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.

December 2019

Macro Economic Review
 
 

The month of December 2019 witnessed equity indices scaling further heights with the benchmark Nifty gaining (0.9%), as positive trade rhetoric post US-China’s phase 1 deal buoyed global sentiments. The data continues to remain weak domestically, after a weak GDP print for H1 FY20, industrial activity measured in terms of IIP contracted by 3.8% in October ‘19 (vs -4.3% in September ‘19 and +8.4% in October ‘18. The number is likely to be softer for November as well (albeit with some Month on Month improvement) as the recent data for Infrastructure output, comprising eight core sectors of the IIP (40.3% weight in IIP), reflects a fall of (-) 1.6% in November which as against (-)5.8% in October 2019.

The reported CPI inflation jumped to a 40 month high of 5.5% on increased vegetable prices even as core inflation remained unchanged at 3.5%. Incrementally we see that higher food & fuel prices may lead to inflation breaching the 6% mark. The core inflation which so far had been steady could also see a small uptick due to higher telecom tariffs.

Total GST collection for the month of November 2019 was up 8.9% YoY at Rs. 1,032 bn (Rs. 1,035 bn in October). Domestic GST collections growth was robust at 15.4% (12.4% in October). The number of returns filed in November increased to 8.1 mn v/s 7.8 mn in October implying an increased compliance. However, barring the last couple of months, the overall tax collection numbers still appear muted and implied ask rate to meet budget expectations appear stretched.

For 8MFY20, Gross tax collections grew 0.8%. Indirect tax collections (including GST) is down by (-) 0.9% whilst direct taxes grew 2.7%. Total expenditure grew 12.8% with revenue expenditure and capital expenditure expanding by 13% and 11.7%, respectively. The fiscal deficit in 8MY20 was 114.8% of the FY2020 Budgeted Estimates, which was similar to 114.8% in the same period last year. We believe that with the slowdown in revenue, the government will now have to cut expenditure to achieve its fiscal deficit target as chances of major divestments appear bleak within the curtailed timelines.

Current Account Deficit in 2QFY20 moderated to US$6.3 bn (0.9% of GDP) against US$14.2 bn in 1QFY20 (2% of GDP) and US$19.1 bn in 2QFY19 (2.9% of GDP) due to lower trade deficit. Oil prices have risen due to a rise in geopolitical tensions and the country at the current juncture can ill afford a sustained higher oil price scenario.

The government came out with a blue print of National Infrastructure Project Pipeline, which envisaged a capital spending of Rs. 102 trillion on infrastructure projects from FY2020-25. Energy (24%), roads (19%), urban (16%), and railways (13%) amounted to 70% of the projected capital expenditure. Projects worth Rs 42.7 trillion (42%) were under various stages of implementation whilst, Rs. 32.7 trillion (32%) were in conceptualization stage and rest of the projects were under development stage.

In face of benign inflation globally, Central Banks globally have continued to ease policy rates and talks of fiscal stimulus continues to gather momentum. The domestic macro data may continue to reflect a slow-down while, inflation will continue to remain elevated led by higher food prices and a low base, sometimes beyond RBI’s comfort level. We believe that the Indian central bank will have to take a calibrated approach rather than being data driven and focus on ensuring better transmission (both availability and cost of credit) and normalization of liquidity.

Consumption and investment have both been sluggish and with current weak trends for jobs/income growth. We don’t see a sharp rebound in urban consumption. Investment recovery may remain protracted despite corporate tax cut as utilization levels are still low (below 70%) and demand slow down has led to weak sentiments overall for corporates to embark on fresh round of capex. One bright spot could be that higher food prices and reasonable monsoon could aid rural recovery, off a low base in the coming year.

  
Equity Market

 

  

The BSE-30 Index and Nifty-50 Index were up 1.1% and 0.9% respectively in December aided by a slew of positive global developments, such as the easing of US-China trade tensions and a sweeping win by Boris Johnson’s Conservative Party in the UK elections (which paves the way for swift exit from the EU). The US Federal Reserve maintained status quo on key policy rates, by cutting policy rates by 25 bps and signaled constancy through 2020. On the domestic front, the RBI kept the policy rates unchanged but maintained an accommodative stance and indicated that there is space for future rate cuts. 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 pumped in an additional ~$1bn in December even as DIIs (Domestic Institutional Investors) sold ~$0.1bn during the same period. Among sectoral trends, Metals (+6.6%), Realty (+5.3%) and IT (+4.4%) were the best performing sectors during the month whereas Cement (-5) was the worst performing followed by FMCG (-2.8%) sector.

Despite widespread anxieties about the risk of a recession in the US during the past year, the US economy continued to grow at a satisfactory pace of 2.1% p.a. in the third quarter of 2019. Markets are worried by continued low investment, slowing trade due to US-China tariff wars, and other geopolitical risks such as Brexit and military conflicts and disruptions to oil supplies in the Middle East. The reasons why these concerns are misplaced are that (i) the US business cycle upswing is still firmly intact, (ii) US private sector balance sheets are still in good shape, (iii) inflation remains low and (iv) monetary conditions have eased substantially during the past six months. We continue to maintain that at a global level most central banks around the world would continue being in an easing mode. With US-China trade talks once again assuming the right direction and Brexit matters approach resolution, conditions for improved global economic activity and price inflation are developing. This should in turn augur well for risk assets such as equity.

Domestic data points more recently are now turning somewhat mixed from negative earlier. For instance, (i) Dec’19 GST collections registered a robust growth of 9%YoY despite late Diwali in 2018, (ii) manufacturing PMI (Purchasing Manager’s Index) surged to 52.7 in Dec’19, signaling the fastest expansion in 10 months, (iii) capex aggregates (CMIE) for 3QFY20 improved and (iv) the YoY contraction n core industries index moderated in Nov’19. However, Centre’s fiscal revealed slower spending growth in Nov’19 given receipts constraints. Medium-term, we think building blocks for a modest economic improvement in 2020 v/s 2019 are in place. Recent govt. policy measures such as corporate tax cut, good monsoons and accelerating rural spends should aid India’s growth recovery. Moreover, it may be important to highlight that some quantum of food inflation visible recently is desirable from the perspective of aiding rural income growth and remains our base case expectation. Improvement in global conditions should likely benefit India through stabilisation of exports, rising WPI and improving liquidity. In the meanwhile, continuing on measures to ease system liquidity thereby enabling steady recovery in overall credit growth especially out of NBFCs will likely be critical.

From a portfolio management standpoint, we restrict ourselves to a bottom-up approach to stock selection and portfolio construction until stronger evidence of more broad-based growth emerges. Given the extent of the slowdown across various sectors of the domestic economy, we would also like to keep our outlook on business growth recovery modest for 2020 even though the recent tax cut should aid overall earnings growth. We prefer to evaluate investment propositions based on flat to weak growth assumptions for the ensuing future and resultant price to intrinsic value equation. We continue to be wary of balance-sheet related risks to businesses.

 

 

 
 
Fixed Income Market
 
 

Bond prices fell over the month of Dec’19. The fall in bond prices were due to:

• Disappointment over status quo on rates in the December monetary policy
• Fears of additional government borrowing to meet the tax deficit

The negative market sentiment led by the above 2 reasons led to fall in bond prices. In fact, the negativism was acute and at the worst the 10 - year benchmark g-sec yields had moved up from 6.47% to 6.80%.

Later in the month, RBI started buying the 10-year benchmark as part of the OMO in order to address the negative sentiment in the market and through an operation ‘twist’ whereby RBI bought approx. Rs. 10k of long bonds while simultaneously sold extreme short bonds. This operation twist led to some flattening out of the yield curve. The yields at the long end softened by approx. ~23bps after a couple of OMO.

The headline inflation was 5.54% for Nov’19, much beyond the economist estimates. The sharp rise in onion and green vegetable prices led to the rise in headline inflation. There has also been some rise in few other food articles also. The inflation led by rising prices in onion and green vegetables is expected to be seasonal in nature. While the rise in food article prices might be sticky, the prices of green vegetables might see some seasonal drop.

The MPC (Monetary Policy Committee) members last month had unanimously decided to keep rates unchanged despite the sharp drop in GDP growth possibly due to recent rise of the headline inflation and wanted to await to see the transmission of the previous rate reductions.

Bond yields have remained elevated for the last 4-6 months despite rate reductions and accommodative stance due to fears of additional G-sec supply by the government in order to make up for the lower tax revenues.

While there has been a rise in the headline inflation the core (inflation ex food and fuel) inflation dropped closer to 3.4%. We expect the future course of rate of action will be dictated by

• Growth inflation dynamics and
• Progress of transmission of lower rates into the credit market

The room for further rate reduction would depend on the growth and inflation trajectory. While the MPC members feel that there is space for rate reduction, the decision to press the ‘pause’ button when the growth is at a multi-year low gives rise to uncertainties in the minds of the investors. However, the volatility in the markets has suddenly got accentuated due to

• the recent geo-political tension between Iran and US has led to a sharp rise in the international oil prices leading to oil prices jumping above $70/barrel. The entire market is watching this development closely to see the effects of this tension.
• The recent rise in bond yields in the developed markets

Moreover, based on RBI’s suasion, few banks have started to link their lending rates to an external benchmark, which RBI feels will work towards transmission of rates. So far, the transmission of lower rates into the system has been mostly in high quality credits due to risk aversion. The drop in interest rates should help in balancing the overall leverage and ideally help in attracting equity capital as earnings from savings and debt investments become unappealing. However, it remains to be seen whether this theoretical cycle follows through in India in this environment.

Outlook

We expect to see some softening of the headline inflation over the months due to some price correction of the vegetable prices. However, the sustainability of oil prices beyond the $70/barrel will have some impact on the headline inflation. We reason that the slowing domestic growth is a function of both slowing global growth and slowing domestic consumption.

While, slowing growth and accommodative monetary policy stance gives room for further rate reduction, we think that further policy actions will be guided by evolving growth-inflation dynamics.

Amid a mix of positives (mainly accommodative monetary policy stance & surplus liquidity) and negatives (mainly due to rising inflation & fears of fiscal slippage), we feel that benchmark yields are expected to remain range bound and move lower depending on the quantum of bond purchases by RBI through OMO.

In this environment, we urge investors to select funds in alignment with their investment horizon and 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.
Request for Literature
We will send the Literature requested by you by post. Please provide the following details to process your request:
Subscribe with Us
I would like to subscribe for . Here are my details:
Thank You
Thank you for providing your details. Your request will be processed in the next 2-3 working days.
X
Quick Email
Send Document(s) As:
Links
Attachment
Enter ARN Code :
(e.g. ARN-000000-0)
Thank You
Thank You for submitting your details.\nOur representative will get in touch with you shortly.
Email sent successfully
The fund has been added in the watchlist.