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Market Review

​​​​​​​​​​OVERVIEW OF MARKET

During the month markets corrected ~4% amid concerns of global trade war and political uncertainties. However, Equity markets delivered 10% growth for the full year FY18. On the global front, US imposed tariffs on $60bn worth of Chinese imports while China has retaliated with tariffs to the tune of $3bn against the US. In addition to the above, import tariffs of 25% on steel and 10% on aluminum were imposed by the US to protect local producers. Crude prices increased ~5% at $69.3 and was higher by ~31% in FY18 clearly reflecting the production cuts undertaken by OPEC countries during the year. Further, FMCG, Auto and Capital Goods sectors’ outperformed while Metals, Pharma and Oil & Gas underperformed the Nifty for the month. FIIs bought approximately Rs 12,272 cr, while domestic mutual funds bought around Rs 4,745 cr of equity during the month.

The Index of Industrial Production was reported at 7.5% in January compared to 7.1% in December. CPI inflation cooled to 4.4% in February against 5.1% in January. WPI inflation came in at 2.5% in February from 2.8% in January.

The Bond market rallied during the month of March 2018. The benchmark 10 year G-Sec (7.17% GOI 2028) closed at 33bp lower at 7.40% against 7.73% last month.

Outlook

Average system liquidity remained in the marginally negative territory for the fortnight ending 2nd April, 2018. Liquidity conditions are set to improve with the onset of Government spending beginning new fiscal. Fiscal Deficit till February of FY18 was at 120% of revised target. However, GOI announced that it would reduce its gross borrowing through dated securities for FY19 by Rs500bn; Indian 10-year benchmark Gsec yield eased to around 7.35% post announcement of H1 borrowing plans. Further, more issuance at the shorter maturity bucket perceived favourable. With RBI expected to be on pause mode, 10-year G-sec yield are now seen in a band of 7.20-7.40% with near term inflation prints surprising positively. Medium term rate path will be contingent upon upcoming inflation trajectory, Government’s revenue collections, FII debt limit expansion and appetite of various investors.

Outlook​

Global protectionist policies led to the dip in broader indices even though India’s micros seem to be picking up and we are expecting strong results in Q4FY18E. Improving growth outlook is supported by most recent indicators like better than expected Q3 GDP, improving earnings trajectory, continued improvement in GFCF/credit growth, and robust auto sales, especially CV sales. Key themes for the next year are continued strong auto sales, robust consumption and infra boost led by higher Government spending. Depreciation in INR could provide some fillip to IT sector. We would also watch resolution and repair for Banks’ balance sheets.

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