investment newsletter October 2016 Monthly Equity Roundup – October 2016 S&P BSE Sensex Nifty 50 Index 29500.00 9000.00 28500.00 8750.00 Nifty 50 Nifty 27500.00 8500.00 S&P BSES&P Sensex 16 16 16 16 - - - - Oct Oct Oct Sep - - - - 20 30 10 30 October 2016 – Review Indian equity market climbed during the month following a 25 bps cut in repo rate by the Reserve Bank of India (RBI), and the Wholesale Price Index (WPI)-based inflation data declining to 3.57% in Sep from 3.74% in Aug. Key benchmark indices S&P BSE Sensex and Nifty 50 gained 0.23% and 0.17% to close at 27,930.21 points and 8,625.70 points, respectively. Meanwhile mind and small caps continue to outperform, with S&P BSE Mid-Cap gaining 2.33% and S&P BSE Small-Cap gaining 6.28%. According to data from the National Securities Depository Ltd, foreign portfolio investors remained net seller of domestic stocks worth Rs. 4,306.26 crore in Oct as against net purchase of Rs. 10,443.25 crore recorded in the previous month. Domestic mutual funds remained net buyers in the equity segment to the tune of Rs. 9,128.70 crore in Oct. The month started on a positive note with the Indian equity market surging on account of the repo rate cut of 25 bps by RBI’s Monetary Policy Committee (MPC) in its first policy Institutional Flows in Equities review. The Committee also hinted at the fact that a normal FII MF 1000 monsoon could propel the growth momentum, in turn pushing agricultural growth and rural demand. Growth of India’s core -250 sector output data by 3.2% in Aug vis-a-vis 3.0% climb in Jul, Crores in Rs. -1500 16 16 16 16 - - - and the World Bank saying that India's GDP growth will - Oct Oct Oct Oct - - - - remain strong at 7.6% in 2016 and 7.7% in 2017, also added 1 11 21 31 to the gains. Strong cues from Asian peers also helped the market. Manufacturing PMI data across regions came strong. Minutes of the U.S. Federal Reserve Open Market Committee indicated chances of a rate hike soon if the country’s economy continued to grow stronger. In India, although WPI-based inflation came down 3.57% in Sep from 3.74% in Aug, triggered by a slip in food inflation, the positive impact was offset by an IT major lowering its revenue guidance for FY17. Investors turned positive again after U.S. Presidential election debates and opinion polls suggested Democrats winning the election. Goods and Services Tax (GST) Council’s three-day meet kept investors on their toes, while certain sectors snapped apprehending that higher GST on certain products would raise product prices and bringing their volume growth down in future. Good show by some banking stocks, better earnings performance by certain corporates, gains in regional equities, and hopes of good earnings results from several businesses, supported the markets. Also, the market looked ahead at the GST rates to be decided in the next GST Council meet. On the other hand though, gains were limited by some industry heavyweights putting up unsatisfactory performance, expiry of October derivatives, and feeble global cues. However, the market reached another low following an industry bellwether’s chairperson stepping down from the role. On the BSE sectoral front, most of the sectoral indices closed in green. S&P BSE Oil & Gas, up 8.26%, was the top gainer, trailed by S&P BSE PSU (6.34%), S&P BSE Metal (5.67%) and S&P BSE Basic Material (5.5%). Oil sector gained because of improving fundamentals and expectations of better results from gas companies. Metal sector gained because steel manufacturing companies went up following the government’s extension of the minimum import price on 66 steel products by an additional two months to protect the industry against cheap imports. MPC lowering its repo rate in its policy review boosted gains in rate-sensitive sectors. S&P BSE Oil & Gas 8.26% S&P BSE PSU 6.34% S&P BSE METAL 5.67% S&P BSE CD 3.02% S&P BSE Realty 2.91% S&P BSE CG 2.33% S&P BSE HC 1.80% S&P BSE Bankex 1.46% S&P BSE Power Index 0.83% S&P BSE FMCG 0.59% S&P BSE AUTO -0.21% S&P BSE Teck -1.88% S&P BSE IT -1.92% Global Economy: U.S. equity markets witnessed considerable amount of volatility over the month and finally closed in the red. Uncertainty over the U.S. Fed’s stance on the interest rate hike continued to generate mixed reaction among market participants. Concerns over the health of the global economy and the uncertainty regarding impending U.S. Presidential elections further weighed on investor sentiment. In addition, disappointing corporate earnings continued to be a spoilsport. European markets closed in the green after witnessing initial volatility. A series of encouraging economic data supported buying interest. Easing concerns over harsher impact of “Brexit” provided additional support. The end of the political deadlock in Spain also generated positive vibes. However, the upside was limited after the European Central Bank (ECB) defied market expectations by keeping its key interest rates unchanged for the fifth consecutive session and retained its asset purchases program. Economic Update Core sector output grew 5% YoY in Sep 2016 Core sector output jumped 5% YoY in Sep 2016, better than 3.2% rise in the previous month and 3.7% increase in the same period a year ago, due to strong growth in the steel and refinery products sectors. Steel and refinery products sectors surged 16.3% and 9.3% YoY, respectively, during the reported period. Electricity sector grew 2.2% YoY, faster than the 0.1% growth in the previous month but much slower than 11.4% growth recorded a year ago. Fiscal Deficit stood at Rs. 4.47 lakh crore for Apr-Sep period of current fiscal Government data showed that India’s fiscal deficit for the period from Apr to Sep stood at Rs. 4.47 lakh crore or 83.9% of the budgeted target for this fiscal compared with 68.1% in the corresponding period of the previous year. The hike in fiscal deficit was on account of elevated public spending and higher salaries outgo. Revenue deficit stood at Rs. 3.25 lakh crore, or 92.1% of the budgeted estimate. RBI lowered repo rate by 25 bps to 6.25% Reserve Bank of India’s Monetary Policy Committee (MPC) lowered repo rate by 25 bps to 6.25% in its fourth monetary policy review meeting. Consequently, the reverse repo rate was adjusted to 5.75%, and the marginal standing facility rate and the bank rate to 6.75%. All the six members of the monetary policy committee voted in favour of the decision IIP slips 0.7% in Aug Government data showed that India’s industrial output fell 0.7% YoY in Aug. Manufacturing output fell 0.3% in Aug while mining production contracted 5.6%. Electricity output expanded 0.1% during the period under review. Capital goods output contracted 22.2% in Aug, while basic goods production grew 3.2%. Intermediate goods’ output rose 3.6% during the same period. Outlook The outcome of the U.S. Presidential elections scheduled on Nov 8 is the next big trigger for the equity markets as the recent polls show an increasingly tight race in on the cards that could go either way. The outcome will have a bearing as to what stance the U.S. government adopts on key issues such as foreign policy, trade relations, and immigrants that are expected to have a direct impact on the markets across the globe. Investors, who up till now hoped for a soft "Brexit" and grew worried of a hard one, will also keep a tab as to how the subsequent developments surrounding "Brexit" unfolds after the High Court in London in a landmark decision ruled that the U.K. Parliament have to approve the process of Britain's withdrawal from the European Union. Back home, the government finalised a 4-tier GST tax structure of 5%, 12%, 18%, and 28%, where lower rates will be applicable for essential items and the highest rates for luxury and de-merit goods. However, the focus would now go to the product classification and categorization in these slabs. Monthly Debt Roundup – October 2016 10-year Benchmark Yield Upbeat economic data 6.98% from the U.S. and concerns of an interest rate hike by the U.S. Fed 6.94% impacted bond yields Expectation of announcement to conduct 6.90% OMO purchases by RBI RBI lowered key policy repo rate by 25 bps YTM %) (inYTM 6.86% 6.82% 6.78% 30-Sep 4-Oct 8-Oct 12-Oct 16-Oct 20-Oct 24-Oct 28-Oct Source : CCIL Fixed Income Overview Particulars Oct-16 Sep-16 Oct-15 Exchange Rate (Rs./$) 66.86 66.66 65.22 WPI Inflation (In %) 3.39 3.57 -3.70 10 Yr Gilt Yield (In %) 6.89 6.96 7.64 5 Yr Gilt Yield (In %) 6.71 6.88 7.68 5 Yr Corporate Bond Yield (In %) 7.36 7.45 8.14 Source: Reuters, Bharti AXA Life Insurance Bond yields fell for the fourth consecutive month after the Reserve Bank of India (RBI) lowered key policy repo rate by 25 bps, in line with expectations. RBI’s steps towards neutral liquidity in the banking system provided further support.