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Market Review

​​​​​​OVERVIEW OF MARKET

During the month, equity markets touched all time high; the positive bias was led by favourable economic indicators, corporate earnings and recapitalization of PSU banks announced by the government. Crude closed at $61.4 as the prices further rose ~7% during the month. Further, Telecom and Energy sectors’ outperformed while FMCG, Auto and Banking underperformed the Nifty. FIIs were buyers for approximately Rs 1,866 cr, while domestic mutual funds bought around Rs 12,597 cr of equity during the month.

The Index of Industrial Production came in at 4.3% in August compared to 1.5% in July. CPI inflation was flat sequentially at 3.3% in September. WPI inflation cooled to 2.6% in September from 3.2% in August.​

The Bond market yields rose during the month of October 2017. The benchmark 10 year G-Sec (6.79% GOI 2027) closed 20bp higher at 6.86% against 6.66% last month.

Outlook

Despite acknowledging growth slowdown, Reserve Bank of India kept the policy repo rate unchanged at 6% while maintaining neutral stance. The future course of RBI policy will continue to get dominated by future CPI inflation trajectory, especially core inflation, progression of Fed rate hikes, global political developments, movement of the rupee, crude oil prices and concerns over fiscal slippage.

While these factors set the medium term (upward) trajectory for yields, the near-term yields will continue to be dominated by supply of bonds though auction RBI OMO sales, GST collection, inflation trajectory and the global geopolitical scenario which may impact the strong FII flows seen so far.

Outlook​

The key positive for equity market emerged from the government committing Rs2.11 trillion in PSU bank recapitalization over the next 2 years and announcement of big infrastructure projects. Bank recapitaliztion has potential to kick-start the much needed capex cycle in the economy which explains the recent upmove in the market. Synchronized global recovery, domestic reforms and stable macro can help growth returning with gradual/moderate increase in inflation. In short term the markets will be driven by liquidity, earnings trajectory and possible upgrades in growth expectations.

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