75 -0.75 -0.75 -0.75 -0.75Russia 11.00 10.00 7.75 7.25 7.50Turkey 7.50 8.00 8.00 8.00 24.00Saudi Arabia 2.00 2.00 2.00 2.25 2.75Poland 1.50 1.50 1.50 1.50 1.50South Africa 6.25 7.00 6.75 6.50 6.50Brazil 14.25 13.75 7.00 6.50 6.50Mexico 3.25 5.75 7.25 7.50 7.75Argentina 21.00 26.00 26.75 25.50 58.00Colombia 5.75 7.50 4.75 4.50 4.25Chile 3.50 3.50 2.50 2.50 2.75
India Rates Snapshot for November 2018
Source: Bloomberg, PPAC, RBI, SBIMF Research; NB: **Crude oil price is average $/barrel for the month, rest of thedata are % month end; *Corporate bond rate is for AAA rated bonds ,*** Refers to PSU Banks CD rate; # INR and Oil price changes are % change
• Indian bond yields inched down by 25 bps driven by softening crude prices leading to revival of FII sentiments towardsIndian debt market and hence parallel appreciation in rupee. Further, aggressive OMO purchases by the RBI sinceSeptember is also aiding the current bond rally.
• Money market rates, too, inched down during the month.
• Looking at the Indian crude basket, average price fell by 18% during the month.
• Rupee appreciated by 6% during the month. YTD (till Nov end), rupee has depreciated by 8%.
Dec-17 Aug-18 Sep-18 Oct-18 Nov-18 m-o-m change (in bps)
Change in YTD (bps)
1 Yr T-Bill 6.40 7.33 7.73 7.48 7.22 -25 823M T-Bill 6.20 6.81 7.19 6.94 6.77 -17 5710 year GSec 7.33 7.95 8.02 7.85 7.61 -25 283M CD*** 6.38 7.08 7.25 7.43 7.28 -15 9012M CD*** 6.75 8.08 8.70 8.48 8.33 -15 1583 Yr Corp Bond* 7.66 8.59 8.74 8.76 8.64 -12 985 Yr Corp Bond* 7.68 8.74 8.86 8.92 8.68 -24 10010 Yr Corp Bond* 7.90 8.75 8.85 8.86 8.70 -16 801 Yr IRS 6.44 7.14 7.42 7.16 6.92 -24 485 Yr IRS 6.75 7.42 7.67 7.47 7.11 -36 36Overnight MIBOR Rate 6.20 6.45 6.60 6.60 6.55 -5 35INR/USD 63.9 71.0 72.5 74.0 69.6 6# -8#
Brent (US$/bbl.) 62.3 72.5 77.9 80.1 65.4 -18# 5#
Weighted Average Call money rate 5.99 6.36 6.49 6.50 6.38 -12 39
Source: CMIE economic outlook, SBIMF Research,
Economic growth is expected to moderate in the near-term
• After four successive quarters of improvement, Q2 FY19 GDP moderated to 7.1% on the back of moderation in consumptiongrowth and doubling of import growth even as the exports maintained its growth momentum.
• At the supply side, GVA growth softened to 6.9% due to reduced agricultural and industrial output while the services improved.
• There are few meaningful headwinds to the future growth trajectory while the existing positive drivers may be ebbing (such asfavorable base and global growth outlook). Cost of funds has increased implying monetary tightening. Private consumption hasoutgrown the income growth primarily due to increased reliance on leverage. Multilateral agencies are expecting global growth tosoften by 20-30 bps in 2019.
• All these would weigh on domestic growth in the near term and is likely to lead to some moderation in economic activity.
• Overall, we expect FY19 growth to come at 7.4%.
Q2 FY19 GDP moderated to 7.1% % y-o-y and we expect a continuous slow-down in the growth
FY19 GDP growth is expected at 7.4% y-o-y
Food led CPI softening, Core beyond the comfort zone
Source: CMIE Economic Outlook, SBIMF Research
CPI inflation dropped significantly in last 3 months owing to muted food prices
Higher input costs in last two years poses inflationary risks
Most food prices depict muted inflation despite government efforts (higher MSP)
NSA % y-o-y Wt. (%) FY14 FY 15 FY16 FY17 FY18 FYTD
CPI: Food & Beverages 46 11.9 6.6 5.1 4.5 2.2 1.8CPI: Cereals and products 10 5.7 5.2 1.8 4.2 3.5 2.8CPI: Meat and fish 4 6.7 6.4 6.3 5.7 3.2 2.9CPI: Egg 0 4.5 3.4 2.3 6.8 3.6 5.4CPI: Milk and products 7 10.5 10.3 5.2 4.1 4.1 2.6CPI: Oils and fats 4 2.4 2.4 4.3 4.1 1.6 2.7CPI: Fruits 3 14.4 14.0 1.5 4.9 4.6 6.3CPI: Vegetables 6 5.1 4.8 1.7 -1.9 6.9 0.3
CPI: Pulses and products 2 7.3 7.9 31.7 10.9 -20.8 -10.1
CPI: Sugar and confectionery 1 -0.6 -0.4 -6.9 19.7 6.2 -6.4CPI: Spices 3 8.6 8.6 9.6 7.2 -1.1 2.3
Fuel and Core inflation beyond comfort zone
Recent softening in crude prices bring some cheer
Source: Bloomberg, CEIC, PPAC, SBIMF Research; NB: Average prices in Mumbai, Delhi, Chennai and Kolkata
Since its peak of US$ 85.8 per barrel (on Oct 3rd), crudehas corrected by nearly US$ 26/barrel
Average* Petrol and Diesel prices have fallen by nearly Rs 12and Rs 8 respectively till Nov end since its peak on Oct 4th
Every $10 fall in Crude price reduced import bill by US$ 15billion per annum
0.52 0.55 0.57 0.63 0.67 0.70 0.
78 0.85 0.
93 1.11 1.15 1.20 1.
29 1.32
1.33 1.
42 1.50 1.54
0
5
10
15
20
25
30
0.000.200.400.600.801.001.201.401.601.80
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
2014
-15
2015
-16
2016
-17
(P)
2017
-18
(P)
India's Import of Crude Oil (in billion Barrel) % growth- RHS
Current account deficit widened to 2.9% in Q2 FY19
Source: CMIE economic outlook, CSO, SBIMF Research
• The current account deficit (CAD) for Q2 FY19 stood atUS$ 19.1 billion or 2.9% of GDP vs. 2.4% in Q4 FY18and 1.1% in Q2 FY18.
• The widening of the CAD was primarily on account of arising import bill and unmatched export buoyancy leadingto higher trade deficit. There is an improvement inservices receipts and remittances transferred to Indiawhich partially offsets the worsening merchandise tradefigures.
• Looking ahead, with recent fall in the crude oil prices, wenow estimate CAD at US$ 65 billion (~2.6% of GDP) inFY19 vs. our previous estimate of US$ 75 billion (~2.8%of GDP).
Current account deficit widen to 2.9% of GDP in Q2 FY19 vs. 2.4% in Q1 FY19
Trade balance worsened sharply offsetting the rise in invisible surpluses
Service Balance and Remittances are holding up
Net FDI has moderated and FII flows are under pressure
Source: CMIE economic outlook, RBI, SBIMF Research
• During 1H FY19, Net FDI inflows moderated to US$ 18 billion vs. US$ 20 billion during the same time last year. However, theoverall FDI momentum looks healthy for FY19 but they may not be large enough to fully fund the current account deficit.
• Between FY15-FY17, FDI inflows were sufficient to fund the CAD. But the dynamics have worsened in FY18 and FY19where net FDI inflows aren’t sufficient to offset the sharper rise in trade deficit. This makes CAD heavily reliant on portfolioflows which has been choppy FYTD. At the same time, we have US$ 10 billion of NRI deposits maturing in 2H FY19.
Net FDI inflows are US$ 13 billion in 1H FY19 FIIs witnessed net outflows of US$ 15 billion FY19 (till Nov)
BoP to be negative for first time in seven years
Source: CMIE economic outlook, RBI, SBIMF Research
FX reserves have fallen by ~US$31 billion FYTD (till Nov 23)Balance of Payment is likely to be negative in FY19
• BoP surplus in FY18 stood at US$ 44 billion vs. US$ 22 billion in FY17.
• For FY19, we expect both current account deficit to widen and capital account inflow to reduce. The FII flows FYTD (Apr to Nov)has summed at approx. US$ -15 billion. Assuming the remainder of the year sees some inflow, overall BoP deficit can be lowerat US$ 15 billion (vs. our earlier assumption of ~ US$ 25 billion). Consequently, we could see some build-up in RBIs FXreserves.
• RBI increased its FX reserves sharply to US$ 424 billion in FY18 vs. US$ 370 billion in FY17. In FY19 (till Nov end), RBI hassold nearly US$ 31 billion of FX reserves.
Central Government Fiscal: Walking a tight-rope
Source: pib.nic.in, CGA, SBIMF Research
• Achieving fiscal deficit target of 3.3% looks difficult as:o GST collections are running behind the targeto Disinvestment + Telecom targets appear tallo Higher MSP for Kharif demands additional costo Recent Rs 1.5 excite cut on petrol & diesel entails further ~ Rs 10,000 crore of dent on fiscal accounto Large materialization of pending refunds and limited areas of revenue bonanza elsewhere
• Fall in crude oil prices is unlikely to have any material impact on the fiscal. The subsidy bill has shrunk from ~Rs 1 trillion inFY13 to Rs. 250 billion in FY19 owing to deregulation. Assuming that the full year crude oil prices average at US$ 65/bbl. itentails a cost over-run of Rs 150 billion. Of this, Rs 100 billion payments is accrued to Q4 FY19 which government can push tothe next fiscal year. However, remaining Rs 50 billion needs to be borne by either government or upstream oil companies.
• Hence, we believe that the central government may slip by 70bps from its budgeted fiscal deficit target. If the government wantsto stick to its 3.3% fiscal deficit target, it will have to reduce expenditure by Rs 1.3 trillion (5.3% of the budgeted Rs 24.4 trillion).
Monthly run-rate of GST collections lower than requiredApr- Oct FY19 fiscal deficit is higher at 104% of BE
Actual (as % of BE)- Apr to Sep 2011 2012 2013 2014 2015 2016 2017 2018
1 Non-debt Receipts 44 42 41 38 50 50 48 44
a. Tax Revenue (Net) 44 43 40 38 47 50 52 45
b. Non-tax Revenue 54 43 58 52 73 52 33 52
c. Non-Debt Capital Receipts 25 17 12 8 24 44 46 21
2. Expenditure 54 52 55 54 57 58 60 60
a. Revenue Account 55 54 56 54 57 59 62 60
b. Capital Account 48 44 49 48 59 51 53 59
3. Fiscal Deficit 74 72 84 90 74 79 96 104
4. Revenue Deficit 79 81 93 98 73 93 125 96
Tightening bank liquidity builds case for OMO purchase
Source: RBI, SBIMF Research
We expect liquidity to tighten further in 2HFY19 and nearly Rs 2.5 trillion of OMO purchase in FY19
Banking system liquidity is gradually tightening Call money rates are well anchored with repo rate but, other short term rates have inched much higher
CIC leakage in 2H FY19 likely to be 1.5-2x of 1H FY19
Source: RBI, CMIE Economic Outlook, SBIMF Research,
Aggregate credit is picking up
Aggregate credit is picking upBank Credit to NBFCs and housing loans shot up in FYTD
• Aggregate commercial credit has been improving in FY19 led by improved bank credit and higher CP issuances. The bankcredit has picked up from 10% y-o-y in FY18 to 14.2% y-o-y in 1H FY19. CP issuances increased by whooping 45% y-o-y in1H FY19.
• Bank non-food credit growth has further improved to 15.1% y-o-y as of November 2018 which is higher than ~11% y-o-ygrowth seen in 1HFY19 and 8% y-o-y in last 3 years.
• While, improvement of growth rate of bank credit to all the major categories is nearly broad-based, growth in bank credit toNBFCs and Housing loans was particularly sharp.
Bank non-food credit
1H FY19 (in Rs
billion)
Oct 2018 (in Rs billion)
Oct-18 (% y-o-y)
1H FY19(% y-o-y)
3 yrs avg(% y-o-y)
1H FY19(% share)
Non-Food Credit 76,954 80,026 13.4 11.2 8.1 100Agricultural sector 10,375 10,597 8.0 6.3 9.6 13
MSME 26,564 26,962 3.7 1.3 0.3 35
Services 20,465 22,081 27.4 23.3 12.5 27
NBFCs 4,780 5,626 55.6 36.8 14.8 6
Personal Loans 19,549 20,386 16.8 17.6 17.1 25
Housing loans 10,123 10,623 17.6 15.9 15.4 13
Vehicle loans 1,925 1,968 9.1 10.8 14.2 3
Rupee has appreciated by 6.3% in November
Source: Bloomberg, SBIMF Research
Rupee appreciated by 6.3% in November YTD, the performance of Indian rupee is in the middle when compared to the other Emerging markets
• Rupee has gained 6.3% during the month of November on account of sharp fall in the crude oil prices.
• In November, Indian rupee is one of the best performing currencies in the EM currency basket.
• YTD, Rupee has depreciated by 8% by November end versus 14% of depreciation by October end.
• From an external point of view, we believe that the Rupee/US$ is fairly valued at 72. On the back of a sharp depreciation to75/US$ in October, we had expected the rupees to claw back to levels of 72/US$ but the recent appreciation (6%) we believecaptures the near term upsides. Risks still remain in terms of balance sheet contraction of global central banks and geo-politicalissues such as Brexit and any volatility due to unfavorable outcomes from trade war between US and China.
• Overall, we expect Rupee to be stable at nearly 72/US$ levels from here-on barring any unexpected event shocks.
-27
-14 -14 -11 -9 -8 -8 -8 -7 -5 -5 -4 -3 -3 -3 -1 -1
-45
-35
-25
-15
-5
5
Turk
ey L
ira
Braz
il Re
al
Russ
ian
Roub
le
Afric
an R
and
Hung
aria
n Fo
rint
Indi
an R
upee
Polis
h Zl
oty
Colo
mbi
an P
eso
Chin
ese
renm
inbi
Indo
nesia
n Ru
piah
Phili
ppin
e Pe
so
Kore
an W
on
Mex
ican
Pes
o
Taiw
anes
e Do
llar
Mal
aysia
n Ri
ngitt
Thai
Bah
t
Japa
n Ye
n
% change YTD (till Nov end)
-4-2
-1 0 0
0 0 0 0 1 1 2 2
6 6 7 7
-6-4-202468
Braz
il Re
al
Russ
ian
Roub
le
Japa
n Ye
n
Colo
mbi
an P
eso
Mex
ican
Pes
o
Mal
aysia
n Ri
ngitt
Chin
ese
renm
inbi
Hung
aria
n Fo
rint
Taiw
anes
e Do
llar
Thai
Bah
t
Polis
h Zl
oty
Kore
an W
on
Phili
ppin
e Pe
so
Indi
an R
upee
Indo
nesia
n Ru
piah
Afric
an R
and
Turk
ey L
ira
% change m-o-m
-30.0 -20.0 -10.0 0.0 10.0
Iron Ore
Tin
Nickel
Aluminium
Lead
Zinc
Copper
% m-o-m
% change in YTD
-20.0 -10.0 0.0 10.0 20.0
Platinum
Silver
Gold
Palladium
% m-o-m
% change in YTD
Most commodities are depicting some softening in prices
Source: Bloomberg, SBIMF Research
Most of the energy prices have fallen in November Silver and Platinum fell, while gold and palladium price rose in November
YTD, metals prices have softened Soybean, cotton and corn prices rose in November
-40.0 -20.0 0.0 20.0 40.0 60.0
WTI
Gas Oil
Brent
Gasoline
Heating Oil
Coal
Uranium
Natural Gas
% m-o-m
-30.0 -20.0 -10.0 0.0 10.0
Coffee
Sugar
Wheat
Corn
Cotton
Soybeans
% m-o-m
% change in YTD
Debt Market Valuations
Source: Bloomberg, SBIMF Research
Inflation adjusted returns at 4.5% in India are attractive Differential between 10-year yield and Repo rate is higher than average
G-sec yield relative to equity earnings yield higher than long-term trend
Real rates
10 Year Gsec Yield (% mth
end, Nov end)
CPI Inflation -
Oct
Real Rate (in %)
Sovereign Credit
Rating by S&P
Emerging Market
Brazil 10.11 4.6 5.6 BB-
Indonesia 8.44 3.2 5.3 BBB-
Russia 8.61 3.5 5.1 BBB-
India 7.82 3.3 4.5 BBB-
Mexico 8.81 4.9 3.9 BBB+
Colombia 7.16 3.3 3.8 BBB-
South Africa 8.72 5.1 3.6 BB
Malaysia 4.09 0.6 3.5 A-
Thailand 2.82 1.2 1.6 BBB+
Poland 3.22 1.8 1.4 BBB+
Phillippines 7.85 6.7 1.2 BBB
China 3.52 2.5 1.0 A+
South Korea 2.25 2.0 0.3 AA
Hungary 3.66 3.8 -0.1 BBB-
Taiwan 0.83 1.2 -0.3 AA-
Turkey 18.59 25.2 -6.7 BB-
Policy Rate Outlook
Source: RBI, SBIFM Research
RBI kept the policy repo rate unchanged at 6.5%
• RBI left the repo rate unchanged at. 6.50% and retained its ‘calibratedtightening’ stance. The decision on keeping the rate unchanged wasunanimous. While five of the six MPC members voted for an un-changedstance, Dr. Dholakia voted to change the stance to neutral.
• CPI Inflation has been consistently surprising on downside primarily due toultra-low food inflation. Despite the higher Kharif MSP announcement,most food items have seen softening in their inflation. While the latest fueland core inflation stands beyond the RBI’s comfort zone, recent reductionin petroleum products’ prices should help to cool these inflationarypressures.
• Accordingly, the RBI has lowered its inflation projection significantly to 2.7-3.2% in 2H FY19. However, it continues to stay guarded and sees upsiderisks to its inflation expectations.
• Q1 FY19 GDP at 8.2% was above the central bank’s action and the latestQ2 print of 7.1% was lower than their projection. The central bank haschosen to keep the growth projections unchanged post both the datarelease at 7.4%.
• We expect the RBI to stay on a hold now till more clarity emerges on thedurability of the inflation decline. The current sharp softening in crudeprices (~US$ 26/bbl. within a month) and the resulting improvement inmacro sentiments for India leading to 6% appreciation in rupee could nothave been anticipated. Looking ahead, the durability of recent oil price fallremains uncertain. Further, the unusually low food prices strengthen thecase for mean reversion especially given the very low base. That said, ifthe headline inflation continues to print sub-4% print for next couple ofmonths (highly likely), we do expect the stance to change back to ‘neutral’.
Debt Market Outlook
Source: Bloomberg, SBIFM Research
Valuations look attractive at G-sec vs. Repo rate
• Bond market had rallied by ~70bps since September on the back offalling crude prices, appreciating rupee and aggressive OMOs (Rs. 1,760billion of OMO expected till December).
• Recent global developments have also turned favourable. The markethas toned down their expectation of rate hikes by US Fed in 2019 (takingthe cues from recent Fed communication and some softening of Useconomic activity). This has led to revival of FII sentiments towards EMdebt market. India received US$ 0.9 billion in the debt market, thehighest since Jan 2018.
• The latest monetary policy (on 5th December) has also been takenfavourably by the market due to sharp reduction in inflation projectionand reinforcing the continuation of OMO purchase up until March 2019which countered the possible negative sentiments from SLR reduction.
• On a more fundamental note, while the softening inflation trajectory andincreased appetite for government bonds by RBI are market positive, thecontinued shortfall in GST collection implying a consequent fiscal risksshould be carefully watched. Further, the recent signs of pick-up in bankcredit coupled with regulatory cuts in SLR requirement (from 2019) willlimit the banks’ appetite for government bonds. These fundamentalsdictate that G-sec market movements should be range bound.
• However, the recent unexpected resignation by the RBI governorcoupled with the state election outcomes is likely to lend some volatilityin the market as it speculates over the next course of action by thegovernment.
5.756.256.757.257.758.258.759.25
May
-11
Oct
-11
Mar
-12
Aug-
12Ja
n-13
Jun-
13N
ov-1
3Ap
r-14
Sep-
14Fe
b-15
Jul-1
5De
c-15
May
-16
Oct
-16
Mar
-17
Aug-
17Ja
n-18
Jun-
18N
ov-1
8
10 year G-Sec yield (mth end, %)
Repo Rate (mth end, %)
Thank you
Disclaimer
This presentation is for information purposes only and is not an offer to sell or a solicitation to buy anymutual fund units/securities. These views alone are not sufficient and should not be used for thedevelopment or implementation of an investment strategy. It should not be construed as investmentadvice to any party. All opinions and estimates included here constitute our view as of this date and aresubject to change without notice. Neither SBI Funds Management Private Limited, nor any personconnected with it, accepts any liability arising from the use of this information. The recipient of thismaterial should rely on their investigations and take their own professional advice.
Mutual Funds investments are subject to market risks, read all scheme related documentscarefully.
Asset Management Company: SBI Funds Management Private Limited (A joint venture with SBI andAMUNDI). Trustee Company: SBI Mutual Fund Trustee Company Private Limited.
Contact Details
SBI Funds Management Private Limited
(A joint venture between SBI and AMUNDI)
Corporate Office:9th Floor, Crescenzo, C-38 & 39, G Block,Bandra Kurla Complex,Bandra (East), Mumbai - 400 051Tel: +91 22 6179 3000Fax: +91 22 6742 5687/88/89/90/91Website: www.sbimf.com
Call: 1800 425 5425
Visit us @ www.youtube.com/user/sbimutualfund
SMS: “SBIMF” to 56161
Email: [email protected]
Visit us @ www.facebook.com/SBIMF
