Market Outlook

May 2019

Equity Markets - Review

Equity Roundup - Movement in April

sClosing Value

1-Month Return (%)

1 Year Return (%)

U.S

S&P 500 2943 3.83 11.14

Nasdaq 8162 5.60 15.50

Dow Jones 26554 2.41 9.90

Europe

DAX 12344 7.10 -2.13

FTSE 100 7441 2.22 -0.91

Asia/Pacific

Nikkei 22259 4.97 -0.93

KOSPI 2204 2.94 -12.40

Hang Seng 29699 2.23 -3.60

Domestic

Sensex 39032 0.93 11.01

Nifty 11748 1.07 9.39

BSE Mid cap TRI 17659 -3.78 -11.62

BSE Small cap TRI 11749 -2.66 -19.88

BSE 100 TRI 14088 0.50 7.79

BSE 200 TRI 11750 0.17 5.36

BSE 500 TRI 18111 -0.06 2.87Data as on 30 April 2019TRI – Total Return Index

Sectoral Performance – Domestic

• Indian Equity Market ended April 2019 on a positive note withbenchmarks S&P BSE Sensex and Nifty 50 up 0.93% and1.07%, respectively.

• Investors remained wary amid polling for general elections.Persistent selling by domestic institutional investors (DIIs) alsoweighed on the benchmarks.

• BSE sectoral indices recorded mix performances. IT postedhigher returns of 6.4%. Fall in rupee following increase incrude oil prices pushed the IT stocks higher. S&P BSE Realtyindex and S&P BSE Power index were the top losers, down3.30% and 3.19%, respectively due to profit booking.

*S&P BSE Sectoral Indices movement between 31 Mar’19 to 30 Apr’19 in % terms

(3.8)

(3.3)

(3.2)

(2.7)

(2.5)

(2.4)

(2.4)

(0.3)0.1 0.1

0.2

0.6

0.9

1.4

1.6

6.4

(6.0) (4.0) (2.0) 0.0 2.0 4.0 6.0 8.0

Mid Cap TRI

Realty

Power

Small Cap TRI

PSU

Capital Goods

Bankex

Heath Care

Consumer Durables

Auto

FMCG

Oil & Gas

Sensex

Metals

Energy

IT

Equity Market Roundup - Key Takeaways

• Factors which affected Indian Equity Markets: Robust FII inflows, dovish guidance by US FederalReserve and rate cut by RBI were some of the factors which boosted investor sentiments.

• Moreover, markets got further support after the India Meteorological Department (IMD)forecasted near-normal monsoons in 2019, raising hopes of a rate cut. In addition, better-than-expected earnings report by some major domestic companies and expectations of a stablegovernment post elections also helped sentiment.

• However, towards the end of the month, some volatility was seen. Weakness in the rupee againstthe dollar and rise in crude oil prices stoked concerns over fiscal slippage and inflation amidworries that the US will end sanctions waiver on Iranian oil imports; weighed on domesticindices.

• Further, continuous selling by Domestic Institutional Investors (DIIs) and Mutual Funds (MFs)also dented investor sentiments.

• Performance: Nifty and Sensex ended the month of April with a rise of 1% each. BSE Midcap andBSE Smallcap indices underperformed its larger peers. BSE Midcap and Smallcap indices slippedbetween 3-4%.

• Other data points: On the other hand, India’s trade deficit contracted to $10.89 billion in Mar2019 from $13.51 billion in Mar 2018 due to growth acceleration in export. Exports rose 11.02%YoY in Mar 2019 to $32.55 billion while imports edged up 1.44% in Mar 2019 to $43.44 billion.

• The Nikkei India Manufacturing Purchasing Managers' Index (PMI) fell to 51.8 in Apr 2019 from52.6 in Mar 2019. This marked eight-month low amid softer increase in new orders.

Performance across Market Caps v/s Nifty -Midcaps and Smallcaps corrected sharply in last 12 months

Data as on 30 Apr 2019; Source: ICRA MFI

0.7

8.5

12.8

3.7

12.413.3

-2.1

5.77.3

-9.4

11.4

17.2

-2.5

5.9 5.3

-15.0

10.8

17.7

-0.1

7.8

11.4

0.6

13.0

15.1

1.1

10.3

15.2

9.4

14.4

11.9

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

1 Mth 3 Mths 6 Mths 1 Yr 3 Yrs 5 Yrs

Large Cap Mid Cap Small Cap Multi Cap Nifty

Sensex movement during General Elections

For internal circulation only

• The uncertainty surrounding the general elections scheduled in May19 shall get over in the first quarter ofthe fiscal 2020.

• A study of market movement 6 months pre and post elections has shown that markets have typicallydelivered positive returns.

• Inflows by the Foreign Portfolio Investments (FPIs) have seen to pick up once the clouds of uncertainties havecleared post elections results.

• There may be short term glitches before and after election results, however; the markets have always beendriven by strong fundamentals.

12%

-9%

44%

-7%

36%

18%

-17% -20%

-5%

32%38%

16%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1996 1998 1999 2004 2009 2014

6 Months Pre elections Return 6 Months Post elections Return

Source: ICRA MFI

Markets have rallied post election results

Source: Canara Robeco Mutual FundData as on 31st Dec 2018

Year of GeneralElections

Bought - 6 M Prior to GE Results

Sold - 18 M Post GE Results

Sensex (CAGR %)

1996 Dec-95 Dec-97 9%

1998 Nov-97 Nov-99 16%

1999 Apr-99 Apr-01 7%

2004 Nov-03 Nov-05 28%

2009 Nov-08 Nov-10 46%

2014 Nov-13 Nov-15 13%

Case of Investing During Elections - Lumpsum v/s SIP

Election YearNifty Sensex

SIP Lumpsum SIP Lumpsum

1999 -15% 5% -19% 0.1%

2004 32% 27% 36% 31%

2009 36% 46% 36% 46%

2014 3% 12% 2% 11%

-15%

32%36%

3%5%

27%

46%

12%

-20%

-10%

0%

10%

20%

30%

40%

50%

1999 2004 2009 2014

Ret

urn

s (%

)

SIP in Nifty Lumpsum in Nifty

Do Elections Matter?Sure, election results matter - but only in the near term

• Data shows that investing throughSIP/STP mode starting six monthsprior to general elections for twoyears, generated negative or lowerreturns; while the same cumulativecorpus invested through lumpsummode delivered higher returns.

• For the election year 2014, SIP/STPin Nifty index - 3% XIRR; whileLumpsum investment in Nifty -12% returns.

• Every election seems to be animportant event which causesoccasional volatility; but nosustained impact has been seen onindices due to elections in thelonger run.

• Markets performance has alwaysbeen driven by the strength of theeconomy.

Valuations Corrected Significantly for Mid & Small Caps in past 12 months

Source: ICRA MFI Explorer; data as on 31 Mar 2019

In Financial Year 2018-19, Mid and Smallcaps witnessed a significant correction post which valuations havecooled off.

Investments in equity, particularly mid and small caps, should be in a staggered manner through SIP/STP.

Source: ICRA MFI, Above illustration shows the index value movement. Large Cap:Nifty100, Mid Cap: Nifty Midcap 150, Small Cap: Nifty Smallcap 250. Index values normalized at 1000.

-11.6%

17.7%

36.9%

-3.2%-15.0%

5.0%

25.0%

45.0%

2019 2018 2017 2016

S&P BSE Small Cap FY Performance

0

2000

4000

6000

8000

Ind

ex v

alu

es n

orm

alis

ed t

o 1

00

0

Market Movement

Nifty 100 Nifty 50 Nifty Smallcap 250

-3.02%

13.24%

32.75%

0.25%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

2019 2018 2017 2016

S&P BSE Mid Cap FY Performance

Small Caps Outperform in favorable times

58

-54

83

18

-26

31

6

33

-2

4

31

1

76

-65

111

18

-32

44

-3

60

8 5

54

-13

95

-69

114

16

-36

38

-8

70

100

57

-27

-80

-60

-40

-20

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Ab

solu

te r

etu

rns

(%)

Market Performance - Calendar Year-wise (%)

Nifty 100 Nifty Midcap 150 Nifty Smallcap 250

Source: ICRA MFI, CY 2018 as on Dec 31, 2018. Large Cap: Nifty100, Mid Cap: Nifty Midcap 150, Small Cap: Nifty Smallcap 250.

Small Cap index performance during calendar years

Source: ICRA MFI, CY 2018 as on Dec 31, 2018. Large Cap: Nifty100, Mid Cap: Nifty Midcap 150, Small Cap: Nifty Smallcap 250.

CY Year Nifty Smallcap 250 Nifty Midcap 150 Nifty 100

2006 31 27 38

2007 95 76 58

2008 -69 -65 -54

2009 114 111 83

2010 16 18 18

2011 -36 -32 -26

2012 38 44 31

2013 -8 -3 6

2014 70 60 33

2015 10 8 -2

2016 0.4 5 4

2017 57 54 31

2018 -27 -13 1

Small Caps have depicted strong performance in the year following the one which it delivered negative or lower returns

Who should invest in Small Caps?

Who should invest in Small

Caps?

Investors looking to invest in Small Caps

as part of their Asset Allocation

Investors having high risk

appetite and willing to take

exposure in equities

Investors with a medium to long

term horizon of 5 years and above

Investors seeking higher returns

with high patience levels

to ride the market volatility

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) 2.86% (Mar-19) 2.11% (Dec-18) 4.28% (Mar-18)

Wholesale Price Index (WPI) 3.18% (Mar-19) 3.80% (Dec-18) 2.47% (Mar-18)

Industrial Production (IIP) 0.1% (Feb-19) 0.5% (Nov-18) 7.1% (Feb-18)

GDP 6.60% (Dec-18) 7.10% (Sep-18) 7.70% (Dec-17)

Trade Deficit ($ bn) 10.89 (Mar-19) 13.08 (Dec-18) 11.98 (Mar-18)

Commodity Market

Brent Crude ($/barrel) 72.80 61.89 75.17

Gold ($/oz) 1284.95 1325.20 1350.90

Silver ($/oz) 14.90 16.17 16.31

Currency Market

USD/INR 69.65 70.96 66.46

EURO/INR 78.11 81.23 80.27

GBP/INR 90.78 93.03 91.53

YEN/INR (per 100) 62.54 65.19 60.74

Equity Net Flows

Mutual Funds & DIIs (Rs. Cr) -4600 (April-19) 7161 (Jan-19) 11293 (Apr-18)

FIIs (Rs. Cr) 21193 (April-19) -4262 (Jan-19) -5552 (Apr-18)

Debt Markets - Review

Debt Market Roundup - Key Takeaways

• Factors which affected Bond Markets: The month started on an optimistic note as bondmarkets factored in a rate cut by RBI. As expected, the central bank cut repo rate by 25 bps inApril owing to growth concerns. However, the neutral stance by RBI and tight liquidityconditions resulted in yields rising across the board.

• Macro Economic Overview: The retail inflation rate touched a five-month high of 2.86% inMarch, on account of seasonal increase in food prices. Wholesale Price Inflation (WPI) tooincreased in March to 3.18%, its highest in three months, on the back of increased food andfuel prices.

• Industrial output growth slowed to a 20-month low of 0.1% in Feb due to contraction in themanufacturing sector. While, the growth of eight core sectors improved marginally to 4.7% inMarch 2019.

• Performance of 10-year G-Sec Yield: The 10-year benchmark G-Sec yield closed at 7.41%, up6 bps from its previous close of 7.35%.

• Outlook: Markets will track government spending and RBI measures to infuse liquidity. Onthe other hand, crude oil prices will be another important trigger for markets. Oil prices arehovering around US$75 mark. This is a crucial level for India from the point of view of currentaccount deficit and inflation.

• Moreover, the rupee is also around the 70 levels; the markets will also track USD-INRmovement. On the global front, markets will also track US data to understand the likely stanceof US Federal Reserve.

Debt Roundup

30 Apr’19 31 Mar’19 30 Apr’18 M-o-M Change

Interest Rates

Repo rate 6.00% 6.25% 6.00% -25 bpsSLR 19.00% 19.25% 19.50% -25 bps

CD Rates

3 month 7.30% 7.25% 7.15% 5 bps6 month 7.55% 7.35% 7.40% 20 bps1 Year 7.78% 7.55% 7.70% 23 bps

CP Rates

3 month 7.70% 7.60% 7.60% 10 bps6 month 8.00% 7.85% 7.80% 15 bps1 Year 8.25% 8.00% 8.10% 25 bps

T-Bill/G-sec

91 Days 6.38% 6.20% 6.19% 18 bps364 Days 6.46% 6.37% 6.50% 9 bps7.26% GOI 2029 (10 Yr GOI) -New 7.41% 7.35% - 6 bps7.17% GOI 2028 (10 Yr GOI) - Old 7.52% 7.47% 7.77% 5 bps

Corporate Bonds (PSU)

3 Year 7.95% 7.60% 8.20% 35 bps5 Year 8.10% 7.65% 8.40% 45 bps10 Year 8.41% 8.19% 8.45% 22 bps

International Markets

10 Year US Treasury Yield 2.51% 2.40% 2.96% 11 bps3 Months LIBOR 2.58% 2.60% 2.36% -2 bps12 Months LIBOR 2.72% 2.68% 2.78% 3 bps

Yields Movement Across - India and US

• 10-year India Government Bond Yield: The 10-year benchmark G-Sec yield closed at 7.41%, up6 bps from its previous close of 7.35%. The yields hardened despite the Monetary PolicyCommittee (MPC) delivering a 25bps rate-cut in the month of April. This upward movement ofyields clearly highlights that, in addition to the rate cut market was anticipating a change in thepolicy stance.

• Key issues such as election and fiscal still continue to remain. Oil and credit concerns haveincreased due to recent downgrades in NBFC’s. This has added to the problems and led towidening of the bond spreads.

• U.S. Treasury Yield: U.S. Treasury yields rose from 2.43% to 2.50%. The US Federal Reserve'sMarch meeting minutes showed that policy makers dropped plans for further rate increases in2019 owing to unease over the US and global economies, and subdued inflation.

7.20

7.25

7.30

7.35

7.40

7.45

7.50

31

-Mar

-19

2-A

pr-

19

4-A

pr-

19

6-A

pr-

19

8-A

pr-

19

10

-Ap

r-1

9

12

-Ap

r-1

9

14

-Ap

r-1

9

16

-Ap

r-1

9

18

-Ap

r-1

9

20

-Ap

r-1

9

22

-Ap

r-1

9

24

-Ap

r-1

9

26

-Ap

r-1

9

28

-Ap

r-1

9

30

-Ap

r-1

9

India 10-Year Government Bond Yield (New) (%)

2.35

2.40

2.45

2.50

2.55

2.60

2.65

31

-Mar

-19

02

-Ap

r-1

9

04

-Ap

r-1

9

06

-Ap

r-1

9

08

-Ap

r-1

9

10

-Ap

r-1

9

12

-Ap

r-1

9

14

-Ap

r-1

9

16

-Ap

r-1

9

18

-Ap

r-1

9

20

-Ap

r-1

9

22

-Ap

r-1

9

24

-Ap

r-1

9

26

-Ap

r-1

9

28

-Ap

r-1

9

30

-Ap

r-1

9

10-Year US Bond Yield (%)

INR and Brent Crude Performance

For internal circulation only

• INR Performance: The rupee ended lower against the US dollar and depreciated by 0.3% inthe month of April. Exchange rate settled at Rs 69.65 per dollar on April 30 as against Rs69.44 per dollar on March 31. Spike in crude oil prices and widening in India's trade gap alsotriggered rupee selling resulting further fall.

• Central bank's forex swap auction conducted towards the end of the month saw better-than-expected demand.

• Brent Crude: Brent crude up 6.4% from US$68.4 per barrel in March 2019 to US$72.8 perbarrel in April 2019 as the US announced an end to waivers on Iranian oil imports.

68.39

71.72

74.51

72.8

68.0

69.0

70.0

71.0

72.0

73.0

74.0

75.0

31

-Mar

-19

03

-Ap

r-1

9

06

-Ap

r-1

9

09

-Ap

r-1

9

12

-Ap

r-1

9

15

-Ap

r-1

9

18

-Ap

r-1

9

21

-Ap

r-1

9

24

-Ap

r-1

9

27

-Ap

r-1

9

30

-Ap

r-1

9

Brent Crude (USD)

per

barr

el

pe

r b

arre

l

68.0

68.5

69.0

69.5

70.0

70.5

71.0

31

-Mar

-…

02

-Ap

r-1

9

04

-Ap

r-1

9

06

-Ap

r-1

9

08

-Ap

r-1

9

10

-Ap

r-1

9

12

-Ap

r-1

9

14

-Ap

r-1

9

16

-Ap

r-1

9

18

-Ap

r-1

9

20

-Ap

r-1

9

22

-Ap

r-1

9

24

-Ap

r-1

9

26

-Ap

r-1

9

28

-Ap

r-1

9

30

-Ap

r-1

9

USD

/IN

R

INR Movement

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