Market Outlook

September 2019

Equity Roundup - Movement in August

IndexClosing Value

1-Month Return (%)

1 Year Return (%)

U.S

S&P 500 2926 -1.81 3.91

Nasdaq 7963 -2.60 -1.81

Dow Jones 26403 -1.72 1.69

Europe

DAX 11939 -2.05 -3.44

FTSE 100 7207 -5.00 -3.03

Asia/Pacific

Nikkei 20704 -3.80 -9.45

KOSPI 1933 -4.50 -16.77

Hang Seng 25704 -7.47 -7.83

Domestic

Sensex 37333 -0.40 -3.40

Nifty 11023 -0.85 -5.63

BSE Mid cap TRI 16079 -1.12 -19.37

BSE Small cap TRI 14826 -1.04 -26.40

BSE 100 TRI 13330 -0.45 -6.03

BSE 200 TRI 5510 -0.37 -7.35

BSE 500 TRI 16984 -0.45 -9.01

Data as on 31 Aug 2019; Source: ICRA MFITRI – Total Return Index

*S&P BSE Sectoral Indices movement between 31 July’19 to 31 Aug’19 in % terms

• Majority of the BSE sectoral indices ended in red in August 2019.• Metal stocks witnessed heavy sell-off due to rising US-China trade tensions

and worries about gloomy domestic economic outlook. Metal sector wasthe top sectoral laggard falling by 12%.

• While, defensive buying was seen in Consumer Durables (CD) andInformation Technology (IT).

• Whereas, Auto index climbed 2% after FM announced measures tosupport the sector after witnessing decline in sales numbers acrosssegments.

2

(12.0)(8.9)

(5.3)(4.0)

(3.5)(1.1)(1.0)(0.9)

(0.6)(0.4)

0.1 1.3

1.9 2.6

3.0 4.8

(15.0) (12.0) (9.0) (6.0) (3.0) 0.0 3.0 6.0

MetalsPSU

BankexPower

Capital GoodsMid Cap TRI

Small Cap TRIRealty

Oil & GasSensexFMCG

Heath CareAuto

ITEnergy

Consumer Durables

3

Equity Market Roundup - Key Takeaways

• Factors which affected Indian Equity Markets: Indian markets were down for the third consecutive month in August on back ofdomestic and global concerns. Global cues such as renewed trade tensions between the US and China, US Fed commentary on afuture rate cut and fears of a looming global recession amid deepening of the inversion of the US bond yield curve; dented marketsentiments.

• Weak domestic cues such as the RBI lowered the economic growth estimate for fiscal 2020 to 6.9% amid a slowdown in demandand investments, release of disappointing domestic corporate earning numbers and consistent foreign institutional investor (FII)outflows kept the market in negative territory.

• However, later during the month; Finance Minister announced several measures to boost the economy including roll-back of highersurcharge on Foreign Portfolio Investment (FPIs) levied in the Union Budget, withdrawal of surcharge on long- and short-term capitalgains arising from transfer of equity shares, infusion of Rs 70,000 crore into public sector banks and other slew of Governmentmeasures to boost the economy; brought some relief in the market.

• FIIs sold equities worth Rs 17,592 cr in August 2019 compared to selling of Rs 12,418 cr in July 2019. While, Mutual Funds remainednet buyers of equities; they bought equities worth Rs 16,591 cr as against Rs 15083 cr in July 2019.

• Performance: The BSE Sensex and Nifty-50 Indices declined 0.40% and 0.85% respectively. The broader markets continued toremain under pressure as Midcap and Smallcap declined around 1% in August.

• Domestic data points: Q1 FY20 GDP growth came at 5%, which was the lowest quarterly growth since March 2013. The slowdownhad been across all segment of demand. The data show that the manufacturing sector grew at a weak two-year low of 0.6% in thefirst quarter of 2019-20, down from 12.1% in the same quarter of the previous year. The agriculture sector also saw a dramaticslowdown in growth to 2% from 5.1% over the same period.

• India's industrial production growth slipped to a four-month low of 2% in June, mainly due to poor performance of mining andmanufacturing sectors.

4

India's GDP growth tumbles to 5% in April - June Quarter

• India’s Gross Domestic Product (GDP) grew 5% in the April-June 2019, much lower than 8.2% growth in the same quarter lastfiscal. It was also lower than 5.8% GDP growth in the March quarter in 2018-19. This is the second straight quarter when thequarterly GDP growth was below 6%.

• The weakness was broad-based, with consumption and export growth slowing while investment remained subdued.

• The data show that the manufacturing sector grew at a weak two-year low of 0.6% in the first quarter of 2019-20, down from12.1% in the same quarter of the previous year. The agriculture sector also saw a dramatic slowdown in growth to 2% from5.1% over the same period.

6.0%6.6%

7.7%8.1% 8.0%

7.0%6.6%

5.8%5.0%

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

Mar

-19

Jun

-19

GDP Growth Rate (Q-o-Q)

5

Government announced various measures to boost the economy

Enhance surcharge abolished for Equity Capital Gains

• Government has withdrawn enhanced surcharge on Long Term Capital Gain (LTCG) and Short Term Capital Gain (STCG) arising from transfer of equity shares/units for foreign and domestic investors

Financial Markets • Corporate access to global markets• Simplified KYC procedure to improve market access for foreign investors including FPIs• Addhaar-based KYC for demat account and MF investments• Measures soon to develop offshore rupee market

Banks/NBFCs/MSMEs • Upfront release of Rs 70,000 cr to PSBs; enhances lending capacity by Rs 5 lakh cr• Banks to pass on benefits of rate cuts to all borrowers• Repo linked lending rates to create lower lending rates• Additional liquidity support of Rs 20,000 crore to housing finance companies (HFCs) by the National

Housing Bank (NHB), thereby increasing the total support to Rs 30,000 crore• Faster GST refunds; easier bill discounting for MSMEs

Auto

BS-IV vehicles purchased up to March 31, 2020, will all remain operational for their entire period of

registration

Revision of one-time registration fee deferred till June 2020

Additional 15% depreciation to be allowed on any vehicles acquired from now till March 2020

Both EVs and ICVs will continued to be registered

To boost demand for cars, Govt to lift ban on purchase of new vehicles by Govt department to replace old

vehicles

Govt to consider measures, including a scrappage policy, to boost demand

Infrastructure Plans to invest Rs 100 lakh crore for developing modern infrastructure over five years

Delayed payments from Govt/CPSEs to be monitored by Expenditure Dept

6

Macro Indicators

signifies positive movement over Q-o-Q signifies negative movement over Q-o-Q

Current Quarter Ago Year Ago

Consumer Price Index (CPI) 3.15% (Jul-19) 2.99% (Apr-19) 4.17% (Jul-18)

Wholesale Price Index (WPI) 1.08% (Jul-19) 3.07% (Apr-19) 5.27% (Jul-18)

Industrial Production (IIP) 2.00% (Jun-19) -0.1% (Mar-19) 7.00% (Jun-18)

GDP 5.00% (Jun-19) 5.80% (Mar-19) 8.00% (Jun-18)

Trade Deficit ($ bn) 13.43 (Jul-19) 15.33 (Apr-19) 18.63 (Jul-18)

Commodity Market

Brent Crude ($/barrel) 60.43 64.49 77.77

Gold ($/oz) 1529.40 1322.60 1241.10

Silver ($/oz) 18.34 14.65 14.74

Currency Market

USD/INR 71.45 69.58 71.00

EURO/INR 78.53 77.81 82.39

GBP/INR 86.87 87.92 92.05

YEN/INR (per 100) 67.22 64.25 63.92

Equity Net Flows

Mutual Funds & DIIs (Rs. Cr) 15387 (Aug-19) 5164 (May-19) 4095 (Aug-18)

FIIs (Rs. Cr) -17592 (Aug-19) 7920 (May-19) 1775 (Aug-18)

7

Performance across Market Caps v/s Nifty

Returns below one year absolute and more than one year CAGR. Data as on 31 Aug 2019; Source: ICRA MFI

Although recent turmoil in equity market has resulted in negative returns in short term, funds across the market caps have outperformed Nifty 50 in longer time horizon of 5 years

0.57

-8.92

-2.06

-14.01

-3.09

3.33

9.12

-0.21

-7.16

1.84

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1.23

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-0.28

-12.54

-4.06

-18.14

-6.32

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-0.56

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-5.60

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0.00

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10.00

1 Month 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years

Midcap Multicap Smallcap Nifty 50

8

Debt Markets - Review

9

Debt Market Roundup - Key Takeaways

For internal circulation only

• Factors that affected the Bond Markets: Bond yields rose on account of uncertainty over future policy rate cuts, both in terms ofquantum and timing, after the rate-cutting panel reduced repo rate by 35 bps in the policy meet as the RBI governor said future ratecuts would be data driven; impacted market sentiments. Besides, profit booking by investors and the rising geopolitical worriesover Jammu & Kashmir also weighed on sentiments.

• Moreover, rupee depreciation against the dollar due to escalating trade worries between the U.S. and China amid worries overseconomic slowdown and doubts over sovereign bond issue also dampened market sentiment.

• Furthermore, concerns that the government may spend more to boost the growth of the Indian economy and eventually breachits fiscal deficit target; led to further rise in bond yields.

• However, some losses were restricted on expectations that Monetary Policy Committee might cut interest rates again to boost theslowing economy.

• Performance of 10-year G-Sec Yield: The 10-year benchmark G-Sec yield closed at 6.58% in Aug 2019, rose by 21 bps from itsprevious close of 6.37% in July 2019.

• Macro Economic Overview: Government data showed that India’s trade deficit in Jul 2019 narrowed to $13.43 billion from $18.63billion a year ago.

• India’s consumer inflation eased to 3.15% YoY in Jul 2019 from 3.18% in Jun 2019 from but slowed compared with 4.17% in Jul2018. While, India’s Wholesale Price Index (WPI) - based inflation slowed down to 1.08% in Jul 2019 from 2.02% in Jun 2019 and5.27% in Jul 2018.

• The Reserve Bank of India said after its board meeting that it will transfer Rs. 1.76 lakh crore to the government this fiscal. Thetransfer includes Rs. 1.23 lakh crore of surplus for 2018-19 and Rs. 52,637 crore of excess provisions.

• Government data showed that India’s fiscal deficit for the period from Apr to Jul of 2019 stood at Rs. 5.48 lakh crore or 77.8% ofthe budget estimate compared to 86.5% of the budget estimate in the corresponding period of the previous year.

10

Debt Roundup

31 Aug’19 31 July’19 31 Aug’18 M-o-M Change Interest Rates

Repo rate 5.40% 5.75% 6.50% -35 bpsSLR 18.75% 18.75% 19.50% 0 bps

CD Rates 3 month 5.45% 5.90% 7.20% -45 bps6 month 5.90% 6.35% 7.57% -45 bps

1 Year 5.40% 6.85% 8.10% -145 bpsCP Rates 3 month 5.70% 6.25% 7.75% -55 bps6 month 6.30% 7.20% 8.20% -90 bps

1 Year 6.90% 7.60% 8.50% -70 bpsT-Bill/G-sec

91 Days 5.38% 5.74% 6.81% -36 bps364 Days 5.70% 5.94% 7.30% -24 bps

7.26% GOI 2029 (10 Yr GOI) -New 6.58% 6.37% - 21 bps7.17% GOI 2028 (10 Yr GOI) -Old 6.69% 6.63% 7.95% 6 bps

Corporate Bonds (PSU) 3 Year 6.90% 7.00% 8.50% -10 bps5 Year 7.22% 7.12% 8.62% -10 bps

10 Year 7.48% 7.48% 8.62% 0 bpsInternational Markets

10 Year US Treasury Yield 1.51% 2.06% 2.86% -55 bps3 Months LIBOR 2.12% 2.26% 2.31% -13 bps

12 Months LIBOR 1.95% 2.20% 2.83% -25 bps

11

Yields Movement Across - India and US

• 10-year India Government Bond Yield: Bond yields rose as investors as rising concerns over the fiscal package, which is expected tofurther widen the fiscal deficit and breach the target. Besides, depreciation in the local currency and losses in domestic equity marketalso weighed on investors’ sentiment. However, some losses were restricted on expectations that Monetary Policy Committee mightcut interest rates again to boost the slowing economy in the upcoming policy meet scheduled in October.

• U.S. Treasury Yield: Yields on the 10-year U.S. Treasury bond plunged 55 bps to 1.51% compared with the previous month’s close of2.06%; as escalation in trade tensions between U.S. and China fuelled concerns of a global economic slowdown which boosted itssafe haven appeal. Concerns that U.S. could be heading for recession and expectations of central bank interest rate cuts also added tothe upside.

For internal circulation only

6.30

6.35

6.40

6.45

6.50

6.55

6.60

6.65

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2.10

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INR and Brent Crude Performance

• INR Performance: The rupee weakened against the dollar as escalation in trade tensions between U.S. and China dampenedinvestor risk appetite. Moreover, speculation that the Centre may increase spending to bring about an economic revival triggeredconcerns over fiscal slippage, and weighed on the rupee further. The domestic currency depreciated around 3% in August andhovered mostly around ~70-71/ US$ levels during the month.

• Brent Crude: Earlier, in the month; Brent crude prices tumbled with weakening demand outlook amid deepening U.S.-China tradeworries, which threatened global growth. However, hopes towards the end of the month that U.S. and China are agreeing to moretrade talks in October; added to the gains.

For internal circulation only

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Thank You

13

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