The World This Week - 3rd JULY 2020 to 10th JULY 2020

Indian Equity Summary

· The benchmark Indices Nifty/Sensex closed in green (up by ~1.5% on WoW basis) for four consecutive weeks on the back of early signs ofØ economic recovery, de-escalation of border skirmishes between India & China and steady FII/FPI inflows.On the sectoral front, indices that witnessed the highest gains includes BSE Metals, BSE Bankex and BSE IT.  

· Going forward, global factors like development on the US -China relationship front , any resurgence of Covid-19 cases globally, as economiesØ have started opening up ; will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 10400-10,800 in the near term.

Indian Debt Market

· Government bond prices rose as the yield on the latest 10-year benchmark 5.79% 2030 paper softened by 9 bps, settled at 5.76% on Jul 10Ø compared with 5.85% on Jul 3.  

· Reserve Bank of India announced the auction of three Government of India 91day, 182 day and 364 day Treasury Bills for an aggregate amount ofØ ₹35,000, to be conducted on 16th July 2020.  

· Also, State Governments announced to sell securities by way of an auction to be conducted on 14th July 2020, for an aggregate face value of ₹Ø 11,250 Cr.  

· We expect the 10 year benchmark yield to trade between 5.70-6.90% in near term.Ø

Domestic News  

· Economic Outlook Survey by FICCI, it has projected the country’s annual median GDP growth for 2020-21 at -4.5%.Ø  

· According to data released by RBI, Bank credit and deposits grew 6.18% and 11% to ₹102.45 lakh crore and ₹138.67 lakh crore, respectively, inØ the fortnight ended June 19.  

· Chinese FDI has dipped to $163.78 million in 2019-20 from $229 million in the Fy20 while India’s trade deficit with China fell to $48.66 billion inØ 2019-20 on account of the decline in imports from the China.  

· Recovery of Industries can be concluded from the IIP figures released for India, as the rate of contraction shrinks to over 37% in May as againstØ the month of April when it was over 57%.  

· Thermal coal imports at India’s 12 major ports dropped 34.70 per cent to 17.71 million tonnes (MT) in the the first quarter of the current fiscal,Ø according to the Indian Ports’ Association (IPA).

International News  

· US producer price index for final demand dropped 0.2% last month after rebounding 0.4% in May. However, excluding the volatile food, energyØ and trade services components, producer prices rose 0.3% in June.  

· Moody’s analysts have forecasted that UK’s public debt ratio is expected to rise by 24% of GDP or more relative to 2019 levels whileØ have forecasted for a contraction of 10.1% in the UK’s GDP in 2020 and a relative growth of 7.1% in 2021.  

· The International Energy Agency (IEA) raised its forecast to 92.1 million barrels per day (bpd), up 400,000 bpd from its last month’sØ outlook, citing a smaller-than-expected second-quarter decline.  

· The world’s third-largest economy-Japan, is forecasted to contract 5.3% in FY21, as per a Reuters Poll of over 30 economists.Ø  China’s passenger car sales in June fell 6.5% year on year to 1.68 million units as per the China Passenger Car Association (CPCA)Ø

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The World This Week – 26th June 2020 to 3rd July 2020

Indian Equity Summary-  

·        Expected faster recovery in the rural markets on the back of government subsidies, and above average monsoon and indicative strong tractorØ sales along with strong global buoyed the domestic equity market sentiment. The domestic benchmark Indices Nifty 50 and Sensex moved higher by ~2.16%/2.42% on a WoW basis , where the top performing sectoral indices on WoW basis includes BSE Power ,BSE IT and BSE FMCG that rose by 4.64%, 4.03% and 3.64% respectively.  

·        Going forward, global factors like development on the US -China relationship front , any resurgence of Covid-19 cases globally, as economiesØ have started opening up ; will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 10400-10,800 in the near term.

Indian Debt Market-  

·        Government bond prices rose as the yield on the latest 10-year benchmark 5.79% 2030 paper softened, settled at 5.85% on Jul 3 compared toØ 5.91% on Jun 26.  

·        Reserve Bank of India announces the auction of three Government of India 91day, 182 day and 364 day Treasury Bills for an aggregate amount ofØ ₹35,000.  

·        Also, State Governments announced to sell securities by way of an auction to be conducted on 7th July 2020, for an aggregate face value of ₹Ø 11,500 Cr.  

·        We expect the 10 year benchmark yield to trade between 5.80-6.00% in near term.Ø

Domestic News  

·        The IHS Markit Services PMI in June rose to 33.7 from 12.6 in May as the services activity picked up pace in June from record lows earlier whileØ the India Manufacturing Purchasing Managers’ Index stabilized at 47.2 in June compared with 30.8 in May, however continues to indicate contraction in factory activity by being lower than 50 mark.  

·        The Composite PMI Output Index, which measures combined services and manufacturing output, rose to 37.8 in June, up from 14.8 in May.Ø  

·        As per the Indian Ports Association (IPA),major ports in India witnessed an approx. 20% fall in traffic during the quarter ended June asØ coronavirus lockdowns slowed economic activity.  

·        Electricity Output data reflects signs of recovery in June as the electricity generation declined by a slower rate ie 5.3% during the second half ofØ June as compared with a decline of 14.5% during the first fifteen days of the month.  

·        As per the data released by Centre for Monitoring India economy(CMIE),unemployment rate in India eased to 11% in June from 23.5% in May.Ø

International News  

·        China's services sector grows at fastest pace since April 2010 as the Caixin/Markitservices Purchasing Managers’ Index (PMI) of China rose toØ 58.4 in June as against May’s 55.0.  

·        Britain’s government has drafted a plan to double the number of its job coaches to 27,000 at a cost of 800 million pounds ($997 million), with aØ view to tackle a rise in unemployment triggered by the coronavirus lockdown.  

·        Britain’s house prices fell in annual terms for the first time since 2012 in June, fell by 0.1% YoY ,as the country reeled from the coronavirusØ shock to the economy.  

·        Global tourism revenues are expected to fall by up to $3.3 trillion due to COVID-19 restrictions, with the United States standing to lose the mostØ according to a study by U.N.  

·        US consumer confidence index rose to a reading of 98.1in June from 85.9 in May. However, the confidence index remains 34.5 points below itsØ pre-pandemic level.

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The World This Week 19th June 2020 to 26th June 2020

Indian Equity Summary- 

·         The domestic equity market closed in green on WoW basis as the benchmark indices Nifty/Sensex closed in positive by 1.4%/1.3% respectively.Ø IMF updated its GDP growth forecast for India, and expects during the year, India's economy will contract by 4.5 percent, though in FY22 it is expected to grow by 6%. Negative sentiments like border tension between India and China along with rising Covid- 19 cases may cause intermediate volatility. Above normal expected monsoon will bode well for the Khariff crops. With no fresh talks for further Lockdowns soothed investors' sentiment as well as the business sector , as hint of recovery have already been witnessed in Unlock 1 and going forward Unlock 2.0 hopefully will provide further support . 

·         Going forward, global factors like development on the US -China relationship front , any resurgence of Covid-19 cases globally, as economiesØ have started opening up ; will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 9800-10,500 in the near term.

Indian Debt Market- 

·         Government bond prices fell as the yield on the latest 10-year benchmark 5.79% 2030 paper settled at 5.91% on Jun 26 compared with 5.85% onØ Jun 19.On a review of current and evolving liquidity and market conditions, the Reserve Bank has decided to conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for ₹10,000 crores each on July 02, 2020. We expect the 10yr Gsec to soften going forward . 

·         Government of India has announced to launch Floating Rate Savings Bonds, 2020 (Taxable) scheme commencing from July 01, 2020 to enableØ person resident in India/HUF to invest in a taxable bond, without any monetary ceiling. 

·         We expect the 10 year benchmark yield to trade between 5.80-6.05% in near term.Ø

Domestic News 

·         The government announced a Rs 15,000 crore infrastructure development fund with an interest subsidy scheme to promote investment byØ private players and MSMEs in dairy, meat processing and animal feed plants, a move which is expected to create 3.5 million jobs 

·         India may impose anti-circumvention duty on a chemical, used in electrical, electronic, mechanical and chemical from Korea and China with aØ view to guard domestic players from cheap imports from these countries. 

·         The government is considering basic customs duty of around 20 percent on solar energy equipment to provide an edge to domesticØ manufacturers and discourage imports, particularly from China. 

·         Zydus Cadila has received nod from the US health regulator to market generic antihistamine Meclizine hydrochloride tabletsØ

International News 

·         The International Monetary Fund (IMF) forecast a deeper recession for this year and a slower and uncertain recovery for next year after theØ corona virus, or Covid-19, pandemic plunged the global economy into a crisis like no other. The global economy is set to shrink 4.9 percent this year, which is worse than the 3 percent contraction predicted in April, the lender said in an update to its World Economic Outlook. 

·         China left its benchmark lending rates unchanged for the second straight month despite the economy struggling to recover from the impact ofØ the coronavirus crisis. 

·         First-time claims for U.S. unemployment benefits fell by much less than expected in the week ended June 20th to 1.480 million, a decrease ofØ 60,000 from the previous week's revised level of 1.540 million. 

·         US real gross domestic product tumbled by 5.0 percent in the first quarter, unchanged from the estimate provided last month. The steep dropØ in GDP in the first quarter reflects a notable turnaround from the 2.1 percent jump seen in the fourth quarter of 2019.

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The World This Week – 12th June 2020 to 19th June 2020

Indian Equity Summary-

· Tracking positive cues from global markets, domestic benchmark indices Nifty 50 and Sensex closed in green and rose by 2.72% and 2.81% onØ a WoW basis, albeit, the concerns of rising coronavirus cases in India and geopolitical tensions between India and China.  

· The top performing sectoral indices on WoW basis were BSE Realty and BSE Bankex that rose by 3.70% and 3.17% WoW while the worstØ performing index was BSE FMCG that fell by 1.22% WoW.  

· Going forward, global factors like development on the US -China relationship front , any resurgence of Covid-19 cases globally, as economiesØ have started opening up will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 10,000-10,500 in the near term.

Indian Debt Market-  

· Government bond prices fell as the yield on the latest 10-year benchmark 5.79% 2030 paper settled at 5.85% on Jun 19 compared with 5.80% onØ Jun 12.  

· State Governments have announced the sale of their securities by way of an auction, for an aggregate face value of ₹ 6,100 Cr.Ø  

· Fitch Ratings has revised the Outlook on India's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed theØ rating at 'BBB-‘.  

· We expect the 10 year benchmark yield to trade between 5.80-6.05% in near termØ.

Domestic News  

· According to a Reuters poll of 13 analysts , average house prices in India will slump 5.0% in 2020 and 3.0% in 2021 as against an expected rise ofØ 2.0% and 2.5% in 2020 and 2021 respectively in the similar poll made in March.

· India’s Crude oil imports fell 22.6% YoY to 14.61 million tonnes in May as per the data released by Petroleum Planning and Analysis Cell,being theØ lowest since 2015.  

· Major port volumes in India came in at 45.4 mnt (-23% y-o-y) in May, sequentially the lowest since February 2015.Ø  

· Foreign portfolio investors (FPI) have infused a net Rs 17,985 crore into the Indian capital markets in June till now amid increasing liquidity andØ higher risk appetite.  

· The demand slump has taken its toll on India Inc’s earnings during the January-March quarter with net profit of a sample of 633 companiesØ (excluding banks and financials) declining by 75.22% on a year-on-year basis.

International News

· The U.S. current account deficit slipped by 0.1% to $104.2 billion, dipping to a near two-year low in the first quarter as the COVID-19 pandemicØ restricted the flow of goods and services.

· The UK’s Tax revenues in May were 43% lower than a year earlier in cash terms as a result of the government’s deferral of value-added tax billsØ to help companies preserve cash flow.  

· The total number of bankruptcy filings in HongKong in the first five months stood at 3,605, 12.4% higher than 3,207 a year earlier.Ø 

· Japan’s core consumer price index (CPI), which includes oil but excludes volatile fresh food prices, fell 0.2% in May YoY.Ø  

· U.S. Fed's balance sheet shrinks for first time since February as the Assets ranging from U.S. Treasury bonds and mortgage-backed securities toØ loans to banks and state governments - fell to $7.14 trillion on June 17 from $7.22 trillion on a WoW basis.

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The World This Week – 5th June 2020 to 12th June 2020

Indian Equity Summary- 

·         Benchmark indices ,Nifty 50 and Sensex closed in red and fell by 1.67% and 1.48% on a WoW basis, after registering gains for two successiveØ weeks. The fall in the indices was majorly triggered by the concerns over the surge in domestic Covis-19 cases and possibility of longer than expected economic recovery. Most of the Sectoral indices ended in red on a WoW basis, with BSE Metals and BSE Bankex being the worst performing indices by recording losses of 4.27% and 2.41%. 

·         On macro-economic front, Retail food inflation stood at 9.28% in May 2020 and Industrial production contracted by 55.5% in April 2020.On theØ Global front as expected the Fed kept rate unchanged at 0% -0.25% during policy-meeting held on 10th June 2020 and projected a 5% growth in 2021.Going forward, global factors like development on the US -China relationship front , any resurgence of Covid-19 cases globally, as economies have started opening up and will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 9600-10,200 in the near term.

Indian Debt Market- 

·         Government bond prices was mildly positive as the yield on the latest 10-year benchmark 5.79% 2030 paper settled at 5.80% on Jun 12 comparedØ with 5.82% on Jun 05. 

·         Reserve Bank of India announced the auction of 91 days, 182 day and 364 day Government of India Treasury Bills of Rs 15,000 Crore , Rs 16,000Ø Crore and Rs14,000 Crore, aggregating face value Rs 45,000 Crore to be conducted on 17th June,2020. 

·         State Governments have announced the sale of their securities by way of an auction,Ø

·         We expect the 10 year benchmark yield to trade between 5.70-5.90% in near term.

Domestic News 

·         As per the limited data released by the Finance ministry showed that annual retail food inflation eased to 9.28% in May, from 10.5% in April.Ø

·         The net financial assets of Indian households gathered pace in FY20 to 7.7% of GDP against 6.5% in FY19, according to an article in Reserve BankØ of India’s monthly bulletin. 

·         India’s industrial production shrank by a record 55.5% in April from the year earlier with manufacturing crashing 64.3%, as computed from dataØ released by the government. 

·         India’s foreign exchange reserves rose $8.2 billion in the week of June 5 and has now crossed the milestone $500 billion mark for the first time inØ country’s history. 

·         Overseas borrowings by Indian companies fell 68.5% to $996.04 million in April, according to data from the Reserve Bank of India (RBI).Ø

International News 

·         China registered its first expansion since December as the Industrial output growth quickened to 4.4% in May YoY, against Reuters expectationØ of 5.0% rise from 3.9% in April. 

·         US consumer sentiment index increased to a reading of 78.9 from 72.3 in May according to a survey by the University of Michigan’s .Ø 

·         According to the US Labor Department ,U.S. import prices rose by 1.0% in May after falling 2.6% in April thus recording the largest gain sinceØ February 2019. 

·         US Initial claims of unemployment totaled 1.54 million, compared with the 1.6 million expected from economists surveyed by Dow Jones.Ø  Applications for loans to purchase a home rose 5% in the week ending 5th June as compared to the previous week and were 13% higher than aØ year ago, according to the US Mortgage Bankers Association. 

·         UK’s economy contracted by 20.4% in April from March, shrinking by ~6%. It was 24.5% smaller than in April 2019.Ø

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The World This Week : 29th May 2020 – 5th June 2020

Indian Equity Summary-  

· The Global and the domestic equity market witnessed a broad based rally on the backdrop of gradual reopening of the global economy andØ unprecedented stimulus package implemented worldwide by the central banks and government. The domestic equity market, in line with the global markets closed in green for the second consecutive week with Nifty 50 and Sensex up by 5.86% and 5.75% respectively.  

· Majority of the sectoral indices closed in green on a W-o-W basis with the top performing sectoral indices being BSE Realty, BSE Consumer,Durable, BSE Metals that rose by 11.12%, 10.03% and 9.27% respectively.  

· Going forward, global factors like development on the US -China relationship front , Covid-19 situations as globally economies have started, opening up and as the remaining results of the earnings seasons unfold will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 9800-10,300 in the near term.

Indian Debt Market-

· Government bond prices fell sharply as the yield on the latest 10-year benchmark 5.79% 2030 paper settled at 5.82% on Jun 5 compared withØ 5.78% on May 29.

· Reserve Bank of India announces the auction of 91 days, 182 day and 364 day Government of India Treasury Bills of Rs 15,000 Crore , Rs 16,000Ø Crore and Rs14,000 Crore, aggregating face value Rs 45,000 Crore  

· State Governments have announced the sale of their securities by way of an auction, for an aggregate face value of ₹ 16,060 Cr.Ø 

· We expect the 10 year benchmark yield to trade between 5.80-6.00% in near term.Ø

Domestic News  

· According to industry body world steel ,India's steel demand is likely to face a steep decline of 18 percent in 2020 while the global steel demandØ is expected to contract 6.4 percent to 1,654 million tonnes (MT) due to the Covid-19 crisis.  

· Rail freight traffic in April and May dropped by 28 percent, or 58 million tonne (mt), to 148 MT, compared to 206 mt during the same period lastØ year owing to the decline in economic activity during the first two months of the fiscal year 2020-21 (FY21).

· The RBI has created a Payments Infrastructure Development Fund (PIDF) of Rs 500Crore to encourage acquirers to deploy Points of Sale (PoS)Ø infrastructure — both physical and digital modes — in tier-3 to tier-6 centres and north eastern states.  

· Rating agency Moody’s downgraded India’s foreign currency and local currency long term issuer ratings to Baa3 from Baa2, while maintaining aØ negative outlook, citing prolonged period of low growth and further deterioration in the government’s fiscal position.

· International News  

· China exports fall from 3.5 in April% to 3.3% in May while imports fall from 14.2% in April to 16.7% in May.Ø  

· As per the Institute for Supply Management (ISM) ,index of US factory activity rose to 43.1 In May from 41.5 in April. A reading below 50Ø indicates contraction in manufacturing that accounts for 11% of the US economy.  

· As per the job report released Labor Department for the month of May, the jobless rate in US dropped to 13.3% in May from 14.7% in AprilØ whereas Nonfarm payrolls rose by 2.5 million jobs after a record plunge of slightly under 20.7 million in April.  

· Japan's factory activity in May shrank at the fastest pace since March 2009 as the final au Jibun Bank Japan Manufacturing PurchasingØ Managers' Index (PMI) fell to 38.4 from 41.9 in April.  

· Member countries of the Group of 20 pledged more than $21 billion to fight the coronavirus(Covid-19) pandemic.Ø  As per the details of draft deal reported by Reuetrs, OPEC, Russia and allies are in deliberation to extend record oil production cuts of 9.7Mb/pdØ until the end of July after crude prices doubled in the past two months on the back of their efforts to withdraw almost 10% of global supplies from the market. Commodities and Currency.

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Monetary Policy : Agile RBI fights economic slowdown

In an effort to support the ailing economy from the negative impact of the Covid-19 pandemic, the RBI on 22nd May announced a series of measures, along with a cut in repo and reverse rate by 40bps to 4% and 3.35%; a basis point is 0.01 percentage point. In a span of just 2 months MPC has now reduced the policy rate by 115 bps.

The advancing of its MPC meet and the additional measures in shape of liquidity expansion, support to exports and imports and continuation of accommodative stance displays RBIs agility and readiness to mitigate the negative effect of COVID-19 along with focus on growth.

Domestic economic activity had been severely impacted on the back of the lock-down and the only silver lining is provided by agriculture, with the summer sowing of rice, pulses and oilseeds in the country progressing well. The GDP growth is indicated to contract sharply as the drop in economic activity has been higher than expectation. Moderation in inflation as witnessed in recent months indicates that inflation though likely to remain elevated in 1st half of the CY will likely to ease in 2nd half, thus leaving scope for further monetary accommodation.

RBI policy highlights

·        Repo rate reduced by 40bps from 4.40% to 4.00% and Reverse repo rate reduced by 40bps

from 3.75% to 3.35%.  

·        Bank rate and Marginal Standing Facility (MSF), stands adjusted at 4.25%.

·        Continuation with accommodative stance.

·        An extension of 3 more months for Moratorium on term loan, till 31st August, 2020.

·        Relaxation on asset classification as NPAs till 31st August, 2020.

·        SRF of Rs 150bn to SIDBI extended by additional 90 days.

·        Line of credit extension of Rs 150bn to EXIM Bank for a period of 90 days.

·        Relaxation of guidelines in Consolidated Sinking Fund (CSF) of State Governments.

Analysis

The cut in repo rates was in line with the market expectation, as the movement of the yield curve indicates that most of rate cut was priced in by the market. Going forward we count on another 50bps rate cut within the coming months, if inflation stays tepid. RBI focus will be concentrated on revival of growth. The extension of moratorium period bodes well to relieve stress of the borrowers, but impact on the rise of NPAs and provisioning by the lenders is to be carefully noted. Expectations that RBI may come up with OMOs for G-Secs and SDLs will bode well in reduction of the elevated spreads and limit the spike in yields. Range bound movements in the yield curve is foreseen in near term, with a gradual shift downwards

Strategy

Surplus liquidity in the system may increase the demand for high quality corporate bonds in the short to medium end of the curve and an expectation of spread contraction is high going forward. We continue with our stance on being overweight on conservative strategies, and reiterate our focus being on risk adjusted return in regards to fixed income portfolios. We maintain preference for AAA accruals funds and exposures in fixed income space can be taken through Banking & PSU Debt funds, high-quality Short-term funds and AAA Corporate Bond Funds.

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