Mutual Fund News of 3rd August 2018

News U Can Use

August 03, 2018

The Week that was…

July to 03

August

Indian Economy

• The Monetary Policy Committee (MPC), in its third bi-monthly policy review for 2018-19,

increased the key policy repo rate by 25 basis points to 6.50% from 6.25% and retained its

‘neutral’ stance. Consequently, reverse repo rate now stands adjusted to 6.25% and both

the marginal standing facility rate and the bank rate stood at 6.75%. Five policymakers

were in favour of the decision and one policymaker voted against the decision. MPC

decided to increase key policy repo rate as it identified several factors that may lead to an

increase in domestic inflationary pressures. Some of the factors are volatility in crude oil

prices and global financial markets, fiscal slippage at the Centre and/or state government

levels, regional distribution of monsoons, uncertainty regarding the impact of Minimum

Support Price (MSP) on domestic inflation and the staggered impact of House Rent

Allowance (HRA) revision by state governments.

• Data from a private survey showed that the Nikkei India Manufacturing Purchasing

Managers’ Index (PMI) fell to 52.3 in Jul 2018 from 53.1 in Jun 2018. This is the 12th

consecutive month that the manufacturing PMI remained above 50. The decline in

manufacturing PMI can be attributed to moderate rise in output, new orders and

employment.

• India’s fiscal deficit for Apr-Jun 2018 came in at Rs. 4.29 lakh crore, or 68.7% of the

budgeted target for FY19 against 80.8% in the year-ago period. Net tax receipts were Rs.

2.37 lakh crore or 16.0% of the budget estimate for FY19 compared to 14.5% in the

corresponding period of the previous year.

Indian Equity Market

Domestic Equity Market Indices

Indices 03-Aug-18 1 Week Return YTD Return

S&P BSE Sensex 37556.16 0.59% 10.28%

Nifty 50 11360.80 0.73% 7.88%

S&P BSE Mid-Cap 16206.89 1.85% -9.06%

S&P BSE Small-Cap 16833.52 2.33% -12.47%

Source: MFI Explorer

NSE Advance/Decline Ratio

Date Advances Declines

Advance/Decline Ratio

30-Jul-18 1170 640 1.83

31-Jul-18 1007 776 1.30

01-Aug-18 949 820 1.16

02-Aug-18 869 963 0.90

03-Aug-18 1284 548 2.34

Source: NSE

• Indian equity market gained over the

week on normal rains projection by

the India Meteorological Department

(IMD) for Aug and Sep and prediction

of 95% of the Long Period Average

(LPA). Higher services sector (private

survey) data added to gains. The

manufacturing sector (private survey)

also improved albeit at a slower

pace.

• However, the upside was limited as

investors preferred to cash in on the

recent gains. On the global front,

escalating trade tensions between

the U.S. and China kept investors

cautious. Further the U.S. Federal

Reserve hinted at raising interest

rates soon, albeit maintaining status

quo in interest rates in its latest policy

meet.

Ratios

S&P BSE

Sensex

Nifty 50

S&P BSE

Mid Cap

S&P BSE

Small Cap

P/E

23.97 28.23 32.87 107.35

P/B

3.10 3.70 2.74 2.37

Dividend Yield

1.18 1.18 0.94 0.76

Source: BSE, NSE Value as on

Aug 03, 2018

Indian Equity Market (contd.)

Sectoral Indices

Indices

Last Returns (in %)

Closing* 1-Wk 1-Mth

S&P BSE Auto

24121.10 -0.61% 0.45%

S&P BSE Bankex

31079.29 1.09% 6.71%

S&P BSE CD

21372.04 3.60% 5.31%

S&P BSE CG

18304.88 0.77% 5.56%

S&P BSE FMCG

12157.38 2.23% 8.57%

S&P BSE HC

14674.96 4.61% 3.26%

S&P BSE IT

14604.43 0.60% 2.90%

S&P BSE Metal

12803.28 2.34% 0.07%

S&P BSE Oil & Gas

15206.15 2.47% 11.35%

Source: Thomson Reuters Eikon

*Value as on Aug 03, 2018

• On the BSE sectoral front, indices closed

in green barring S&P BSE Auto (-0.61%).

S&P BSE HC (4.61%) remained the top

gainer (4.61%) followed by S&P BSE

Consumer Durables (3.60%) and S&P

BSE Oil & Gas (2.47%).

• Auto sector got impacted after one of the

major players posted its first quarterly loss

in around three years following lower sales

at its key business arm. Being a rate

sensitive sector, auto sector was further

impacted as MPC has raised key policy

rates in consecutive two policy decisions.

Indian Derivatives Market Review

• Nifty August 2018 Futures closed at 11,395.75, a premium of 34.95 points, above the spot

closing of 11,360.80. The turnover on NSE’s Futures and Options segment stood at Rs.

38.77 lakh crore as against Rs. 46.62 lakh crore on Jul 27.

• The Put-Call ratio stood at 0.97 compared with the previous week’s close of 0.93.

• The Nifty Put-Call ratio stood at 1.73 against the previous week’s close of 1.71.

Domestic Debt Market

Debt Indicators

(%)

Current

Value

1-Wk

Ago

1-Mth

Ago

6-Mth

Ago

Call Rate

6.37 6.14 6.11 5.92

91 Day T-Bill

6.77 6.72 6.44 6.42

7.80% 2021, (5 Yr GOI)

7.65 7.67 7.75 7.16

7.17% 2028, (10 Yr GOI)

7.76 7.78 7.88 7.56

Source: Thomson Reuters

Eikon

Value as on Aug 03, 2018

• Bond yields declined after the

Monetary Policy Committee’s (MPC)

commentary in the third bi-monthly

monetary policy for FY19 pacified

concerns regarding the pace of

monetary tightening to some extent.

Meanwhile, MPC increased repo rate

by 25 bps as market expected and

maintained “neutral” stance. Fall in

crude oil prices added to the gains.

• However, gains were limited as

market participants booked profits to

benefit from the recent bond rally.

Moreover, fresh supply worth Rs.

12,000 crore from the auction of five

government stocks, limited the fall in

yield.

• Yield on the 10-year benchmark

paper (7.17% GS 2028) fell 2 bps to

close at 7.76% from the previous

week’s close of 7.78%.

7.64

7.74

7.84

30-Jul 31-Jul 1-Aug 2-Aug 3-Aug

Yield in %

10 -Yr Benchmark Bond ( % )

Source: CCIL

Domestic Debt Market (Spread Analysis)

Maturity

G-Sec Yield

(%)

Corporate Yield

(%)

Spread

bps

1 Year 7.38 8.28 90

3 Year 7.79 8.54 75

5 Year 8.00 8.66 66

10 Year 7.91 8.63 72

Source: Thomson Reuters Eikon

Value as on Aug 03, 2018

• Yields on gilt securities fell across

maturities by up to 10 bps, barring 2-, 11

and 12-year maturities that increased 1,

3, and 10 bps, respectively. Yield on 1-

year paper was steady. The maximum

fall was witnessed on 30-year paper.

• Corporate bond yields fell across the

curve by up to 26 bps. The maximum fall

was seen on 15-year paper while

minimum decline was on 1-year paper.

• Spread between AAA corporate bond

and gilt contracted across maturities by

up to 23 bps, barring 4- to 7-year papers

that expanded by up to 6 bps.

-15

-10

-5

6.00

6.50

7.00

7.50

8.00

8.50

3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs

India Yield Curve Shift (%) (W-o-W)

Change in bps 03-Aug-18 27-Jul-18

Yield in %

Change in bps

Source: Thomson Reuters Eikon

Regulatory Updates in India

• The Monetary Policy Committee (MPC), in its third policy meet of 2018-19, extended the

Marginal Standing Facility (MSF) and Liquidity Adjustment Facility (LAF) to scheduled state

co-operative banks. MSF has been extended to scheduled primary (urban) co-operative

banks. This is being done to improve the transmission of monetary policy to money market

rates.

• The Chennai National Company Law Tribunal (NCLT) approved the merger of a Limited

Liability Partnership (LLP) with a private company. This could lead to a new wave of

mergers and acquisitions as the Companies Act, 2013, and the LLP Act, 2008, do not

provide for such cross-entity union. NCLT cleared it on grounds that the intent is to facilitate

‘ease of doing business’ and to ‘create a desirable business atmosphere’.

• The U.S. has placed India under the Strategic Trade Authorisation-1 (STA-1) list, which

relaxes export of high-tech items. Indian ambassador to the U.S. said this step reflects U.S.’

trust in India’s economy and as a security partner. The ambassador said this will enhance

defence partnership between the two countries in a big way.

• Nine more unilateral advance pricing agreements (APAs) have been signed by the Central

Board of Direct Taxes (CBDT) with Indian taxpayers in Jul 2018. The board is doing this to

reduce litigation. The APAs relate to sectors such as telecom, manufacturing, healthcare,

engineering, media and irrigation. With this, total APAs signed by CBDT have gone up to

232.

Regulatory Updates in India (contd..)

• MPC decided that for the creation of eligible priority sector assets, all scheduled commercial

banks may co-originate loans with non-deposit taking-systemically important non-banking

financial companies (NBFC-ND-SIs). However, the scheduled commercial banks would

exclude regional rural banks and small finance banks. Besides, entailing joint contribution of

credit by both lenders at the facility level, the co-origination arrangement should involve

sharing of risks and rewards between the banks and the NBFCs. The decision comes in the

wake of providing a competitive edge for credit to the priority sector.

• The Goods and Services Tax (GST) Council accepted ‘transaction value’ to determine

leviable tax rate for the hotel industry. The industry had long lobbied for it. ‘Declared tariff’

meant higher tax rates for rooms falling in lower slabs also. There are three tax rates for

hotels — 12%, 18% and 28%. Now ‘declared tariff’ will be replaced by ‘value of supply’ or

transaction value. The rule, however, is being restricted to room tariffs, excluding

restaurants inside hotels.

• Primary (urban) co-operative banks have received permission from the MPC to undertake

eligible transactions for acquisition or sale of non-SLR investment in secondary market with

mutual funds, pension/provident funds, and insurance companies. This is in addition to

undertaking eligible transactions with scheduled commercial banks and primary dealers.

This comes in the wake of bringing further efficiency in price discovery mechanism and as a

step towards harmonization of regulations for urban and rural co-operative banks.

Global News/Economy

• The U.S. Federal Reserve (Fed) kept its interest rates on hold in its monetary policy review

on Aug 1, 2018. However, it kept the door open for a rate hike in the next policy meeting as it

stuck with its plan of gradually raising interest rates while maintaining its upbeat outlook on

the U.S. economy and labour market. The U.S. Fed is scheduled to hold its next monetary

policy meeting in late Sep 2018.

• According to Labor Department data, U.S. jobs growth came in weaker than expected in Jul

2018 as government employment dropped. Non-farm payroll employment increased 157,000

jobs in Jul after spiking 248,000 jobs in Jun 2018. Expectations were for employment to rise

by 190,000 jobs.

• The Bank of England in its monetary policy review increased its key benchmark rate by 25

bps to 0.75%. The benchmark rate thus went up to its highest level since 2009. The

Monetary Policy Committee also voted 9-0 to maintain the quantitative easing at £435 billion.

Policymakers remained concerned about above target inflation than uncertainties resulting

from Brexit.

• The Bank of Japan (BoJ) maintained status quo in its policy by retaining the monetary

stimulus. The bank said it plans to carry out asset purchases and market operations in a

flexible way. In its forward guidance, BoJ said it plans to maintain the present extremely low

levels of short- and long-term interest rates for a longer period of time. To keep yield on 10-

year Japanese government bonds at about 0%, BoJ will purchase government bonds.

Global Equity Markets

Global Indices

Indices

03-Aug-18

1-Week

Return

YTD

Return

Dow Jones

25462.58 0.05% 3.01%

Nasdaq 100

7395.49 1.35% 15.62%

FTSE 100

7659.10 -0.55% -0.37%

DAX Index

12615.76 -1.90% -2.34%

Nikkei Average

22697.88 -0.07% -0.29%

Straits Times

3297.83 -0.82% -3.09%

Source: Thomson Reuters Eikon

Value as on Aug 03, 2018

U.S.

• U.S. markets traded higher with strong

buying interest seen in tech stocks. A

series of encouraging economic data

provided additional support.

• Market rose despite downbeat U.S. non-

farm payroll data for Jul 2018 partially

due to a drop in government

employment and the closing of one of

the U.S. toy retailer. However, gains

were restricted on trade concerns

between the U.S. and China.

Europe

• European markets were weighed down by trade concerns following reports that U.S.

administration is considering increasing the proposed tariff rate on $200 billion worth of

Chinese goods to 25% from the previously announced 10%. Meanwhile, Bank of England

lifted its key interest rate in line with market expectation. The downturn was restricted by a

series of encouraging corporate earnings numbers.

Asia

• Asian markets fell by renewed trade worries between U.S. and China. In retaliation to the

U.S. President’s consideration of raising the proposed tariff on $200 billion worth of

Chinese imports, China called U.S.’ move ‘blackmail’ and warned of counter measures.

The U.S. Federal Reserve’s latest policy meeting generated mixed reactions.

Global Debt (U.S.)

• Yield on the 10-year U.S. Treasury bond

fell 1 bps to close at 2.95%, from the

previous week’s close of 2.96%.

• U.S. Treasury prices fell initially after the

U.S. government announced its

intention to boost borrowing in the bond

market in the coming quarters to fund

spending and debt obligations. Upbeat

U.S. private sector jobs data for Jun

2018 also weighed on U.S. Treasury

prices.

• However, losses were neutralized as the

safe haven appeal of U.S. Treasuries

improved on renewed concerns over

escalating trade tensions between U.S.

and China after the latter unveiled

retaliatory tariffs on $60 billion of

American goods. Downbeat U.S.

nonfarm payroll employment data for

Jun 2018 also boosted U.S. Treasury

prices.

2.94

2.99

3.04

30-Jul 31-Jul 1-Aug 2-Aug 3-Aug

US 10-Year Treasury Yield Movement

Source: Thomson Reuters Eikon

Commodities Market

Performance of various commodities

Commodities

Last Closing* 1-Week Ago

Brent Crude($/Barrel)

73.12 75.48

Gold ($/Oz)

1213.03 1222.97

Gold (Rs/10 gm)

29428 29722

Silver ($/Oz)

15.38 15.46

Silver (Rs/Kg)

37653 37774

Source: Thomson Reuters

Eikon *Value as on Aug 03, 2018

Gold

• Gold prices fell due to strength in dollar

driven. Additionally, gold remained

under pressure as the greenback was

supported by an outlook for higher

interest rates.

• However, the downside was limited on

the back of renewed tensions over U.S.-

China trade war. Also, weak jobs data

for Jul 2018 supported gold’s safe

haven appeal.

Crude

• Brent crude prices lowered on

oversupply concerns after a survey

showed that OPEC output in Jul was the

highest in 2018. Market worries over the

U.S. and China trade conflict and rise in

Russian oil output weighed on oil prices.

Baltic Dry Index

• The Baltic Dry Index gained 4.77% on

the back of improved capesize and

panamax activities.

9.10

9.80

10.50

4-Jul-18 14-Jul-18 24-Jul-18 3-Aug-18

Global Commodity Movement

Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl)

Global Commodity Prices

Rebased to 10

Source: Thomson Reuters Eikon

-3.31%

-0.81%

-0.49%

Currencies Markets

Movement of Rupee vs Other Currencies

Currency Last Closing* 1-Wk Ago

US Dollar

68.79 68.70

Pound Sterling

89.52 89.99

EURO

79.67 79.98

100 JPY

61.58 61.84

Source: RBI Figures in INR , *Value as on Aug 03, 2018

Rupee

• The rupee fell marginally against the

greenback following dollar demand from

corporates and importers. However,

greenback sales by foreign banks and

fall in crude oil prices restricted the fall.

Euro

• Euro weakened against the U.S. dollar

after the U.S. Federal Reserve kept

interest rates unchanged but

characterized the economy as strong,

thus increasing the possibility of rate hike

in Sep 2018.

Pound

• Pound weakened against the U.S. dollar

after the Bank of England governor

indicated that the central bank is in no

rush to tighten policy further.

Yen

• Yen weakened against the U.S. dollar

after the Bank of Japan indicated to keep

interest rates low for a longer period.

9.70

9.80

9.90

10.00

10.10

10.20

10.30

4-Jul-18 14-Jul-18 24-Jul-18 3-Aug-18

USD GBP Euro JPY

Source: RBI

Currency Prices ( in terms of INR)

Rebased to 10

Currency Movement

0.13%

-0.52%

-0.38%

-0.42%

The Week that was…

July to 03

August

The Week that was (July 30 – Aug 03)

Date Events

Present

Value

Monday,

July 30, 2018

• Germany Consumer Price Index (YoY) (Jul P) 2.0% 2.1%

• U.S. Pending Home Sales (YoY) (Jun) -4.0% -2.8%

Tuesday,

July 31, 2018

• Bank of Japan Rate Decision -0.1% -0.1%

• China Manufacturing PMI (Jul) 51.2 51.5

• Germany Unemployment Change (Jul) -6k -14k

• Eurozone Consumer Price Index Estimate (YoY) (Jul) 2.1% 2.0%

• Eurozone Gross Domestic Product s.a. (YoY) (2Q A) 2.1% 2.5%

• U.S. Personal Consumption Expenditure Core (YoY) (Jun) 1.9% 1.9%

Wednesday,

August 01, 2018

• U.S. FOMC Rate Decision 2.0% 2.0%

• India’s Third Bi-monthly Monetary Policy Statement, 2018-19 6.50% 6.25%

• India’s Nikkei Manufacturing PMI (Jul) 52.3 53.1

• U.S. ISM Manufacturing (Jul) 58.1 60.2

Thursday,

August 02, 2018

• Bank of England Rate Decision 0.75% 0.50%

• U.S. Factory Orders (Jun) 0.7% 0.4%

Friday,

August 03, 2018

• India’s Nikkei Services PMI (Jul) 54.2 52.6

• U.S. Change in Non-farm Payrolls (Jul) 157k 248k

• U.S. Unemployment Rate (Jul) 3.9% 4.0%

• USD ISM Non-Manufacturing/Services Composite (Jul) 55.7 59.1

The Week Ahead

August to 10

August

The Week Ahead

Day Event

Monday,

Aug 06, 2018

• Euro zone German Factory Orders n.s.a. (YoY) (Jun)

• Japan Overall Household Spending (YoY) (Jun)

Tuesday,

Aug 07, 2018

• Japan Real Cash Earnings (YoY) (Jun)

• Euro zone German Industrial Production (YoY) (Jun)

• U.S. Consumer Credit (Jun)

• Japan Trade Balance - BOP Basis (Yen) (Jun)

Wednesday,

Aug 08, 2018

• China Trade Balance (Jun)

• Japan Eco Watchers Survey Current (Jun)

• Japan Machine Orders (YoY) (Jun)

Thursday,

Aug 09, 2018

• China Consumer Price Index (YoY) (Jun)

• China Producer Price Index (YoY) (Jun)

• Japan Machine Tool Orders (YoY) (Jun P)

• Japan Gross Domestic Product Annualized s.a. (QoQ) (2Q P)

Friday,

Aug 10, 2018

• India’s Index of Industrial Production (Jun)

• U.K. Industrial Production (YoY) (Jun)

• U.K. Gross Domestic Product (YoY) (2Q P)

• U.S. Consumer Price Index (YoY) (Jun)

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