Equity market update
• Indian equity markets were flat during the month of October. The broader market in India performed better in comparison to the main indices. The Bombay Stock Exchange (BSE) mid cap index gained 2.33%, while the BSE small cap index gained 6.28% during the month.
• The Sensex was up by 4.78% while Nifty rose to 6.94% on a Year-On-Year (Y-O-Y) basis. The BSE mid cap soared to 22.77% on a Y-O-Y basis and the BSE small cap index rose to 20.04% on a Y-O-Y basis, thus outperforming the large cap indices.
• For the month of October, the Information Technology (IT) and the auto sector posted negative returns while some major sectors like Oil and Gas posted the highest returns followed by the metals and the consumer durable sector.
• Foreign Institution Investments (FIIs) turned net sellers in October, reversing position after 7 months. FII's net outflows in the month totalled to $632 million bringing their Year-To-Date (YTD) tally to net inflows of $6.9billion.
• Domestic investors remained buyers in the month and stepped up the momentum, with net inflows of $1.2billion, bringing their YTD tally to $1.4billion. Among Domestic Insitutional Investments (DIIs), Mutual Funds led the way with an inflow of $1.2million, while Insurance companies accounted for $32million outflows.
• The trend across all the major commodities were mixed in the month of October. Primary aluminum rose by 3.65% while Silver was decreased by 6.62%. On a Y-O-Y basis, all major commodities except Copper and Crude oil were in the green, with Zinc toppoing the charts by 43.98%. Copper declined by 5.07% on a Y-O-Y basis.
Outlook
• Over the past few months, the Global Economy has been resilient.
• The recent Purchasing Manufacturing Index (PMI) suggests a slight acceleration in advanced economies and continued stabilisation in Economy and Management (EM).
• While the US Federal Reserve Bank has signaled a cautious stance on policy tightening with a unanimous hike of 25 base points (bps) in December.
• The US Presidential elections verdict caught the markets by surprise which led to a widespread sell-off in emerging market. After the initial reaction, global investors will be in a position to distinguish between Economics and Management (EM's) based on fundamentals.
• A healthy Monsoon in India should pave the way for an uptick in India's rural economy. Results so far, indicate a recovery in revenue and profit growth that should gain momentum in the latter half of this financial year. While cross-border hostilities have cast a shadow on the markets, the fact that we have not seen a further escalation beyond last month's surgical strikes has been a comforting sign.
• The Indian market valuations stood at 17.2x one year forward earnings, marginally above the 10 year average of 16.6x. These are attractive numbers, given that we expect a cyclical recovery going ahead. We continue to remain optimistic from a medium to long term point of view, despite our near term concerns.
Fixed Income Market Update
• Reserve Bank of India (RBI) conducted its first monetary policy under the new regime and the Marginal propensity to Consume (MPC) unanimously decided to cut policy rates by 25 base points (bps).
• Dr. Urjit Patel who took over from Dr. Raghuram Rajan in September, suggested that if global growth continued to stay weak, real policy rates could ease further in India.
• The Bond markets rallied post policy conference and a 10 year bond recorded a new low of 6.67% the next day. However, the disappointment did not sustain as heavy profit booking by traders in the absence of aggressive OMO by RBI gave good yield results.
• Consumer Price Index (CPI) inflation continued to surprise the market by scoring on the lower side, thus fueling hopes of more rate cuts.
• Globally, bond yields moved up significantly due to Bank of Japan, Bank of England and the European Central bank (ECB) not expanding their Quarterly Earnings in line with market expectations but stayed committed to perform better.
• Rumors of a cap on the supply of crude oil between Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC members led to an increase in crude oil prices, taking it above USD 50 base points (bps).
• The 10-year benchmark bond eased through the month and touched a multiyear low of 6.67% post the policy announcement. It inched up again but still closed at an average of 6.78% against the previous close of 6.81%.
Outlook
• Current bond market rally was overpowered by the OMO purchases and a steep fall in inflation. Inflation is likely to ease further as food inflation continues to ease but OMO's expectations are changing.
• Currency leakage from the banking system was much lower and core liquidity stayed positive, contrary to market expectations. Foreign Currency Non-Residential (FCNR) redemptions, too, went through smoothly and did not require any major RBI intervention in the currency market. If the liquidity rate continues to stay positive going forward, RBI may refrain from aggressive injections of liquidity through OMO.
• The US presidential election result is another key factor for markets. Foreign institutional Investments (FIIs) have withdrawn funds before the event. In case of a risk off, the INR and bonds might come under pressure in the short term. The US Federal Reserve Bank is likely to hike its rates in December, leading to a ripple in the markets.
• Marginal Propensity to Consume (MPC) seems in the favour of lowering rates to support growth and RBI indicated that it is willing to work with lower real interest rates amid negative real estate rates globally. It would keep market expectations alive for more rate cuts if the Consumer Price Index (CPI) continues to stay below 5.50%.
• Indian equity markets were flat during the month of October. The broader market in India performed better in comparison to the main indices. The Bombay Stock Exchange (BSE) mid cap index gained 2.33%, while the BSE small cap index gained 6.28% during the month.
• The Sensex was up by 4.78% while Nifty rose to 6.94% on a Year-On-Year (Y-O-Y) basis. The BSE mid cap soared to 22.77% on a Y-O-Y basis and the BSE small cap index rose to 20.04% on a Y-O-Y basis, thus outperforming the large cap indices.
• For the month of October, the Information Technology (IT) and the auto sector posted negative returns while some major sectors like Oil and Gas posted the highest returns followed by the metals and the consumer durable sector.
• Foreign Institution Investments (FIIs) turned net sellers in October, reversing position after 7 months. FII's net outflows in the month totalled to $632 million bringing their Year-To-Date (YTD) tally to net inflows of $6.9billion.
• Domestic investors remained buyers in the month and stepped up the momentum, with net inflows of $1.2billion, bringing their YTD tally to $1.4billion. Among Domestic Insitutional Investments (DIIs), Mutual Funds led the way with an inflow of $1.2million, while Insurance companies accounted for $32million outflows.
• The trend across all the major commodities were mixed in the month of October. Primary aluminum rose by 3.65% while Silver was decreased by 6.62%. On a Y-O-Y basis, all major commodities except Copper and Crude oil were in the green, with Zinc toppoing the charts by 43.98%. Copper declined by 5.07% on a Y-O-Y basis.
Outlook
• Over the past few months, the Global Economy has been resilient.
• The recent Purchasing Manufacturing Index (PMI) suggests a slight acceleration in advanced economies and continued stabilisation in Economy and Management (EM).
• While the US Federal Reserve Bank has signaled a cautious stance on policy tightening with a unanimous hike of 25 base points (bps) in December.
• The US Presidential elections verdict caught the markets by surprise which led to a widespread sell-off in emerging market. After the initial reaction, global investors will be in a position to distinguish between Economics and Management (EM's) based on fundamentals.
• A healthy Monsoon in India should pave the way for an uptick in India's rural economy. Results so far, indicate a recovery in revenue and profit growth that should gain momentum in the latter half of this financial year. While cross-border hostilities have cast a shadow on the markets, the fact that we have not seen a further escalation beyond last month's surgical strikes has been a comforting sign.
• The Indian market valuations stood at 17.2x one year forward earnings, marginally above the 10 year average of 16.6x. These are attractive numbers, given that we expect a cyclical recovery going ahead. We continue to remain optimistic from a medium to long term point of view, despite our near term concerns.
Fixed Income Market Update
• Reserve Bank of India (RBI) conducted its first monetary policy under the new regime and the Marginal propensity to Consume (MPC) unanimously decided to cut policy rates by 25 base points (bps).
• Dr. Urjit Patel who took over from Dr. Raghuram Rajan in September, suggested that if global growth continued to stay weak, real policy rates could ease further in India.
• The Bond markets rallied post policy conference and a 10 year bond recorded a new low of 6.67% the next day. However, the disappointment did not sustain as heavy profit booking by traders in the absence of aggressive OMO by RBI gave good yield results.
• Consumer Price Index (CPI) inflation continued to surprise the market by scoring on the lower side, thus fueling hopes of more rate cuts.
• Globally, bond yields moved up significantly due to Bank of Japan, Bank of England and the European Central bank (ECB) not expanding their Quarterly Earnings in line with market expectations but stayed committed to perform better.
• Rumors of a cap on the supply of crude oil between Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC members led to an increase in crude oil prices, taking it above USD 50 base points (bps).
• The 10-year benchmark bond eased through the month and touched a multiyear low of 6.67% post the policy announcement. It inched up again but still closed at an average of 6.78% against the previous close of 6.81%.
Outlook
• Current bond market rally was overpowered by the OMO purchases and a steep fall in inflation. Inflation is likely to ease further as food inflation continues to ease but OMO's expectations are changing.
• Currency leakage from the banking system was much lower and core liquidity stayed positive, contrary to market expectations. Foreign Currency Non-Residential (FCNR) redemptions, too, went through smoothly and did not require any major RBI intervention in the currency market. If the liquidity rate continues to stay positive going forward, RBI may refrain from aggressive injections of liquidity through OMO.
• The US presidential election result is another key factor for markets. Foreign institutional Investments (FIIs) have withdrawn funds before the event. In case of a risk off, the INR and bonds might come under pressure in the short term. The US Federal Reserve Bank is likely to hike its rates in December, leading to a ripple in the markets.
• Marginal Propensity to Consume (MPC) seems in the favour of lowering rates to support growth and RBI indicated that it is willing to work with lower real interest rates amid negative real estate rates globally. It would keep market expectations alive for more rate cuts if the Consumer Price Index (CPI) continues to stay below 5.50%.
