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Market Review


Nifty fell ~6% during the month due to concerns of higher crude prices, weakening currency and rising trade deficit. Crude price rose sharply by ~7% and closed at $82.7 due to looming sanctions on Iran. Global trade protectionism scenario escalated as US imposed further tariffs on $267 billion worth of Chinese goods. On the domestic front, liquidity concerns in the debt market were led by default in repayment of loans by the reputed NBFC. Further, the government announced the merger of Bank of Baroda, Vijaya Bank and Dena Bank. Among the sectors, IT, Energy and Pharma outperformed while Auto, Banks and Infra underperformed the Nifty during the month. FIIs were net sellers to the tune of about Rs 96bn, while domestic mutual funds bought around Rs 80bn of equity during the month.

The Index of Industrial Production stood at 6.6% in July compared to 6.9% in June. CPI inflation eased to 3.7% in August against 4.2% in July. WPI inflation cooled to 4.5% in August as against 5.1% in July.

The Bond yields rose during the month of September 2018. The benchmark 10 year G-Sec (7.17% GOI 2028) closed 7bp higher at 8.02% against 7.95% last month.


Despite lower inflation and reasonable supply of Government bonds, during the month fixed income yield remained volatile with an upward bias. Fixed Income market was primarily tracking the tight system liquidity, higher crude oil price and developments in the credit and foreign exchange market. In the near term market will continue to be guided by RBI and Government policies in response to the global developments. However, current level of 10 year benchmark yield appears to be very attractive from a medium term investment perspective. Moreover, recently announced RBI measures aimed at boosting system liquidity and lower than expected second half borrowing calendar by the Government are supportive for the market sentiment


With sudden spike in oil prices, India now faces current account deficit, weak rupee and higher bond yields. This in turn may curtail FPI debt and equity flows leading to a large BoP deficit. The recent correction in equity market partly reflects this deterioration in macros. In this backdrop we believe, IT, commodities and pharmaceutical stocks offer a good means to build a portfolio against possible further deterioration in macro. We don’t see India’s strong earnings scenario facing risk, though we will remain watchful. Over medium term, the performance of equity market should remain a function of strength of economic recovery (which looks good so far), political outcomes, trade tensions, oil prices and currency (the latter two to define India’s macros). Pick-up in consumer spending, rural demand and improvement of banks’ balance sheets are the key long-term positives for markets.​​

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