News You Can Use of - 9 February 2018 | Nippon India Mutual Fund

News You Can Use of -9 February 2018

February 9, | Nippon India Mutual Fund

The Week that was…

February to 9

February

Indian Economy

• The Monetary Policy Committee (MPC) in its sixth bi-monthly policy review kept key policy

repo rate unchanged at 6.0% and also retained its “neutral” stance. Consequently, the reverse

repo rate stood unaltered at 5.75%, and the marginal standing facility (MSF) rate and bank

rate each remained at 6.25%. Five policymakers were in favour of the monetary policy

decision and one advocated for a policy rate increase of 25 bps.

• MPC noted that the inflation outlook is surrounded by several uncertainties on the upside and

stated that there is need for vigilance around the evolving inflation scenario in the coming

months. According to the MPC, the staggered impact of HRA increases by various state

governments may push up headline inflation further over the baseline in 2018-19. Also, a

pick-up in global growth may exert further pressure on crude oil and commodity prices,

thereby impacting domestic inflation.

• The Nikkei India Services Purchasing Managers’ Index (PMI) Business Activity Index rose to

51.7 in Jan 2018 from 50.9 in Dec 2017. This marked the fastest growth in a three-month

period. The upside was driven by a renewed increase in new business. However, though

growth rates for activity and employment accelerated since Dec, it remained weaker than their

respective long-run survey averages. Meanwhile, the Nikkei India composite PMI output index

fell to 52.5 in Jan from 53.0 in Dec.

• The government has budgeted for Rs. 900 billion to be paid as compensation to states

towards losses because of Goods and Services Tax (GST) in FY19, up 47% from Rs. 613

billion it plans to distribute in FY18.

Indian Equity Market

Domestic Equity Market Indices

Indices 9-Feb-18 1 Week Return YTD Return

S&P BSE Sensex 34,005.76 -3.03% 0.57%

Nifty 50 10,454.95 -2.84% 0.19%

S&P BSE Mid-Cap 16,634.91 0.36% -6.73%

S&P BSE Small-Cap 18,172.98 1.82% -5.74%

Source: MFI Explorer

NSE Advance/Decline Ratio

Date Advances Declines

Advance/Decline Ratio

05-Feb-18 684 1160 0.59

06-Feb-18 303 1540 0.20

07-Feb-18 1387 402 3.45

08-Feb-18 1497 301 4.97

09-Feb-18 849 933 0.91

Source: NSE

• Indian equity markets witnessed heavy

fall during the week as finance

minister’s statement in the Union

Budget 2018-19 regarding increase of

government spending for rural areas

on one hand and slowing of the pace

of fiscal consolidation on the other

kept investors wary.

• Additionally, worries over probable rate

hike by MPC in its the upcoming

meeting to combat rising inflationary

pressures impacted markets.

• Rising inflation and speculation over

imminent rate-hike by the U.S. Federal

Reserve in its Mar 2018 meeting

dented sentiment.

Ratios

S&P BSE

Sensex

Nifty 50

S&P BSE

Mid Cap

S&P BSE

Small Cap

P/E

23.88 25.27 38.72 103.87

P/B

3.14 3.53 2.86 2.59

Dividend Yield

1.16 1.08 0.85 0.62

Source: BSE, NSE Value as on Feb 9

, 2018

Indian Equity Market (contd.)

Sectoral Indices

Indices

Last Returns (in %)

Closing 1-Wk 1-Mth

S&P BSE Auto

25,044.24 -0.67% -5.68%

S&P BSE Bankex

28,882.40 -3.44% -0.57%

S&P BSE CD

21,218.79 -0.53% -11.79%

S&P BSE CG

19,240.43 -3.51% -4.07%

S&P BSE FMCG

10,527.24 -1.48% -2.94%

S&P BSE HC

14,348.00 1.99% -4.32%

S&P BSE IT

12,116.95 -3.02% 6.39%

S&P BSE Metal

15,100.57 0.59% -4.26%

S&P BSE Oil & Gas

15,541.87 -0.80% -4.66%

Source: Thomson Reuters

Eikon Value as on Feb 9, 2018

• On the BSE sectoral front, barring S&P BSE

Realty (2.13%), S&P BSE HC (1.99%), S&P

BSE Metal (0.59%) and S&P BSE Power

(0.12%), all the major indices closed in the

red.

• S&P BSE Capital Goods (-3.51%) stood as

the major loser followed by S&P BSE

Bankex (-3.44%) , S&P BSE IT (-3.02%)

and S&P BSE Teck (-2.73%).

Indian Derivatives Market Review

• Nifty Feb 2018 Futures were at 10,469.7 points, a premium of 14.75 points above the spot

closing of 10,454.95. The turnover on NSE’s Futures and Options segment stood at Rs. 42.16

lakh crore as against Rs. 33.80 lakh crore in the week to Feb 2.

• The Put-Call ratio stood at 0.81 compared with the previous week’s close of 0.79.

• The Nifty Put-Call ratio remained unchanged from the previous week’s close of 1.09.

Domestic Debt Market

Debt Indicators

(%)

Current

Value

1-Wk

Ago

1-Mth

Ago

6-Mth

Ago

Call Rate

5.89 5.92 5.87 5.91

91 Day T-Bill

6.39 6.42 6.28 6.12

7.80% 2021, (5 Yr GOI)

7.09 7.16 7.04 6.43

7.17% 2028, (10 Yr GOI)

7.49 7.56 7.16 --

Source: Thomson Reuters

Eikon

Value as on Feb 9, 2018

• Initially, bond yields rose as investors

were cautious ahead of the Monetary

Policy Committee’s (MPC) policy

review meeting that was scheduled on

Feb 6 and Feb 7.

• Soon, yields fell following weakness in

crude oil prices that eased concerns

about inflation gains in India. Lower

than scheduled debt sale in FY18 amid

high yields also boosted sentiment.

• Yields dropped further as the policy

meeting by MPC was less hawkish

than feared by investors. Also, no

clarity on future rate hike from MPC

soothed investors’ nerves.

• Yield on the 10-year benchmark paper

(7.17% GS 2028) fell 7 bps to close at

7.49% from the previous week’s close

of 7.56% after trading in a range of

7.45% to 7.62%.

7.43

7.54

7.65

5-Feb 6-Feb 7-Feb 8-Feb 9-Feb

Yield in %

10 -Yr Benchmark Bond ( % )

Source: CCIL

Domestic Debt Market (Spread Analysis)

Maturity

G-Sec Yield

(%)

Corporate Yield

(%)

Spread

bps

1 Year 6.71 7.60 89

3 Year 7.19 7.72 54

5 Year 7.51 7.84 33

10 Year 7.72 8.09 37

Source: Thomson Reuters

Eikon Value as on Feb 9, 2018

• Yields on gilt securities fell across

maturities by up to 15 bps, barring 19-

year paper that increased 3 bps and 30-

year paper was steady. Highest fall was

seen on 8-year paper.

• Corporate bond yields dropped across the

curve by up to 8 bps. Highest decline was

on 5-year paper, while lowest fall was on

6-year paper.

• Spread between AAA corporate bond and

gilt expanded across the segments by up

to 11 bps, leaving 1-year paper that

contracted 3 bps.

-15

-10

-5

6.00

6.50

7.00

7.50

8.00

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

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

Change in bps 09-Feb-18 02-Feb-18

Yield in %

Change in bps

Source: Thomson Reuters Eikon

Regulatory Updates in India

• MPC has decided to remove the currently applicable loan limits of Rs. 50 million and Rs. 100

million per borrower to Micro, Small and Medium Enterprises (Services) for classification under

priority sector. Hence, all bank loans to MSMEs, that are engaged in providing services as

defined in terms of investment in equipment under Micro, Small and Medium Enterprises

Development (MSMED) Act, 2006, shall qualify under priority sector without any credit caps.

• The Securities and Exchange Board of India (SEBI) has asked fund houses to prominently

disclose the total expense ratio (TER), on daily basis, for all schemes under a separate head,

"Total Expense ratio", on their websites. The disclosure will increase transparency in mutual

fund schemes and make them more investor friendly.

• The government announced that the proposed long-term capital gains tax on equity holdings

will apply on profits made from sale of shares on or after Apr 1, 2018. However, it stated that

the acquisition cost for the purpose of computing the capital gains will be the higher of the

actual purchase price or the maximum traded price on Jan 31, 2018.

• Government has granted infrastructure status to affordable housing. This would allow these

projects to avail benefits such as lower borrowing rates, tax concessions and increased flow of

foreign and private capital. The government has made several efforts to create enabling

environment and ecosystem to promote affordable housing. This announcement comes as a

part of such effort.

Regulatory Updates in India (contd..)

• The Reserve Bank of India has raised the forex futures trading limit to $100 million. The central

bank expects that increase in the upper limit would lure business away from regional financial

hubs as it is expected to boost daily trading volumes on domestic exchanges. The move will

also create arbitrage opportunity between onshore and offshore markets. Non-resident Indians

as well as high networth individuals will be encouraged to take positions in the currency futures

market.

• The Insolvency and Bankruptcy Board of India (IBBI) has revised its guidelines, thereby

delegating more responsibilities on the resolution professional and with stricter time lines. IBBI

has directed the resolution professional to provide evaluation matrix to prospective resolution

applicants and appoint two registered valuers to arrive at liquidation value and fair value of the

company. Also, the resolution professional has been directed to submit resolution plan

approved by the Committee of Creditors to the Adjudicating Authority at least 15 days before

the expiry of the maximum period, which is 270 days from the time of being admitted.

• A dozen state-run banks have been directed by the Reserve Bank of India (RBI) to retire high-

cost debt such as additional tier I capital. These banks are under regulatory watch for mounting

bad loans. The direction comes as a part of the austerity drive that seeks to restore commercial

viability for the stressed lenders. These banks that would receive an injection of federal funds

would now have to retire high-cost debt well before their maturity.

Global News/Economy

• According to a survey of purchasing managers, U.S. ISM's non-manufacturing index came in at

59.9 in Jan 2018, up from Dec 2017’s reading of 56 (seasonally adjusted). This marked 96

consecutive months of growth in the non-manufacturing sector. New orders index stood at 62.7

in Jan, higher than reading of 54.5 (seasonally adjusted) in Dec.

• Jerome Powell has replaced Janet Yellen and has been sworn in as the chief of U.S. Federal

Reserve. Jerome Powell will now lead the U.S. central bank and manage raising interest rates.

• The Bank of England kept key interest rate and asset purchase programme on hold in its latest

policy meeting. The Monetary Policy Committee voted unanimously to maintain the benchmark

rate at 0.50% at the rate setting meeting. The bank had raised its key rate in Nov 2017, thereby

marking the first hike in a decade. Meanwhile, policymakers also unanimously decided to

maintain the quantitative easing at GBP 435 billion.

• According to the People's Bank of China, China's monetary policy will be stable and neutral in

2018. Also, People's Bank of China stated that comprehensive tools will be applied to maintain

liquidity in the banking system and promote reasonable growth in social financing. The central

bank stated that it will strengthen macro-prudential management of shadow banking and real

estate financing.

Global Equity Markets

Global Indices

Indices

9-Feb-18

1-Week

Return

YTD

Return

Dow Jones

24,190.90 -5.21% -2.55%

Nasdaq 100

6,412.68 -5.14% -1.52%

FTSE 100

7,092.43 -4.72% -7.27%

DAX Index

12,107.48 -5.30% -5.93%

Nikkei Average

21,382.62 -8.13% -9.03%

Straits Times

3,377.24 -4.32% -0.75%

Source: Thomson Reuters Eikon

Value as on Feb 9, 2018

U.S.

• U.S. markets witnessed selling pressure

amid concerns over rising inflation and

speculation over imminent rate hike by

the U.S. Federal Reserve in its

upcoming policy meeting in Mar 2018.

• Buying interest was hardly impacted by

data showing U.S. ISM services index

hit its highest level since mid-2005, a

sign of further strength of the nation's

economy.

Europe

• Weakness in Wall Street had a major impact on the European markets as well. Worries

over imminent rate hike by the U.S. Fed kept investors on the sidelines. Investors are also

keeping an eye on political developments in Germany. Also, the second phase of Brexit

talks commenced in London during the week, with the European Union chief negotiator

repeating his call for more clarity from the U.K. on the country’s position.

Asia

• Asian markets too felt the heat of the strong sell off in Wall Street. Speculation over

imminent rate hike by the U.S. Fed in Mar 2018 raised concerns over foreign fund flow,

particularly from the U.S., in emerging markets. Better than expected growth in China’s

exports in Jan 2018 hardly improved sentiment.

Global Debt (U.S.)

• Yield on the 10-year U.S. Treasury

bond fell 2 bps to 2.83% from the

previous close of 2.85%.

• U.S. Treasury prices rose as volatile

equity market prompted investors to

purchase less risky bonds. Also, some

investors were reluctant to sell the

U.S. Treasury bonds until they see

signs of stabilization.

• However, the trend reversed after the

lawmakers managed to end a brief

government shutdown and fund the

government until Mar 23, 2018.

• At the end, gains were limited after the

Bank of England stated that interest

rates would need to rise sooner,

thereby adding to expectations of

lower stimulus from central bank

globally.

2.70

2.80

2.90

5-Feb 6-Feb 7-Feb 8-Feb 9-Feb

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)

62.98 67.13

Gold ($/Oz)

1,316.64 1,332.92

Gold (Rs/10 gm)

30,007 30,452

Silver ($/Oz)

16.35 16.59

Silver (Rs/Kg)

37,792 39,200

Source: Thomson Reuters

Eikon Value as on Feb 9, 2018

Gold

• Gold prices moved down as upbeat

weekly jobless data reaffirmed optimism

over the health of the U.S. labour

market. The positive data contributed to

the speculation of a rate hike by the

U.S. Federal Reserve (Fed) in its

upcoming meeting in Mar 2018.

Crude

• Brent crude prices plunged over the

week after data from U.S. Energy

Information Administration (EIA)

indicated U.S. domestic crude

production hit a record of 10.25 million

barrels per day (bpd) for the week

ending Feb 2.

Baltic Dry Index

• The Baltic Dry Index gained 1.0% on the

back of improved capesize and

panamax activities.

9.00

9.50

10.00

10.50

9-Jan-18 19-Jan-18 29-Jan-18 8-Feb-18

Global Commodity Movement

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

Global Commodity Prices

Rebased to 10

Source: Thomson Reuters Eikon

-6.18%

-1.22%

-1.45%

9-Feb-18

Currencies Markets

Movement of Rupee vs Other Currencies

Currency Last Closing 1-Wk Ago

US Dollar

64.37 64.08

Pound Sterling

89.71 91.34

EURO

78.89 80.03

100 JPY

59.06 58.36

Source: RBI Figures in INR , Value as on Feb 9, 2018

Rupee

• The Indian rupee weakened against the

U.S. dollar following strong U.S. jobs data

in Jan 2018 and increase in demand for

greenback as risk appetite for equity

deteriorated.

Euro

• Euro weakened against the U.S. dollar as

the latter gained on worries that the U.S.

Fed might raise interest rates faster to

counter signs of wage pressure.

Pound

• Pound weakened against the greenback

on negative news about Brexit

negotiations and expectations of

slowdown in growth of U.K. economy in

the first quarter of 2018.

Yen

• Yen strengthened against the U.S. dollar

as its safe-haven appeal increased

following huge losses in the global equity

market.

9.70

10.10

10.50

10.90

9-Jan-18 19-Jan-18 29-Jan-18 8-Feb-18

USD GBP Euro JPY

Source: RBI

Currency Prices ( in terms of INR)

Rebased to 10

Currency Movement

0.45%

-1.78%

-1.43%

1.20%

9-Feb-18

The Week that was…

February to 9

February

The Week that was (Feb 5 – Feb 9)

Date Events

Present

Value

Monday,

Feb 5, 2018

• India’s Nikkei Services PMI (JAN) 51.70 50.90

• Japan Nikkei Composite PMI (JAN) 52.80 52.20

• U.S. ISM Non-Manufacturing/Services Composite (JAN) 59.90 56.00

Tuesday,

Feb 6, 2018

• Germany Factory Orders (YoY) (DEC) 7.20% 9.10%

• Germany Markit Construction PMI (JAN) 59.80 53.70

• Germany Markit Retail PMI (JAN) 53.00 55.10

Wednesday,

Feb 7, 2018

• Reserve Bank of India’s Interest Rate Decision 6.00% 6.00%

• Japan Leading Index (DEC P) 107.90 108.20

• Germany Industrial Production (YoY) (DEC) 6.50% 5.50%

• Japan Housing Loans (YoY) (4Q) 2.90% 3.00%

Thursday,

Feb 8, 2018

• U.K. Bank of England Bank Rate 0.50% 0.50%

• China Trade Balance CNY (JAN) 135.80b 361.98b

• Japan Eco Watchers Survey Current (JAN) 49.90 53.90

• Germany Trade Balance (DEC) 18.2b 23.7b

• U.S. Initial Jobless Claims (3 FEB) 221k 230k

Friday,

Feb 9, 2018

• China Consumer Price Index (YoY) (JAN) 1.50% 1.80%

• U.K. Industrial Production (YoY) (DEC) 0.00% 2.60%

• U.K. Construction Output (YoY) (DEC) -0.20% 0.80%

The Week Ahead

February to 16

February

The Week Ahead

Day Event

Monday,

February 12, 2018

• India’s Industrial Production YoY (December)

• India’s Consumer Price Index Inflation Rate YoY (JAN)

• U.S. Monthly Budget Statement (JAN)

Tuesday,

February 13, 2018

• U.K. Consumer Price Index (YoY) (JAN)

• Japan Gross Domestic Product Annualized (QoQ) (4Q P)

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

• U.K. House Price Index (YoY) (DEC)

Wednesday,

February 14, 2018

• Germany Gross Domestic Product (YoY) (4Q P)

• Eurozone Gross Domestic Product (YoY) (4Q P)

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

• U.S. Retail Sales Advance (MoM) (JAN)

• Japan Machine Orders (YoY) (DEC)

Thursday,

February 15, 2018

• India’s Wholesale Price Index Inflation YoY (JAN)

• U.S. Initial Jobless Claims (10 FEB)

• U.S. Industrial Production (MoM) (JAN)

Friday,

February 16, 2018

• U.S. University of Michigan Sentiment (FEB P)

• U.K. Retail Sales Ex Auto Fuel (YoY) (JAN)

• U.S. Housing Starts (MoM) (JAN)

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