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Fund Manager Commentary

Read the latest market analysis and commentary on the Equity & Debt market from our Investment Desk as they share their views on market trends, market outlook and how to capitalize on investment opportunities.

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Fixed Income Market Update: February 2018

  • During the month, rates went up across all asset classes with sharp rise across gilts and corporate bonds. Rise in US treasury Yields, rupee depreciation and poor market sentiment were the main reasons.
  • The ten year gilt benchmark closed the month at 7.72%, 29 bps higher from previous month. The ten year AAA Corporate bond benchmark closed at 8.28%, 17 bps higher than previous month. The five year AAA corporate bond benchmark closed at 8.01%, 13 bps higher as compared to previous month. Ten year SDL spreads remained in a range of of 55-65 bps to the ten year gilt benchmark.
  • 1 year CD rates closed at 7.53%, 8 bps higher than previous month. 1 year T bill yield closed 7 bps higher at 6.62%. 3 month CD rates closed at 7.25% (8 bps higher) and 3 month T bill yields fell 13 bps to 6.27%.
  • Brent Crude oil prices fell during the month to USD 64.46 per barrel. INR depreciated and closed the month at 65.17 as compared to 63.58 the previous month. For the month of February, FIIs were net sellers in the debt market to the tune of Rs 2500 cr. India’s Jan trade deficit printed higher at USD 16.3 bn, higher than previous month.
  • The ten year benchmark US treasury yield rose by 16 bps to close the month at 2.86. Hawkish statements from the US Fed, prospects of improved wage inflation outlook and generally better employment data and economic data has also led to the rise in yields.
  • January WPI data release came at 2.84% as compared to 3.58% in previous month. CPI for January came at 5.07% compared to 5.21% in previous month.
  • Dec Industrial production (IIP) growth came at 7.1% compared to 8.8% for previous month.
  • For the month banks net borrowed on an average Rs 6166 Cr at various RBI liquidity facilities put together reflecting neutral to deficit liquidity conditions.
  • The Centre’s fiscal deficit rose to Rs 6.77 lakh crore or 113.7 per cent of the Budget target between April 2017 and January 2018.
  • India’s real GDP for 3QFY 2018 rose to 7.2% from 6.5% in the previous quarter signaling continued recovery on the back of government expenditure and pick up in investments.

Fixed income market outlook:

  • Banking system liquidity to remain in deficit zone on account of advance tax outflows and likely currency in circulation and disinvestment outflows.
  • Short term Money market rates are expected to remain stable with an upward bias as liquidity tightens further, however towards end of month rates may fall on renewed demand for assets.
  • If US treasury yields rise further as Fed hike of key fed funds rate materializes this month, it may lead to further rise in domestic bond yields as well. Any OMO purchase announcement would be a positive surprise. Market will also take cues from the first half borrowing calendar for FY 2019 to be announced towards end of the month.

Equity Commentary

GDP growth in Q3 rose to 7.2% yoy while the Q2 growth was revised upwards to 6.5%. Investment demand was strong, growing at 12% yoy. This likely was based on strong infrastructure capex in roads, railways (electrification particularly), ports and brownfield capex by private companies.

The Indian markets were down about 5% during the month. While many factors specific to India like introduction of Long term capital gains tax on listed equity, the cases of fraud in a few banks and the spat with SGX were listed as reasons, the fact was that India was down broadly in line with EM as an asset class. The MSCI EM index was down 4.7% during the month, similar to the performance of the Indian markets. While FIIs took out about Rs. 11,000 crores from the Indian equity markets, EMs, as a category had equity redemptions of about USD 5.8 Billion in February from Foreign portfolio investors. This was after a 14 month run of inflows. Domestic institutions however remained buyers during the month.

The Q3 results continued to show a trend of strengthening bottom up economic recovery. The post result commentary was strong from the IT sector, and from consumer staples and discretionary consumption including from auto manufacturers. Anecdotally, logistics providers including transport operators are reporting a good bottom up demand growth in the economy.

Banks, particularly PSU banks had a bad quarter resulting from slippages from stressed assets. The Q4 FY 18 numbers for banks are also likely to be under pressure as RBI has done away with the old schemes for restructuring (CDR, S4A, SDR etc.) and moved to the IBC mechanism. However, the likelihood of a few big amounts likely to find resolution under the IBC will be a positive for the sector.

Equity Market Outlook

The Indian economy has been seeing a weakening macroeconomic environment as a result of higher current account deficit, likely stress on the fiscal deficit number for FY 19, and rising, though still moderate inflation. Globally also, the environment is likely to be challenging with headlines regarding trade tensions, rising bond yields and a volatile political environment. However, as said above, things are improving on the ground both on the consumer and the investment side. The market valuations are now about 18X FY 19 earnings, which is at a slight premium to historical valuations but notvery stretched. Hence while we do not expect PE multiple expansion this year, and the year to be quite volatile, equity as an asset class is expected to deliver reasonable returns over the medium term.

Data Item

1 Month

1 year







MSCI EM Index Local



Indian Rupee



Dollar Index (DXY)



Crude Oil- Brent



CRB Index









Iron Ore



Cotton (Cotlook A Index)










FII net flows (Rs. Crs)



Mutual Fund net flows (Rs. Crs)









Exports (USD Billion)



Imports (USD Billion)



Data as on 29th Dec 2017.

Souce: Bloomberg, NSDL and Sebi websites


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