Insights

DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

January 2020

Macro Economic Review
 
 

January 2020 was a volatile month for equity markets amidst a few earnings disappointments. Global factors like the Coronavirus and US-Iran tensions also added volatility for the month. The benchmark Nifty was down -1.79%. Global commodity prices moved sharply lower amid heightened fears of global growth slow-down due to Corona virus. INR moved in a narrow range against USD and was broadly unchanged.

On the economy front, data for mining, manufacturing, construction and electricity for October & November 2019 continue to reflect a weak industrial scenario. However, there are potential green shoots with Markit India Manufacturing PMI rising from 52.7 in December to 55.3 in January 2020, its highest level in almost eight years. The recent pick up in agricultural food inflation and better water storage levels augur well for the rural economy. However, it is early stage yet to think of economy having bottomed.

The trade deficit numbers for month of December 2019 contracted further to $11.3bn as against $12.2bn in November 2019 as decline in imports at 8.8% was much sharper than the decline in exports of 1.8%. The Non-gold, Non-oil imports, which is an indicator of the strength of domestic demand contracted 12.2% owing to the secular economic slowdown while, the reported CPI inflation jumped to a 65 month high of 7.35% on high vegetable prices. Core inflation, however, remains low at 3.7% reflecting weak aggregate demand in the economy. It is likely that food inflation looks transient and may start to moderate over rest of the year. But overall inflation may still hovering above 5% levels for the next few months before moderating from the second half of the year.

It is important to note that fiscal situation of many state governments remain challenging and any stimulus from them will be difficult. Rather many states may curtail capital and discretionary expenditure till they consolidate their own fiscal situation. RBI has a difficult road map ahead as regards growth/ inflation trade off and they may have to adopt a calibrated approach rather than being data driven and focus on ensuring better transmission (both availability and cost of credit). RBI will continue to resort to policy intervention in the form of Open Market Operations /Operation Twist, etc. to stabilize the financial situation. The recent Feb policy announcement of the LTRO (Long Term Refinancing Operation) is expected to definitely ensure availability of liquidity at 5.15% to the banks and help the banks to price deposits and loans cheaper for a period of 1-3 years. The policy tweaks towards recognition of assets in real estate and CRR maintenance for retail loans is expected to help the banking sector on improving risk appetite and cost of loans. These policy actions of RBI is expected to eventually jump start the sagging loan growth.

  
Equity Market

 

  

The BSE Sensex and Nifty 50 Index were down 1.7% and 1.3% respectively in January as the market saw a large sell-off due to the US killing of Iran's top military commander, but the markets subsequently bounced back after both countries quickly moved away from a wider military conflict. The phase one agreement between US and China, the Supreme Court’s dismissal of the telcos’ review petitions on the AGR case, rising concerns over the fast-spreading coronavirus were the other key developments in the month, which kept the large cap indices under pressure. India’s broader market, however, did well, with both mid cap and small cap indices sharply outperforming their large cap peers. In terms of India’s domestic economic activity indicators, barring consumer credit growth, most other indicators like auto sales (wholesale), consumer durable production continues to remain weak. FIIs (Foreign Institutional Investors) were net buyers to the tune of $1.4bn in January whereas DIIs (Domestic Institutional Investors) were net buyers of $0.3bn. DMFs (Domestic Mutual Funds) were net buyers of $0.2bn whereas Domestic Insurance companies bought $0.1bn during Jan. Deal momentum slowed in Jan with just 2 deals but the total size was healthy at ~$2.2bn (vs 7 deals worth ~$1.5bn in Nov). Among sectoral trends, Realty (+10.8%), Consumer Durables (+4.5%), Healthcare (+3.9%), Cap Goods (3.1%) and IT (+3.1%) were the best performing sectors during the month whereas Metals (-9%), Oil & Gas (-5.6%) and Bankex (-3.8%) were the worst performing sectors.

Union Budget – 2020-21 - Key Highlights:

The Union Budget 2020-21 was presented on 1st Feb’20 amidst a challenging economic environment. The FY2021 union budget presented a mix of modestly higher spending, lower personal income taxes (under an alternative personal taxation regime) and abolishment of dividend distribution tax (DDT) to revive the economy. It also spelled out key areas of future reforms that can reinvigorate private investment as well as continue on its path of divestment. While the Govt. did take the liberty to relax the fiscal deficit by 0.5% v/s earlier budgeted for the current year, it kept to its overall fiscal discipline and eschewed going down the path of providing any strong fiscal stimulus. The central government has projected a fiscal deficit target of 3.5% for FY2021 v/s 3.8% for the current year, which looks reasonable. The immediate reaction of the market post budget however, was sharply negative, on the disappointment of not having seen strong measures to stimulate demand.

On balance, the budget appears to be an overall effort to steady the economy through a good mix of cyclical and structural factors. Our outlook is still for a modest cyclical economic recovery over the next 12-18 months led by moderately better global growth, steady domestic/global liquidity and probable incremental rural tailwinds; much of these did not have lot to do with the budget anyways. The adverse market reaction only gives investors another opportunity to buy decent businesses as they turn more attractive on valuations. If any of the seemingly unrealistic elements such as disinvestment proposals or improved consumption through personal tax rationalisation and resultant improvement in indirect tax (GST) collections, not to mention the probable settling down of coronavirus work out, they will provide the surprise element to the market. Moreover, if any part of salaried class opts for the new tax option, it will mean more net take home post tax and thus more flexibility around their investment planning.

We think conditions for a modest domestic economic recovery helped by a confluence of global and domestic factors is developing, which in turn should likely broad base the market in terms of investment options. This augurs well for midcap/small cap investing and is already evident in the narrowing of the performance gap between the large and mid/small indices over the past 3-6 months. We expect the trend to further strengthen in favour of mid/small caps during the course of 2020. While we do take a more constructive stance on the economy and markets as a whole, we remain measured in our conduct with regard to portfolio choices. We keep our growth expectations measured while simultaneously increasing the bar on quality of businesses and balance sheets that attract us.

 

 

 
 
Fixed Income Market
 
 

The bond prices had a downward pressure over the month of January’20. While RBI did conduct several operation twists over the previous 2 months (in order to soften the yields of long bonds) the effect of operation twist on the shape of the yield curve was slowing ebbing.

Over the previous month, the prices fell due to the following 2 reasons:

• Fears of fiscal slippage in FY20 and moving away from the FRBM (Fiscal Responsibility and Budget Management) target path of 3% for FY21
• The sudden spike in the onion prices leading to a sharp rise in the CPI headline to 7.35% for Dec’19. This jump in the inflation data deserted expectations of any more rate reductions in the near future despite the slowing GDP growth.

The negative sentiment was acute, and the 10 year benchmark yield moved northwards by about 15bps from 6.50% in Dec’19 before closing at 6.60% at Jan’20 end.

The rally in global bond yields post emergence of the news about the coronavirus affecting the growth in multiple regions across the globe helped in softening the domestics yields in the last week of Jan’20.

The annual budget placed in the parliament on Feb 1st assuaged the fears of additional borrowing in FY20 (due to fiscal slippage) although the fiscal deficit moved from 3.30% to 3.80%. The market borrowings in FY21 was also lower than market expectations, although the fiscal deficit target was revised upwards from 3.0% to 3.50%. FM invoked the ‘escape clause’ available in the FRBM act to deviate from the path by a maximum of 50bps during periods of steep fall in growth or structural changes in the economy.

Strong net positive foreign flows helped in building India’s foreign exchange reserves. RBI’s intervention in the currency market has built up the forex reserves and now stands at a historical high of $ 467 bn. The dollar purchases by RBI ensured that the rupee didn’t appreciate sharply and also enabled injection of liquidity to the tune of Rs. 2-3 trillion over the last 6-7 months. The excess liquidity has been slowly building up from June’19 onwards. However, absence of any risk appetite amongst the bankers has failed to reallocate this excess liquidity into any other form of lending nor helped in pricing the lending at a cheaper rate. The transmission of lower rates into the economy has got halted due to the absence of risk appetite amongst the bankers.

While there has been a substantial jump in the headline CPI the core inflation (CPI ex fuel and food) remains under 4% indicating the demand destruction that has happened within the economy.

Recently in early Feb’19 the status quo decision on repo rate by the MPC members were on expected lines. However, the long-term repo operations (LTRO) for improving monetary transmission is being viewed as a much-awaited definite step to finally ensure some decent quantum of trans1mission in the near future.

Outlook

We are broadly in agreement in the direction of the CPI projections of RBI. However, we feel incase the present trend of the vegetable prices to normalize our projections are lower than the RBI’s forecast by about 20-50bps at various points of CY20.

The statement in the policy document about ‘policy space available for future action’ is being viewed positively by the market participants as potential rate reductions in CY20 as growth remains soft and CPI headline moves southwards from Q3FY21.

The message in the policy document and the media interview of Governor Das later suggests focused attention by RBI towards ensuring transmission of policy rates into the economy and also ensuring that banks are able to price loans at a cheaper rate.

The LTRO is a targeted effort to ensure availability of liquidity for a period of 1 year and 3 years for upto a total amount of Rs. 1 lakh crore at the repo rate is being viewed as a powerful tool being used by RBI, to ensure that the transmission eventually happens.

The availability of liquidity for long period of 3 years will now first ensure that the yields of sovereign bonds and blue-chip AAA credits move lower in line with the move.

The drop in yields of bonds till the 3 year point ideally should eventually push down yields for long bonds (bonds greater than 3 years maturity) as well. While the decline in the yields of sovereign bonds and AAA bond yields do not ensure transmission of this drop in borrowing cost to credits below AAA, but eventually the banks are expected to move in their commercial interest and price loans and borrowings of other credits at a lower rate.

In this environment, we urge investors to select funds in alignment with their investment horizon and longer depending on their individual risk appetite and of high credit quality.

 
 
 
 

 

 




 

 

 
DISCLAIMER: These views have been expressed by the fund managers of Invesco Asset Management (India) Private Limited. All opinions included in this article constitute the authors’ views as of this date and are subject to change without notice. The stocks referred in the above content, if any, are for the purpose of explaining the concepts and should not be construed as recommendations from Invesco Asset Management (India) Private Ltd. (Invesco Asset Management (India) / Invesco Mutual Fund). The Fund may or may not have any present or future positions in these stocks. The commentary is for information purposes only and not an offer to sell or a solicitation to buy units of Schemes of IMF. All figures, charts/graphs, estimates and data included in this article are as of this date and are subject to change without notice. The data used in this material is obtained by Invesco Asset Management (India) from the sources which it considers reliable. Neither Invesco Asset Management (India) nor any person connected with it accepts any liability arising from the use of this information or in respect of anything done in reliance of the contents of this information. While utmost care has been exercised while preparing this content, Invesco Asset Management (India) does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. This information alone is not sufficient and shouldn't be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. The recipient of this material should exercise due caution and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
  • Fund Manager Meet

    Nitish Sikand, Fund Manager

    Topic: Debt Market Outlook

    Join us for an interactive session where we will provide you an update on the current debt markets and positioning strategy of select fixed income funds.

    Read

    27th June, 2014

  • Webcast

    Nitish Sikand, Fund Manager

    Topic: Debt Market Outlook

    Join us for an interactive session where we will provide you an update on the current debt markets and positioning strategy of select fixed income funds.

    Play

    27th June, 2014

  • Conference Call

    Nitish Sikand, Fund Manager

    Topic: Debt Market Outlook

    Join us for an interactive session where we will provide you an update on the current debt markets and positioning strategy of select fixed income funds.

    Read

    27th June, 2014

  • Fund Manager Meet

    Nitish Sikand, Fund Manager

    Topic: Debt Market Outlook

    Join us for an interactive session where we will provide you an update on the current debt markets and positioning strategy of select fixed income funds.

    Register

    27th June, 2014

    4.30 pm – 6.30 pm
  • Webcast

    Nitish Sikand, Fund Manager

    Topic: Debt Market Outlook

    Join us for an interactive session where we will provide you an update on the current debt markets and positioning strategy of select fixed income funds.

    Register

    27th June, 2014

    4.30 pm – 6.30 pm
  • Conference Call

    Nitish Sikand, Fund Manager

    Topic: Debt Market Outlook

    Join us for an interactive session where we will provide you an update on the current debt markets and positioning strategy of select fixed income funds.

    Register

    27th June, 2014

    4.30 pm – 6.30 pm
Important Information: The views contained in this section are for information purposes only and should not be construed as an investment advice to any party. The views contained herein may involve known and unknown risks and uncertainties that can differ materially from those expressed/implied. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. Invesco Asset Management (India) Private Limited does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
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