Embed Size (px)
Citation preview
______________________________________________________________________
1
HDFC Bank Research
Presentation
January 2020
______________________________________________________________________
2
Aggressive Moderate Conservative
Equity Funds 75% 55% 25%
Debt Funds 20% 40% 70%
Gold 5% 5% 5%
Equity MF Strategy & Recommended Asset Allocation
2019 saw high volatility in the equity markets. However, despite the volatility Nifty and Sensex saw strong performance.
The outperformance of the Largecap indices was led by strong performance of few blue chip stocks.
Towards, the end of the calendar year, we saw domestic data points disappointing while global macroeconomic conditions turning
positive.
With the US and China agreeing to sign a new trade deal, Global Central banks continuing with the easy monetary policy, some
uncertainty on global growth and global trade would recede.
Global commodities could see a positive year ahead led by Chinese/US demand, with movement in the crude oil predominantly being
led by supply cuts/shocks.
Domestically, the current slowdown could have led to inventory destocking by the corporates, which can have a positive impact on
corporate earnings if demand revives.
The upcoming Union Budget is being looked upon with expectations of demand stimulating measures, while not drifting too much
on expansionary fiscal deficit path.
With good Rabi sowing and continued reform and stimulating measures by the government, the economic activity is expected to
revive in the current calendar year, which is likely to reflect in the corporate earnings.
Post the recent runup in the indices we continue with our investment strategy of 50% lumpsum and the rest 50% staggered over the
next 4-5 months.
From an Equity Mutual Fund perspective, investors could look at investing in Large Cap and Multicap Funds and could do SIP (12-15
months) into Midcap and Small cap funds.
______________________________________________________________________
3
Debt Mutual Fund Strategy
Investors who are looking to benefit from relatively better accruals can look at Corporate Bond Funds and
Banking and PSU Funds for a horizon of 15 months and above.
Investments in Medium Duration Funds can be considered with a horizon of 15 months and above.
Investments into Short Duration Funds can be considered with an investment horizon of 12 months and
above.
Investors who are comfortable with intermittent volatility, can also look at strategies that have allocation to
the longer end of the yield curve, through Dynamic Bond Funds with an investment horizon of 24 months
and above.
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Ultra Short
Duration Funds and Arbitrage Funds can be considered for a horizon of 3 months and above.
______________________________________________________________________
4
Research Presentation – Contents January
2019 -The year that was…
Global equity markets were volatile during CY19…However, most indices globally ended on a positive note led by improving sentiments
While, US-China trade war has resulted in weak economic data for China…some positivity has emerged on the trade deal
Amongst developed nations, economic data remained steady in U.S. during CY19…with US Fed slashing interest rates three times during the year
In Euro area, while ECB continued with Quantitative easing…economic data remained muted
Crude oil prices largely remained range bound for major part of CY19…while Industrial metal prices came off during the year
Most Emerging Markets showed a mixed picture…
Led by global concerns, multilateral agencies cut their global growth forecast for CY19, lowest since 2009…
Indian markets were volatile during CY19… headline indices continued to trade higher driven by large cap and few large mid cap stocks
Key macro variables saw weakness…
H1FY20 results were mixed, where revenue growth was subdued and PAT growth was higher owing to improvement in Q2 due to lower tax rate
Strong majority to BJP led NDA …led to continuity of the policy reforms
Reform and policy measures from the government continued unabated…
A continuous decline in India‟s GDP growth remained a cause of concern in CY19 …
Expectation from Year 2020
PSU divestment may pick up in order to improve government revenue
Improving trade balance with rising import cover
Above-normal monsoon led to higher reservoir levels which in turn led to better agri crop sowing, which may support in driving rural demand
Low base effect and inventory destocking, can work positively for the economy in 2020
Reforms to start bearing fruits in coming times
Resolution of more NCLT cases may improve banks balance sheet and shore up their lending ability…
Global food inflation has started to inch up…may affect domestic inflation going ahead
Trade environment, backed by strong liquidity globally, can improve….which can lead to general improvement in global growth prospects
With markets scaling to new all time high levels, valuations starts to look rich… demand revival may lead to earnings upgrade and catchup in valuation
Key concerns to watch out ….
Large Cap and Midcap valuations gap widened marginally
S&P BSE Sectoral Indices monthly performance for December 2019
Market Round Up – December 2019
Market Outlook
Fixed Income
2019 - An action packed year…
10 year G-sec yield seesawed in 2019… eventually closing lower
A regime of surplus liquidity to complement interest rate cuts and an accommodative policy stance…
Yield Movement Across Segments – A Perspective
Yield Movement Across Segments – A Perspective
Global Central Banks moved from tightening monetary policies, to easing…
Other macros were largely supportive for lower bond yields…
Inflation movement dictated by economic slowdown and elevated food prices
Fiscal deficit situation became worrisome as the year progressed…
Bond Spreads Remained elevated amidst flight for safety…
The G-sec yield curve steepened increasingly…
Expectations From 2020
The Big Bang Union Budget FY21:- Here‟s what to watch out for, from bond market perspective
What is going to drive the bond markets…?
Fixed Income Outlook
Equity Mutual Funds
Fixed Income Fund Options
______________________________________________________________________
5
2019 The year that was…
______________________________________________________________________
6
Global equity markets were volatile during CY19…However, most indices
globally ended on a positive note led by improving sentiments
CY19 saw volatility through-out the year, mainly led by US-China trade war, concerns over Brexit, fears of recession due to slowing growth,
rising Brent crude oil prices in the H1CY19, amongst others.
US President Donald Trump‟s hard-line approach on migration and capital flows had also resulted in US launching a trade war against some
of its key allies. This also impacted the sentiments globally and led to volatility in the equity markets world-wide.
However, towards the end of CY19, positive news flow on US and China trade negotiations and EU‟s decision to extend Brexit deadline along
with win for Conservative Party led by Prime Minister Boris Johnson in the recently concluded elections in UK have dispelled concerns of a
no-deal Brexit, which has brought cheers to the markets.
Brent Crude oil prices also declined in H2CY19 from a high of ~USD 75/bbl in April-May of 2019 to hover in a range of USD 55-65/bbl for
major part of H2CY19.
On the policy front, three times rate cut by US Fed during the year also boosted the sentiments for the equity markets world wide. Moreover,
accommodative policy stance of major central banks globally to undertake quantitative easing to bring back growth also led to improvement in
sentiments globally, especially for Emerging Market key equity indices.
As a result most of the major indices globally ended CY19 on a positive note.
1.0%
1.7%
4.6%
4.7%
7.7%
7.7%
12.0%
12.1%
18.2%
22.3%
22.3%
25.5%
28.9%
31.6%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
SET index (Thailand)
JCI (Indonesia)
Mexbol Index (Mexico)
Pcomp Index (Philippine)
VNINDEX index (Vietnam)
KOSPI Index (Korea)
Nifty Index (India)
FTSE (UK)
Nikkaie (Japan)
Shanghai Index (China)
Dow Jones (US)
DAX (Germany)
S&P 500 (US)
Ibovespa (Brazil)
Most of the Equity market indices globally ended with a positive return in CY19 (in %)
Source: Bloomberg
90
95
100
105
110
115
120
125
130
135
Jan
-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Ind
exe
d t
o 1
00
Most of the major equity indices globally have seen some upove towards the end of CY19
S&P 500 (US)
Hang Seng(HongKong)
Nikkaie (Japan)
Dax Index (Germany)
Sensex (India)
Shanghai Index(China)
Source: Bloomberg
______________________________________________________________________
7
While, US-China trade war has resulted in weak economic data for
China…some positivity has emerged on the trade deal China reported muted economic data for most part of CY19 as it remained locked
in a trade war with the US.
Both, the weakening domestic economy and challenging external environment,
impacted the growth of world‟s largest exporting nation, China.
On the data front, exports were seen declining, amid weaker global demand and
increased tariff on Chinese imports into the US. China’s exports have declined
by 1%/3.2%/0.9%/1.1% YoY during Aug/Sept/Oct/Nov 2019, largely impacted
by lower exports to the US. Exports to the US has declined by
16%/21.9%/16.2%/23% YoY during Aug/Sept/Oct/Nov 2019.
The slowdown in exports and weakening domestic consumption have also
impacted China‟s industrial activity. China’s industrial output grew by mere
4.4% YoY in August 2019, slowest pace since 2002. However, it has recovered
in the last two months of Oct/Nov 2019 to 5.8%/6.2% YoY respectively.
China‟s GDP also grew at a moderate pace of 6% YoY in Q3CY19, the slowest
pace since the early 1990.
While the economic data has remained weak in China, some positivity emerging
on the US China trade front has lifted the concerns surrounding trade war
between the world‟s two large trading partners.
President Donald Trump recently tweeted that the Phase 1 trade deal is “getting
done,” and adding that there will be a signing ceremony with Chinese leader Xi
Jinping by 15 Jan 2020.
The Chinese Commerce Ministry also said in a recent press briefing that China is
in close touch with the U.S. on signing the initial trade pact.
6.7 6.7 6.76.8
6.9 6.96.8 6.8 6.8
6.7
6.56.4 6.4
6.2
6.0
5.5
5.7
5.9
6.1
6.3
6.5
6.7
6.9
Q1
CY1
6
Q2
CY1
6
Q3
CY1
6
Q4
CY1
6
Q1
CY1
7
Q2
CY1
7
Q3
CY1
7
Q4
CY1
7
Q1
CY1
8
Q2
CY1
8
Q3
CY1
8
Q4
CY1
8
Q1
CY1
9
Q2
CY1
9
Q3
CY1
9
China's GDP growth declined to 6% YoY in Q3CY19
(Change YoY %)
Source: Bloomberg
14.2%
-2.7%
1.1%
-1.3%
3.3%
-1.0%
-3.2%
-0.9% -1.1%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Ch
an
ge
Yo
Y %
China has seen declining export trend over the last few months (Change YoY %)
Source: Bloomberg
______________________________________________________________________
8
The US economy has witnessed steady growth in CY19, despite many of the
macro economic indicators like manufacturing PMI & industrial production and
an inverted yield curve suggesting a heightened risk of recession in CY19.
US GDP grew at an annual rate of 1.9% in Q3CY19, vs market estimate of
~1.6%.
Along with the steady GDP growth data, unemployment rate also dropped to
3.5% in September 2019, the lowest levels in last 50 years, thus indicating
improvement in the labour conditions.
Similarly, wage gains have also remained near their strongest in a decade,
as average hourly earnings rose in November 2019 by 3.1% YoY after
advancing 3.2% YoY in October 2019.
Meanwhile, US Federal Reserve after taking four rate hikes in CY18,
announced three rate cuts in CY19 to propel growth as federal fund rates are
now in a range of 1.5-1.75%.
The Fed also began monthly purchases of USD 60 bn in Treasury bills on Oct
15, 2019, to keep interest rates within the intended range.
The Fed‟s actions to lower borrowing costs and improve liquidity in money
markets helped to improve the investor confidence.
However, US President‟s focus on getting the favourable trade deals with its
trading partners created a potential trade war like scenario. This impacted
certain economic data for US like export growth, negative industrial production
growth and below 50 reading for Manufacturing PMI during certain months of
CY19.
Amongst developed nations, economic data remained steady in U.S. during
CY19…with US Fed slashing interest rates three times during the year
Source: Media Reports, Reuters
______________________________________________________________________
9
The Euro Area continued to witness muted economic data in CY19 as well, like the
one seen in CY18.
Eurozone GDP growth fell to 1.2% YoY in the Q3CY19, from 1.7% YoY in
Q3CY18 and 1.2% YoY growth in Q2CY19. Moreover, some economies,
including those of Italy (0.3% YoY growth in Q3CY19) and Germany (0.5%
YoY in Q3CY19), are witnessing further lower growth.
The Euro area’s Manufacturing PMI also saw signs of slowdown during
the year as Manufacturing PMI readings came below 50 mark for 10 out of 12
months mainly due to weakness in new orders and also fall in export trade.
Also, concerns over Brexit created an overhang on the EU growth as
possibility of a “no deal” situation may affect free movement of goods and
services.
Meanwhile, ECB‟s stimulus package came as a support as the Eurozone
economy was seeing weakness alongside a broader global economic
slowdown.
The European Central Bank in its recent monetary policy announced a fresh
stimulus package in an attempt to prevent the weakening Eurozone economy,
with an interest rate cut by 10 bps and planned to pump Euro 20 bn a month
starting Nov‟19 into the financial markets. This helped in boosting investment
sentiments in the euro area.
Also easing political conditions in Euro area in the form of possibility of smooth
Brexit deal also helped in reducing the concerns recently.
Lastly, certain economic data have seen some improvement like
Manufacturing PMI in Nov‟19 rising to three month high. However, a positive
trend in the economic data remains a key for revival.
In Euro area, while ECB continued with Quantitative easing…
…economic data remained muted
2.2%2.1%
1.7%
1.2%1.4%
1.2% 1.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Q1CY18 Q2CY18 Q3CY19 Q4CY18 Q1CY19 Q2CY19 Q3CY19
Euro Area GDP growth seeing declining (Change YoY %)
Source: Bloomberg
______________________________________________________________________
10
Crude oil prices largely remained range bound for major part of CY19…
…while Industrial metal prices came off during the year
Industrial metals like Steel, Copper and Aluminum witnessed a sharp fall in their prices in the early part of CY19 on the back of global growth
concerns and a stronger dollar. However, production curbs by commodity producing nations and by China owing to environmental concerns have
helped in sustaining the prices for major part of CY19 in a subdued demand outlook environment.
More recently, expectation of a trade deal between US and China has put concerns of slowdown on a back seat and has led to some spike in prices
for industrial metals in the month of Nov-Dec of 2019.
Brent crude oil on the other hand, saw sharp up move in start of the year and had breached USD75/bbl for the first time in April 2019.
The sharp up move in Brent crude oil prices in the start of the year was mainly due to supply cuts by OPEC and concerns of US sanctions on
Venezuela and Iran Energy sector.
However, increased US production of Shale gas and US President Donald Trump constantly urging OPEC nations to increase the oil production to
bring oil prices lower led to decline in Brent crude oil prices.
Crude prices again saw a sharp rise in Sept 2019 following the attacks on Saudi Arabian oil processing facilities – Saudi Aramco.
However, after reaching a high of ~USD 65/bbl in mid-September, Brent crude oil prices have come off sharply towards the end of September,
primarily impacted by concerns of global growth and earlier than expected restoration of production capacity by Saudi Aramco.
Since then Brent Crude prices have remained steady in the range of ~USD 60-65/bbl for most part of Oct and Nov period.
However, positive global cues led by expected agreement on US China trade deal have led to crude prices rising again towards the end of the year.
45
50
55
60
65
70
75
80
Jan-
19
Jan-
19
Jan-
19
Feb
-19
Mar
-19
Mar
-19
Apr
-19
Apr
-19
May
-19
May
-19
May
-19
Jun-
19
Jun-
19
Jul-
19
Jul-
19
Aug
-19
Aug
-19
Sep
-19
Sep
-19
Oct
-19
Oct
-19
Nov
-19
Nov
-19
Dec
-19
Dec
-19
USD
/bbl
Brent crude oil prices have remained in a range for large part of the year 2019 ($/bbl)
Source: Bloomberg
90.0
95.0
100.0
105.0
110.0
115.0
Jan
-19
Jan
-19
Feb
-19
Feb
-19
Ma
r-19
Ma
r-19
Ap
r-1
9
Ap
r-1
9
Ma
y-1
9
Ma
y-1
9
Jun
-19
Jun
-19
Jul-
19
Jul-
19
Jul-
19
Au
g-1
9
Au
g-1
9
Sep
-19
Sep
-19
Oct
-19
Oct
-19
No
v-1
9
No
v-1
9
De
c-19
De
c-19
Ind
exe
d t
o 1
00
Industrial metal prices saw sharp decline in prices during CY19
on global growth concerns
LME Aluminium LME Copper LME Steel LMEX Index
Source: Bloomberg
______________________________________________________________________
11
Most Emerging Markets showed a mixed picture…
Long-drawn-out trade war between US and China continuing in CY19 unsettled investor
sentiments in most of the Emerging Markets (EMs).
This led to mixed capital flows into these economies as concerns over slowing global
trade on these export driven countries impacted investment sentiments.
Further, the uncertainty regarding global growth together with concerns over Britain's exit
from the European Union lend support to the strong US dollar during the year, which
also to some extent impacted capital inflow into the EMs.
FPI flows into EMs saw mixed picture during the year, where many Asia specific
countries saw positive FPI flows owing to expectation of benefit of trade shift
from China owing to US-China trade war while few others saw negative flows.
This also led to mixed performance of EMs currencies during the year.
Also, to counter recession fears, the US Fed took three rate cuts in CY19 – which led to
weakening of dollar to some extent. Additionally, US Fed dovish stance also boosted
sentiments for EM investing.
-10,640
-1,496 -240
188 9243,465
9,775
14,472
-15000
-10000
-5000
0
5000
10000
15000
20000
Bra
zil
Th
aila
nd
Ph
ilip
pin
es
Vie
tnam
S K
ore
a
Ind
on
esi
a
Ta
iwa
n
Ind
ia
in U
SD
Mn
Emerging Markets equities saw mixed FPI flows during CY19 (in USD mn)
Source: Bloomberg, *Data for CY19 upto 27 Dec 2019
-12.5%
-4.0%
-3.7%
-2.3%
-1.2%
0.0%
1.8%
2.4%
3.6%
3.6%
8.1%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
Turkish Lira
Korea Won
Brazilian Real
Indian Rupee
Chinese Yuan
Vietnamese Dong
Taiwan Dollar
South African Rand
Philippines peso
Indonesia Rupiah
Thailand Bhat
Many EMs currencies (against USD) also show a mix picture during CY19
Source: Bloomberg
32.1%39.4%
-53.3%
78.5%
18.9%
-18.4%
18.2%
-2.5% -2.2%
-14.9%
11.2%
37.3%
-14.6%
15.4%
-8.2% -8.3%
6.0%
-4.2%
1.5% 1.5%
-0.5%
0.3%
12.8% 9.3%3.6%
-9.9%
4.4% 0.2%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19
Historically a softer dollar has resulted in superior perdormance for MSCI EM Index (%)
MSCI EM Dollar IndexSource: Bloomberg
______________________________________________________________________
12
Led by global concerns, multilateral agencies cut their global growth
forecast for CY19, lowest since 2009…
The IMF had cut its CY19 global growth forecast for the fifth
consecutive time in October 2019 citing that trade barriers and
geopolitical tensions are eroding the potential for economic
expansion.
As per IMF, a notable feature of the sluggish growth in CY19 is the
sharp broad-based slowdown geographically, in manufacturing and
global trade.
On the global trade data, IMF highlighted that in H1CY19, the
volume of world trade increased by only 1% YoY, the slowest
pace of growth for any six-month period since CY12.
The IMF in its October 2019 Outlook has forecasted global
economy to grow by 3% YoY in CY19 vs earlier forecast of
3.2% YoY (forecasted in July 2019) and 3.6% YoY growth seen in
CY18. For CY20, IMF has cut growth forecast to 3.4% YoY vs its
July forecast of 3.5% YoY.
Similarly, World Bank expects global growth to come at 2.6% YoY
in CY19 and 2.7% YoY in CY20.
4.8
3.8
2.4
4.5
3.6
2.2
3.9
3.0
1.7
4.6
3.4
1.7
0
1
2
3
4
5
6
Emerging and Developing Economies World Advanced Economies
in %
Global growth expected to slow down in 2019 across all the regions
CY17 CY18 CY19F CY20F
Source: IMF Oct 2019 World Economic Outlook
Global Activity Indicators – show sharp decline since the start of CY19
Source: IMF Oct 2019 World Economic Outlook
4.8
2.53.0
4.3
5.44.9
5.5 5.6
3.0
-0.1
5.4
4.3
3.5 3.5 3.6 3.5 3.33.7 3.6
3.03.4
-1
0
1
2
3
4
5
6
CY
00
CY
01
CY
02
CY
03
CY
04
CY
05
CY
06
CY
07
CY
08
CY
09
CY
10
CY
11
CY
12
CY
13
CY
14
CY
15
CY
16
CY
17
CY
18
CY
19
P
CY
20
P
Gro
wth
Yo
Y%
IMF's global growth outlook for CY19 is lowest since financial crisis in 2009
Source: IMF, Bloomberg
______________________________________________________________________
13
Indian market saw sharp volatility during CY19, however, headline indices
continued to trade higher and reached to new all time high levels.
Factors like trade war between US and China, uncertainty over Brexit,
slowdown in domestic economy, volatility in currency and concern of fiscal
deficit had led to sharp volatility during the year.
However, outcome of general election, announcement of corporate tax rate
cut, 135 bps rate cut by the RBI and strong buying by the FPIs coupled with
steady buying by DIIs helped in building positive sentiments in the market
during the year.
The rally was largely driven by large cap companies and selected large mid
cap companies, which had better valuations, healthy balance sheets, higher
bargaining power and economies of scale.
Indian markets were volatile during CY19… headline indices continued to trade higher
driven by large cap and few large mid cap stocks
-29.7%
-18.3%
-11.2%
-10.7%
-9.3%
-1.3%
-0.3%
0.5%
2.5%
7.7%
8.4%
12.0%
14.4%
16.2%
18.4%
25.6%
28.5%
-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%
Nifty Media
Nifty PSU Bank
Nifty Metal
Nifty Auto
Nifty Pharma
Nifty FMCG
Nifty Midcap 150
Nifty Next 50
Nifty Infra
Nifty 500
Nifty IT
Nifty 50
BSE Sensex
Nifty Pvt Bank
Nifty Bank
Nifty Financial
Nifty Realty
Major Indices return in CY19
Source: Bloomberg
0
200
400
600
800
1000
1200
1400
CY
16
CY
17
CY
18
CY
19
Trend in Domestic Institutional Investors flow (Rs in Bn)
Source: SEBI, Data as on 30 December 2019
-600
-400
-200
0
200
400
600
800
1000
1200
CY
16
CY
17
CY
18
CY
19
Foreign Portfolio Investment flow trend (Rs in Bn)
Source: NSDL, Data as on 30 December 2019
34000
35000
36000
37000
38000
39000
40000
41000
42000Jan
-19
Jan-19
Jan-19
Feb-1
9
Feb-1
9
Mar-1
9
Mar-1
9
Apr-1
9
Apr-1
9
May-1
9
May-1
9
Jun-19
Jun-19
Jul-19
Jul-19
Jul-19
Aug-1
9
Aug-1
9
Sep-1
9
Sep-1
9
Oct-1
9
Oct-1
9
Nov-1
9
Nov-1
9
Dec-1
9
Dec-1
9
Dec-1
9
S&P BSE Sensex touched an all time high levels of 41681 in Dec’19
Source: Bloomberg
Interim Budget FY20
US announced tariff hikes on Chinese Imports
Re-election of NDAgovt with clear majority
FM announced withdrawal of enhanced surcharge
Corporate Tax cut announced by the FM
GDP growth Of 4.5% YoY in Q2FY20
US-China Phase-I trade deal announced
US Federal Res announced to buy $60 bn T-Bills/month
______________________________________________________________________
14
Key macro economic data like declining GDP and exports, lower Manufacturing PMI reading and muted domestic PV sales are showing weakness
Also tepid GST collection, rupee depreciation, negative growth in Eight core industries data and decelerating credit growth are also concerning…
Key macro variables saw weakness…
6.0
6.8
7.78.1 8.0
7.06.6
5.8
5.04.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
in %
India's GDP growth slips to six-year low of 4.5% YoY in Q2FY20
Source: MoSPI
-15
-10
-5
0
5
10
15
20
25
Jun-18
Jul-1
8
Aug
-1
8
Sep
-1
8
Oct-1
8
Nov-1
8
Dec-1
8
Jan-19
Fe
b-1
9
Ma
r-1
9
Apr-1
9
Ma
y-19
Jun-19
Jul-1
9
Aug
-1
9
Sep
-1
9
Oct-1
9
Nov-1
9
Exports showing negative growth in the last few months(Change YoY %)
Source: Ministry of Commerce & Industry
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Fe
b-1
8
Ma
r-1
8
Ap
r-1
8
Ma
y-1
8
Jun
-18
Jul-
18
Au
g-1
8
Se
p-1
8
Oct-1
8
No
v-1
8
De
c-1
8
Jan
-19
Fe
b-1
9
Ma
r-1
9
Ap
r-1
9
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Se
p-1
9
Oct-1
9
No
v-1
9
Core Industries witnessing negative growth on YoY basis in last few months (Change YoY %)
Source: Min of Commerce
0
2
4
6
8
10
12
14
16
Ja
n-1
8
Feb
-18
Ma
r-1
8
Ap
r-1
8
Ma
y-1
8
Ju
n-1
8
Ju
l-1
8
Au
g-1
8
Sep
-18
Oct-1
8
No
v-1
8
De
c-1
8
Ja
n-1
9
Feb
-19
Ma
r-1
9
Ap
r-1
9
Ma
y-1
9
Ju
n-1
9
Ju
l-1
9
Au
g-1
9
Sep
-19
Oct-1
9
No
v-1
9
De
c-1
9
Ch
an
ge
Yo
Y %
Credit growth continues to see a decline (Change YoY %)
Source: RBI
956 956941 933
838 843
898
860
922
1035
940956 965
940 944
1007976
947
1025
972
1066
1139
1003 9991021
982
919
954
10351032
800
850
900
950
1000
1050
1100
1150
Ju
l-1
7
Au
g-1
7
Se
p-1
7
Oct-1
7
No
v-1
7
De
c-1
7
Ja
n-1
8
Fe
b-1
8
Ma
r-1
8
Ap
r-1
8
Ma
y-1
8
Ju
n-1
8
Ju
l-1
8
Au
g-1
8
Se
p-1
8
Oct-1
8
No
v-1
8
De
c-1
8
Ja
n-1
9
Fe
b-1
9
Ma
r-1
9
Ap
r-1
9
Ma
y-1
9
Ju
n-1
9
Ju
l-1
9
Au
g-1
9
Se
p-1
9
Oct-1
9
No
v-1
9
De
c-1
9
GST revenue collection on YTD basis still lags behind the full year target(Rs. Bn)
Source: Ministry of Finance
2303417
1870266
0
500000
1000000
1500000
2000000
2500000
YTD FY19- YTD FY20-
Domestic passenger vehicles sales saw ~19% YoY decline on YTD basis in FY20
Source: Data for Top 6 PV manufacturers upto Dec, Media Reports
52.6
54.7
52.452.1
51.051.6
51.2
53.1
52.351.7
52.2
53.1
54
53.2
53.954.3
52.6
51.8
52.752.1
52.5
51.451.4
50.651.2
52.7
47
48
49
50
51
52
53
54
55
56
No
v-1
7
De
c-1
7
Ja
n-1
8
Fe
b-1
8
Ma
r-1
8
Ap
r-1
8
Ma
y-1
8
Ju
n-1
8
Ju
l-1
8
Au
g-1
8
Se
p-1
8
Oct-1
8
No
v-1
8
De
c-1
8
Ja
n-1
9
Fe
b-1
9
Ma
r-1
9
Ap
r-1
9
Ma
y-1
9
Ju
n-1
9
Ju
l-1
9
Au
g-1
9
Se
p-1
9
Oct-1
9
No
v-1
9
De
c-1
9
Manufacturing PMI seen coming off in last few months
Source: Bloomberg
66
67
68
69
70
71
72
73
Jan
-19
Jan
-19
Feb
-19
Ma
r-1
9
Ma
r-1
9
Ap
r-1
9
Ma
y-1
9
Ma
y-1
9
Jun
-19
Jul-
19
Jul-
19
Au
g-1
9
Sep
-19
Oct-1
9
Oct-1
9
No
v-1
9
De
c-1
9
De
c-1
9
Rupee has depreciated 2.3% against USD in CY19
Source: Bloomberg
______________________________________________________________________
15
H1FY20 results were mixed, where revenue growth was subdued and PAT
growth was higher owing to improvement in Q2 due to lower tax rate
The H1FY20 corporate results were mixed with revenue and EBITDA witnessing subdued growth, while PAT witnessing improvement.
The net sales of CNX 200 index companies grew by 5.0% YoY vs 20.9% YoY growth in H1FY19. EBITDA also grew at slower pace at 2.3% YoY vs 17.7% YoY
growth in H1FY19, impacted by rising commodity prices and delay in pricing action. However, Reported PAT fell by 23.1% YoY during the H1FY20 owing to sharp
losses in telecom sector. These losses were largely due to provisions created by telecom companies to pay old fees and penalties in relation to license fees and
spectrum-use charges.
Excluding Telecom sector data, EBITDA would have grown by 9.8% YoY, while reported PAT would have grown by 9.0% YoY owing to lower tax provisions in
Q2FY20.
While Automobile Sector‟s topline declined due to subdued demand environment and weak sentiments, most of automobile manufacturing companies have
indicated that demand during festive season was upbeat with improvement seen in retail sales of vehicles. Metal and Capital Goods companies also reported
decline in topline owing to subdued commodity prices and general slowdown. FMCG companies witnessed steady volume growth, however, indicating that rural
demand was lower as compared to urban demand.
While most managements sounded hopeful of improvement in demand scenario, actual realization of the same in the backdrop of above-normal
monsoon rainfall, hike in Rabi crop MSP, 135 bps reduction in interest rate by RBI in CY19 and recent measures by the government would be key levers
for further improvement going ahead.
H1FY20 H2FY19 H1FY19 H1FY20 H2FY19 H1FY19 H1FY20 H2FY19 H1FY19
Air Transport Service 38.0 31.9 15.0 (346.4) (27.7) (155.4) (121.6) (11.3) (145.8)
Auto & Auto Anc (8.5) 3.4 12.4 (16.5) (78.7) 0.4 (18.6) (149.5) (26.8)
BFSI 17.6 19.6 15.4 28.2 60.1 5.8 69.5 (3739.1) (28.0)
Capital Goods (8.3) 15.9 34.0 (49.6) 25.4 143.3 (46.7) 33.2 106.6
Cement & Pdts 8.6 13.0 18.9 43.8 15.3 (4.4) 63.2 55.0 (20.2)
Chem & Fert 22.2 22.3 15.5 23.5 2.4 6.1 3.9 (36.4) 6.1
FMCG & Retail 9.5 5.5 4.4 15.3 12.5 16.9 15.8 16.6 19.4
Healthcare 13.9 14.1 12.5 29.3 20.6 12.3 28.6 (15.9) 15.1
Infrastructure 12.2 11.9 10.6 21.0 0.9 3.9 19.5 (12.3) 7.4
IT 9.9 18.2 15.5 8.1 19.6 18.2 5.1 12.8 14.6
Logisitics (0.4) 7.6 16.4 (103.6) 7.1 37.8 (116.0) 10.2 23.8
Media & Ent 7.3 20.5 22.5 (6.1) 20.5 34.3 14.8 28.2 4.3
Metal & Mining (6.6) 7.6 21.5 (25.9) 32.1 53.9 (13.8) (27.7) 82.7
Miscellaneous 11.3 12.9 10.7 34.6 17.3 5.8 39.3 67.1 156.5
Oil & Gas (0.5) 23.4 40.9 (14.0) (4.4) 40.2 (15.9) (11.7) 23.2
Power 7.1 11.7 10.1 8.9 (26.0) 6.0 4.0 26.2 13.5
Realty (7.1) 30.0 22.8 (7.8) 62.5 (11.9) (3.3) (66.3) 103.5
Telecomm 18.4 21.6 (9.2) (362.4) (15.1) (29.2) 2347.0 1165.7 (3682.2)
Grand Total 5.0 15.8 20.9 2.3 17.7 14.0 (23.1) (4.6) 5.0
Ex Telecom 4.7 15.7 21.6 9.8 18.8 15.5 9.0 (1.1) 6.5
Source: Capitaline
YoY Changes in %Net sales EBITDA Reported PAT
Note: Telecom sector on aggregate basis reported loss in H1FY19, H2FY19 and in H1FY20
______________________________________________________________________
16
Strong majority to BJP led NDA …
… led to continuity of the policy reforms
The NDA led by the BJP had achieved strong majority with BJP achieving 303 seat and getting simple majority
in the Lok Sabha held in May‟19.
The 2019 Lok Sabha elections also saw the highest voter turnout at 67.11%, improving from previous highest of
66.4% turnout recorded in 2014.
In the past five years of the NDA ruling, the government had been able to push through big reforms and
decisions, taking huge political risks.
The strong mandate indicated that the support of the people to the incumbent government for continuing with its
reform agenda to push the investment cycle and overall demand.
353
91
98
General Election - 2019 results
NDA UPA OthersSource: Election Commission, Media Reports Source: Economic Times
______________________________________________________________________
17
Reform and policy measures from the government continued unabated…
Government continued with its reform agenda in its second term as well by taking series of reforms in order to revive growth
momentum. Some of the reforms announcements are as follows
To increase global competitiveness, the government reduced corporate tax rates for existing domestic companies to 22%
(earlier the maximum tax rate was 30%) subject to condition that they will not avail any incentive or exemptions –
Effective Tax Rate – 25.17%
To promote manufacturing, lower tax rate of 15% was announced, if the unit is set up after Oct 1, 2019 and
commence production by Mar 31, 2023 subject to condition that they will not avail any incentive or exemptions - Effective
tax rate - 17.01% inclusive of surcharge & tax
To stabilize flow of funds into capital markets, it removed enhanced surcharge on capital gains arising on equity sale or
equity-oriented funds liable to Securities Transaction Tax (STT).
To alleviate concern of auto sector, it deferred the decision of revision of one-time registration fees till June 2020 and
also provided additional 15% depreciation on all vehicles acquired during the period from now till March 31, 2020
To improve liquidity scenario, government decided to upfront release of Rs.700 bn capital to Public Sector Banks (PSBs),
to provide additional liquidity support of Rs.200 bn to Housing Finance Companies (HFCs) by National Housing Bank
(NHB) and to support decision making and to prevent harassment for genuine commercial decisions by bankers,
CVC has issued directions that Internal Advisory Committee (IAC) in banks to classify cases as vigilance and non-vigilance
and decision of the IAC and bank Chief Vigilance Officer (CVO)/ DA to be treated as final.
To support growth of PSU banks, government announced merger of 10 PSU banks into four banks
To help Medium, Small and Micro Enterprises (MSMEs), government had directed to clear pending refund in a stipulated
time frame and future GST refunds shall be paid within 60 days from the date of application. In addition, government
announced single air and water clearance and single consent requirement for establishing a factory by MSMEs
To boost consumption demand, recently, the Union Cabinet raised dearness allowance by 5% in a move that will
benefit ~5.0 mn government employees and ~6.5 mn pensioners.
______________________________________________________________________
18
A continuous decline in India’s GDP growth remained a cause of concern
in CY19 … While India was one of the fastest growing economies of the world in CY18, it saw a sharp
deceleration in CY19, with GDP growth falling to a six-year low at 4.5% YoY in Q2FY20.
Sectors like “Agriculture, forestry and fishing” could report sequential improvement and “Public
administration, defence & other services” saw a steady growth in H1FY20.
However, concerns in “Manufacturing”, “Construction”, “Mining & quarrying” continued to be there in
H1FY20 as these industries witnessed deceleration in growth rates.
While a downward pressure continued on the consumption demand on YoY basis during Q2FY20, but
sequential growth in Private Final Consumption Expenditure in Q2FY20 hints at early signs of revival
in medium term.
A subdued growth in Gross Fixed Capital Formation (GFCF) for third consecutive quarter has
emerged as one of the major concern from Q2FY20 data. However, capex demand is expected to
improve after the recent cut in corporate tax rate, which would be one of the key driver for growth
going ahead.
Going ahead, the improvement in consumption growth rate hinges upon transmission of
existing rate cuts announced by the RBI to the end consumers, improvement in rural demand
and on impact of recent measures announced by the government.
Investment demand is also expected to improve on the back of government’s agenda of heavy
infrastructure spending and corporate tax cut announcement. However, the government needs
to once again take the lead in driving the investment demand, which may be followed by
private players once they see revival in demand and pricing scenario.
6.8
7.78.1 8.0
7.06.6
5.8
5.04.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
Trend in GDP growth (% YoY)
Source: Ministry of Statistics and Programme Implementation (Mospi)
Growth (% YoY) in Sectoral GVA at basic prices
Industry Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
Agriculture, Forestry & Fishing 4.9 2.8 (0.1) 2.0 2.1
Mining & quarrying (2.2) 1.8 4.2 2.7 0.1
Manufacturing 6.9 6.4 3.1 0.6 (1.0)
Electricity, Gas, Water supply & other Utility Services8.7 8.3 4.3 8.6 3.6
Construction 8.5 9.7 7.1 5.7 3.3
Trade, Hotel, Transport, Communication &
Services Related To Broadcasting6.9 6.9 6.0 7.1 4.8
Financial, Insurance, Real Estate &
Professional services7.0 7.2 9.5 5.9 5.8
Public administration, defence & other services 8.6 7.5 10.7 8.5 11.6
GVA at Basic Price 6.9 6.3 5.7 4.9 4.3
Source: Mospi
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
Trend in growth in Private Final Consumption Expenditure (% YoY)
Source: MOSPI
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
Trend in growth in Government Final Consumption Expenditure (% YoY)
Source: MOSPI
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20
Trend in growth in Gross Fixed Capital Formation (% YoY)
Source: MOSPI
______________________________________________________________________
19
Expectation from Year 2020
______________________________________________________________________
20
The government has pegged its FY20 fiscal deficit at 3.3% of the GDP in the union budget. However, fiscal deficit was already under
pressure due to slow growth in tax collection revenue.
As per CGA, India‟s fiscal deficit was Rs.8.07 trillion as on November 2019, which was 114.8% of FY20 BE, unchanged from the
corresponding period last year.
While the fiscal deficit is on the rise, the revenue collection data is not showing a corresponding rise in order to maintain the fiscal
deficit target of 3.3% of GDP in FY20.
As the direct tax and GST overall collection is growing at slower pace, the government started focusing on the receipt from
divestment of public sector companies, which would be an important tool for the government to reduce the stress on its balance
sheet.
While the government could raise only Rs.173.6 bn, 16.5% of BE in eight month of FY20, it has cleared the deck for divestment in
some of the large PSU companies.
A group of secretaries had cleared the disinvestment in five public sector undertakings (PSUs), which may fetch over Rs.600 bn,
~60% of Rs.1.05 trillion budgeted
Bharat Petroleum Corporation (BPCL)
Shipping Corporation of India (SCI)
Concor
North Eastern Electric Power Corporation (NEEPCO)
THDC India
After this, the government also gave „in-principle‟ approval for strategic disinvestment of 28 Central Public Sector Enterprises
(CPSEs) with sale of majority stake of Government of India and transfer of management control.
If the government is able to expedite its divestment process and is able to garner receipts more than it has budgeted then
it may be able to curb the rise in fiscal deficit and would also be able to drive its spending which in turn can drive the
investment demand going ahead.
PSU divestment may pick up in order to improve government revenue
______________________________________________________________________
21
India is witnessing a declining trend in exports and imports owing to
subdued global as well as domestic demand scenario.
However, India‟s exports are falling at slower pace than imports due to
better performance by non-oil exports, as it moved to a positive territory in
October 2019.
Imports have fallen at faster pace owing to lower international crude oil
prices suppressing the oil import bill coupled with sharp contraction in gold
imports. Imports of electronics, coal and pearls and precious stones also fell
in recent past.
India also observed improvement in its forex reserve due to improvement in
foreign direct investment, which along with lower imports led to
improvement in import cover (the number of months of imports that can be
covered with foreign exchange reserves) for the country.
A trade war between US and China seems to have helped India in gaining
ground in export share in North America markets.
Improving trade balance with rising import cover
Exports and Imports are on a declining trend
and gaining ground in exports share in North America
however, import cover is improving…
______________________________________________________________________
22
Above-normal monsoon led to higher reservoir levels which in turn led to better agri crop
sowing, which may support in driving rural demand
CropMSP for
2020-21
MSP for
2019-20Growth (%)
Wheat 1925 1840 4.6
Barley 1525 1440 5.9
Gram 4875 4620 5.5
Lentil 4800 4475 7.3
Rapeseed & Mustard 4425 4200 5.4
Safflower 5215 4945 5.5
MSP for Rabi Crop
Source: PIB
Crop (Lakh
hectar)
Area sown in
FY20
Area sown in
FY19Growth (%)
Rice 382.3 386.9 -1.2
Pulses 134.0 136.4 -1.7
Coarse Cereals 179.9 176.9 1.7
Oilseeds 179.5 179.3 0.1
Sugarcane 52.5 55.5 -5.5
Jute & Mesta 6.8 7.2 -5.0
Cotton 127.7 121.1 5.5
Total 1062.7 1063.2 0.0
Kharif Crop Sowing
Source: Min. of Agriculture, data as on 27 September 2019
Monsoon – 10% above normal
Improvement in Kharif Crop Sowing
Better output leading to higher income to farmer
Higher reservoir levels Higher Rabi sowing Better output leading to higher income to farmer
Leading to recovery in Rural demand
As per reservoir storage bulletin dated December 26, water levels in 120 major reservoirs of the country was 137.125 bn cubic metres (BCM), which is 150% of the live
storage of corresponding period of last year and 139% of average storage of last ten years, which would be helpful in the sowing of Rabi crops going ahead.
Sowing of Rabi crop also witness strong improvement from a deficit of ~12% YoY on November 15, 2019 to 6.6% YoY higher sowing as of December 27, 2019.
The Cabinet Committee on Economic Affairs (CCEA) has approved 4-7% increase in the Minimum Support Prices (MSPs) for Rabi Crops in Rabi Marketing Season
(RMS) 2020-21.
The government has also launched Pradhan Mantri Kisan Samman Nidhi, widely known as PM-Kisan promises an annual income support of Rs.6000 to ~140 mn small
and marginal farmers (so far ~70 mn already enrolled) with landholding of maximum two hectares.
While the above mentioned data points are indicating a revival in rural demand, a recent report by Kantar WorldPanel indicates early signs of improvement
with report highlighting volume growth in rural market standing at 4.4% YoY in the Q2FY20 from a year earlier when it had declined 2.4% YoY.
Crop (Lakh
hectar)
Area sown in
FY20
Area sown in
FY19Growth (%)
Wheat 297.0 270.8 9.7
Rice 13.9 11.9 16.5
Pulses 140.1 136.8 2.4
Coarse Cereals 46.7 42.110.8
Oilseeds 74.1 74.7 -0.8
Total 571.8 536.4 6.6
Rabi Crop Sowing
Source: Min. of Agriculture, data as on 27 December 2019
______________________________________________________________________
23
Low base effect and inventory destocking, can work positively for the economy in 2020
Source: DGCA
Source: CEA
Source: Media reports
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Fe
b-1
8
Ma
r-1
8
Apr-
18
Ma
y-18
Jun-1
8
Jul-1
8
Aug
-18
Sep
-18
Oct-
18
Nov-1
8
Dec-1
8
Jan-1
9
Fe
b-1
9
Ma
r-1
9
Apr-
19
Ma
y-19
Jun-1
9
Jul-1
9
Aug
-19
Sep
-19
Oct-
19
Nov-1
9
YoY
%
Domestic airline passenger growth data
Source: DGCA
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
Ma
r-18
Ap
r-1
8
Ma
y-1
8
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
De
c-18
Jan
-19
Feb
-19
Ma
r-19
Ap
r-1
9
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Trend in monthly Passenger Vehicle sales (% change YoY)
Source: Media Reports
6062646668707274767880
Q2
FY1
7
Q3
FY1
7
Q4
FY1
7
Q1
FY1
8
Q2
FY1
8
Q3
FY1
8
Q4
FY1
8
Q1
FY1
9
Q2
FY1
9
Q3
FY1
9
Q4
FY1
9
Q1
FY2
0
Q2
FY2
0
Seasonal adjusted capacity utilisation (%)
Source: RBI
Source: RBI
Source: RBI
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Oct
-17
No
v-1
7D
ec-
17Ja
n-1
8Fe
b-1
8M
ar-
18A
pr-
18
Ma
y-1
8Ju
n-1
8Ju
l-1
8A
ug-
18
Sep
-18
Oct
-18
No
v-1
8D
ec-
18Ja
n-1
9Fe
b-1
9M
ar-
19A
pr-
19
Ma
y-1
9Ju
n-1
9Ju
l-1
9A
ug-
19
Sep
-19
Oct
-19
No
v-1
9
Ou
tsta
nd
ing
Ban
k C
red
it t
o In
du
stry
(%
Yo
Y)
Industry credit growth showing improvement
Source: RBI
-100.00
-80.00
-60.00
-40.00
-20.00
0.00
20.00
40.00
60.00
80.00
Ma
y-1
8
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
De
c-18
Jan
-19
Feb
-19
Ma
r-19
Ap
r-1
9
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
% Growth in Consumer loan (YoY)
Source: RBI
Source: RBI
-15.0
-10.0
-5.0
0.0
5.0
10.0
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Trend in Electricity Generation (% Change YoY)
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Jan-
19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
Aug
-19
Sep
-19
Oct
-19
Nov
-19
Growth trend in Core Sector data (% YoY)
Source: Ministry of Commerce and Industry
During CY19, many macro-economic data points like Domestic Airline traffic data, Passenger vehicle
sales data, electricity demand (electricity generation), capacity utilization, core sector growth data and
credit to industry have remained subdued or witnessed deterioration.
A subdued growth in these data points have formed a low base for the next year, which indicates that
a revival in overall economic scenario may lead to faster growth.
Domestically, the current slowdown could have led to inventory destocking by the corporates,
which can have a positive impact on corporate earnings if demand revives.
While most of the data points are currently indicating slowdown, some silver lining has started
to emerged in terms of strong growth in consumer loans and improvement in retail sales of
passenger vehicle and two wheelers.
______________________________________________________________________
24
The government has undertaken various reform measures in the recent times to revive the economy, which are expected to give
fruitful results in coming times.
Some of them have already started to give benefits. In its first year of implementation of the direct benefit transfer scheme for
fertilizers, the government has saved USD 1.54 bn (~Rs.108 bn).
While the recent announcement of corporate tax rate cut have helped many Banking, FMGC and MNC companies to report better
earnings in Q2FY20, larger benefit of recovery in investment demand as foreign companies start to set up their units in India is likely
to come through going ahead.
Under Insolvency and Bankruptcy Code (IBC), banks have managed to resolve seven cases out of total twelve large cases and
recover Rs.1.14 trillion.
The government has recently announced various measures to boost infrastructure spending in the economy. Under National
Infrastructure Pipeline (with total expected outlay of Rs 102 trillion), Rs 2.5 trillion is planned to spent on port and airport projects,
Rs.3.2 trillion for digital infra projects and Rs.16 trillion for irrigation, rural, agri and food processing projects.
While timely execution of these plans are likely to have a positive impact on the investment demand and help shore up the GDP
growth, the key to this would be speedy land acquisition process, execution of the ongoing projects on time, timely financial closure
and proper coordination within various government agencies.
Reforms to start bearing fruits in coming times
5.36.3
78.5
9.210.2 10
13.6
19.5 19.0
13.812.8
11.1
0
5
10
15
20
25
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E
Rs T
rill
ion
Investments in infrastructure projects expected to rise to ~Rs.102 trillion over FY20-25 vs Rs.56.5 trillion in FY13-19 period
Source: Ministry of Finance, NIP presentation
Sectors Rs Bn % of total
Energy 24,542 23.9%
Roads 19,639 19.2%
Urban 16,290 15.9%
Railways 13,685 13.4%
Rural Infra 7,728 7.5%
Irrigation 7,727 7.5%
Social Infra 3,567 3.5%
Digital Infra 3,205 3.1%
Industrial Infra 3,075 3.0%
Airports 1,434 1.4%
Ports 1,009 1.0%
Agri and Food processing infra 606 0.6%
Total 102,507 100.0%
Source: Ministry of Finance, NIP presentation
NIP Investment Summary over FY20-25
______________________________________________________________________
25
Resolution of more NCLT cases may improve banks balance sheet and
shore up their lending ability…
The government of India has been consistently working on inclusive development with the help of various reform announcements.
Amongst such reforms/announcements, the Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to create a Unified
Framework for resolving insolvency and bankruptcy matters.
How does it works? 1) The insolvency resolution process (IRP) is a one under the Insolvency and Bankruptcy Code, 2016,
where the National Company Law Tribunal (NCLT) initiates a corporate insolvency resolution process (CIRP) when a company
defaults on making payment to creditors. 2) A financial creditor, operational creditor or corporate itself can file an application
before NCLT for initiating IRP when default has occurred. 3) In case of housing project, after amendment in the code, a
homebuyer can also approach NCLT for initiating IRP if a developer fails to provide possession of the house or refund the money.
4) Under IRP, an interim resolution professional is appointed with the power to take charge of the company which has defaulted.
5) The IRP is granted 180 days to find a resolution, which can be extended by 90 days. If the IRP fails to find a resolution by then,
the company is liquidated to pay the creditors.
Action: According to the Insolvency and Bankruptcy Board of India (IBBI), between December 2016 and September end of 2019,
2,542 corporate insolvency resolution processes (CIRPs) had commenced. Of these 186 have been closed on appeal or review;
116 withdrawn; 587 ended in order for liquidation - the next stage of the resolution process - and 156 ended in approval for
resolution plans. While, balance 59% cases are still pending for closure.
Key Successes: Seven of the twelve large cases of bank loan defaults (together accounting for an outstanding debt of Rs.3.45
trillion) referred to the NCLT for resolution under the IBC, which have been resolved so far, have led to a recovery Rs.1.14 trillion
at recovery rate of 53.3% of the claims made by financial creditors. These 7 large companies including – Electro Steel, Bhushan
Steel, Monnet Ispat, Essar Steel, Alok Industries, Jyoti Structures and Bhushan Power and Steel – had total claims of
Rs.2.1 trillion.
Going ahead: Five other large companies - Amtek Auto, Era Infra Engineering, Jaypee Infratech, Lanco Infratech and ABG
Shipyard - involving another Rs.1.32 trillion - are in the process of liquidation. Apart from these, if the systemic inefficiencies in the
NCLT resolution process are removed, a higher number of cases can be resolved under the IBC in a timely manner, thus helping
banks in getting timely repayments.
Also, as the number of cases resolved under the IBC increases, it can also improve the collections for the banks and in
return their profitability and lending capacity.
______________________________________________________________________
26
Global food inflation has started to inch up…
…may affect domestic inflation going ahead
With erratic climate conditions world food prices have advanced almost 10% in CY19 (as
seen from Global Food Price Index).
The Food and Agriculture Association‟s (FAO) gauge of prices has risen every month
since February and is now at a five-year high in Nov 2019.
Main reason attributed for the rise in food inflation can be – high fuel prices, climate
change, amongst others. Apart from this, rising inflation for meat has also been one of the
key reason for higher food prices.
Similarly, prices for most of the agri commodities/agri commodity index have risen sharply
in the last few months, where, Palm oil, Wheat and BBG Agriculture Spot index is up by
55.5%, 12.7% and 8.9% respectively in H2CY19.
However, farm output data in the form of Kharif and Rabi sowing data in India shows
steady crop output during CY19.
Going ahead, higher food prices globally and destruction in crop production due to
climate changes may affect the food prices in India as well. This is likely to remain a key
monitorable for food inflation in India.
150
155
160
165
170
175
180
185
Ap
r-1
7M
ay-
17
Jun
-17
Jul-
17
Au
g-1
7Se
p-1
7O
ct-1
7N
ov-
17
De
c-17
Jan
-18
Feb
-18
Ma
r-18
Ap
r-1
8M
ay-
18
Jun
-18
Jul-
18
Au
g-1
8Se
p-1
8O
ct-1
8N
ov-
18
De
c-18
Jan
-19
Feb
-19
Ma
r-19
Ap
r-1
9M
ay-
19
Jun
-19
Jul-
19
Au
g-1
9Se
p-1
9O
ct-1
9N
ov-
19
Global Food Price Index
Source: Bloomberg
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Ap
r-1
7M
ay-1
7Ju
n-1
7Ju
l-17
Au
g-17
Sep-
17O
ct-1
7N
ov-1
7D
ec-1
7Ja
n-18
Feb-
18M
ar-1
8A
pr-
18
May
-18
Jun
-18
Jul-
18
Au
g-18
Sep-
18O
ct-1
8N
ov-1
8D
ec-1
8Ja
n-19
Feb-
19M
ar-1
9A
pr-
19M
ay-1
9Ju
n-1
9Ju
l-1
9A
ug-
19Se
p-1
9O
ct-1
9N
ov-1
9
India's Food Inflation in CPI basket has also risen sharply in last few months
Source: MoSPI
-0.1%
2.2% 4.0% 5.2% 6.1%8.9%
12.7% 13.5%
55.5%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Cor
n
Soyb
ean
Coc
oa
Ru
bbe
r In
dia
Suga
r
BB
G A
gric
ultu
re S
pot
Whe
at
Cot
ton
Pal
m O
il
Most of the agri commodities and agri commodity index has seen sharp upmove in H2CY19
Source: Bloomberg
1063.2 1062.7
1000
1010
1020
1030
1040
1050
1060
1070
1080
1090
1100
FY19 FY20
Kharif sowing data shows steady crop output in FY20(in Lakh Hectars)
Source: Ministry of Agriculture, data as on 27 Sept 2019
536.4
571.8
400
420
440
460
480
500
520
540
560
580
600
FY19 FY20
Rabi sowing data also shows steady improvement in
crop outpur in FY20 (in Lakh Hectar)
Source: Ministry of Agriculture, data as on 27 Dec 2019
______________________________________________________________________
27
Trade environment, backed by strong liquidity globally, can improve….
…which can lead to general improvement in global growth prospects
Source: WTO
Global export and import data show muted growth since the start CY19… Global Mfg. and Services output also show declining trend in CY19…
Source: IHS Markit, Media Reports
However, global growth may revive in CY20 post trade deal between US-
China
Key data points like weak world merchandise trade growth (0.6% YoY
in H1CY19), declining trend in global Manufacturing and Services PMI
since the start of CY19 and subdued global business activity
expectations are all indicating to a slower economic activity world wide.
As a result, IMF and other multilateral agencies had revised their CY19
global growth projections downwards.
Going forward, US and China signing the Phase I of the trade deal is
likely to revive sentiments globally.
Global central banks have continued on their path of keeping the
liquidity conditions ample.
These may bring about recovery in the global growth conditions.
Recent improvement seen in manufacturing PMI for Euro Area to three
month high (46.9 in Nov‟19 vs 45.9 in Oct‟19) and China (51.8 in
Nov‟19 vs 51.7 in Oct‟19) are also indicating some improvement in the
business activity in the sluggish EU area.
4.5
3.6
2.2
3.9
3.0
1.7
4.6
3.4
1.7
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Emerging and Developing Economies World Advanced Economies
in %
Global growth expected to see some revival in CY20 post sharp slowdown witnessed in CY19 across regions
CY18 CY19F CY20F
Source: IMF Oct 2019 World Economic Outlook
______________________________________________________________________
28
As Sensex and NIfty continued to move higher and made new all-time high levels, valuation have also moved up. The S&P BSE Sensex
trading at 17.6x FY21E Bloomberg consensus EPS of Rs.2350. (S&P BSE Sensex price as on 31.12.2019). Valuation differential between
Large cap and Mid cap indices have widened marginally.
In addition, if domestic markets continue to witness subdued data points on both consumption and investment as witnessed for Q2FY20 GDP,
then this may lead to volatility in the domestic markets in near term.
However, considering the recent stimulus measures by the government and expected recovery in rural demand, a lot more depends on
demand led earnings recovery in H2FY20, which may drive the markets going ahead.
On the consumption demand, interest rate cuts and steady efforts to improve liquidity scenario by the RBI may give some impetus to
consumption demand and if corporates are able to manage the cost then revenue and earnings growth should improve over time.
While broad basing of economic growth may still take time therefore initial beneficiary would be large companies and
large mid cap companies, which are efficiently managing their balance sheet and leverage and are also holding pricing
power. Hence, focused should be on large cap funds.
With markets scaling to new all time high levels, valuations starts to look rich…
demand revival may lead to earnings upgrade and catchup in valuation
13601540 1472
1920
2350
0
500
1000
1500
2000
2500
FY17 FY18 FY19* FY20E FY21E
S&P BSE Sensex Consensus EPS (Rs.)
Source: Bloomberg, *Note: Impacted by one time loss in Tata Motors
0
5
10
15
20
25
30
35
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Dec-0
8
Jun-0
9
Nov-0
9
Apr-
10
Oct-
10
Ma
r-1
1
Aug
-11
Jan-1
2
Jul-1
2
Dec-1
2
Ma
y-1
3
Oct-
13
Apr-
14
Sep
-14
Fe
b-1
5
Jul-1
5
Jan-1
6
Jun-1
6
Nov-1
6
Apr-
17
Oct-
17
Ma
r-1
8
Aug
-18
Jan-1
9
Jul-1
9
Dec-1
9
S&P BSE Sensex & Trailing P/E
S&P BSE Sensex (LHS) P/E (RHS)Source: Capitaline
14
6.5
52
.06
95
.3
95
.3
54
.5
68
.6
60
.8
83
.6
74
.2
74
.1
10
4.9
76
.6
77
.1
0
20
40
60
80
100
120
140
160
De
c-07
De
c-08
De
c-09
De
c-10
De
c-11
De
c-12
De
c-13
De
c-14
De
c-15
De
c-16
De
c-17
De
c-18
De
c-19
Mkt Cap to India GDP (curr prices)
Source: Bloomberg, data as on 31 July 2019
Bubble Territory -Previous peak with Sensex at ~21000
Mkt cap to GDP highest in last
seven year
______________________________________________________________________
29
Key concerns to watch out ….
Global factors
Weak economic growth which trigger demand for safe haven assets
Rising trend of protectionism across economies leading to trade war situation could pose a risk to overall global
growth.
Worsening in geo-political situations (Brexit, trade wars, etc) across globe.
Rise in volatility in commodity prices could put pressure on the global financial markets.
Rising global food prices may lead to rise in food inflation.
Domestic factors
If Rupee continues to depreciates (2.3% depreciation in CY19), then it may impact the country‟s twin deficit
Tightening of corporate credit cycle may lead to delay in capex cycle due to funding requirement
Any negative credit rating action by global rating agencies could impact interest rates and currency.
Delay in revival of domestic consumption demand
Inability to keep balance between Government spending imperatives and consequent fiscal deficit
______________________________________________________________________
30
Large Cap and Midcap valuations gap widened marginally
0.0
10.0
20.0
30.0
40.0
50.0A
pr-
08
Sep
-08
Feb
-09
Jun
-09
No
v-09
Ap
r-10
Au
g-10
Jan-
11
Jun
-11
Oct
-11
Mar
-12
Au
g-12
Dec
-12
May
-13
Oct
-13
Feb
-14
Jul-
14
Dec
-14
Ap
r-15
Sep
-15
Feb
-16
Jun
-16
No
v-16
Ap
r-17
Au
g-17
Jan-
18
Jun
-18
Oct
-18
Mar
-19
Au
g-19
Dec
-19
Valuation differential between Large Cap and Midcap Indices widend marginally
Trailing P/E S&P BSE Midcap Trailing P/E S&P BSE Sensex
Source: Capitaline
0.70.7 0.8 0.8
1.0
0.9
1.3 1.3
1.4
1.9
1.1
0.0
0.5
1.0
1.5
2.0
Ap
r-0
8
Sep
-08
Feb
-09
Jun
-09
No
v-0
9
Ap
r-1
0
Au
g-1
0
Jan
-11
Jun
-11
Oct
-11
Ma
r-12
Au
g-1
2
De
c-12
Ma
y-1
3
Oct
-13
Feb
-14
Jul-
14
De
c-14
Ap
r-1
5
Sep
-15
Feb
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Au
g-1
7
Jan
-18
Jun
-18
Oct
-18
Ma
r-19
Au
g-1
9
De
c-19
Valuation Premium of Midcap over Sensex
Source: Capitaline
______________________________________________________________________
31
S&P BSE Sectoral Indices monthly performance for December 2019
6.6%
5.3%
4.0%
2.1%
1.3%
0.6%0.1%
-1.3%
-2.0%-2.5% -2.7% -2.7%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Metal Realty IT Auto Bankex Cons
Durable
Power Healthcare Infra. Cap Goods FMCG
Sector
Oil&Gas
(Month on Month change in %)
S&P BSE Sectoral Indices monthly performance
Source: BloombergSource: BloombergSource: Bloomberg
______________________________________________________________________
32
Nifty 50 rolling returns for last 15 years …
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
-80
-60
-40
-20
0
20
40
60
80
100
120
De
c-05
De
c-06
De
c-07
De
c-08
De
c-09
De
c-10
De
c-11
De
c-12
De
c-13
De
c-14
De
c-15
De
c-16
De
c-17
De
c-18
De
c-19
Nifty 50: 1-year rolling return (%) for last 15 years
1 YearSource: ICRA Online
-10
0
10
20
30
40
50
60
70
De
c-05
De
c-06
De
c-07
De
c-08
De
c-09
De
c-10
De
c-11
De
c-12
De
c-13
De
c-14
De
c-15
De
c-16
De
c-17
De
c-18
De
c-19
Nifty 50: 3-year rolling return (%) for last 15 years
3 YearsSource: ICRA Online
-10
0
10
20
30
40
50
De
c-05
De
c-06
De
c-07
De
c-08
De
c-09
De
c-10
De
c-11
De
c-12
De
c-13
De
c-14
De
c-15
De
c-16
De
c-17
De
c-18
De
c-19
Nifty 50: 5-year rolling return (%) for last 15 years
5 YearsSource: ICRA Online
______________________________________________________________________
33
Market Round Up – December 2019
Indices 31 Dec 2019 29 Nov 2019 Chg %
S&P BSE Sensex 41,254 40,794 1.1
S&P BSE Mid Cap 14,968 15,085 (0.8)
S&P BSE Small Cap 13,699 13,561 1.0
S&P BSE 100 12,236 12,143 0.8
S&P BSE 500 15,667 15,568 0.6
Net Flow (Rs. Bn) FPI DII
CY19 1011 528
CY18 (340) 1204
CY17 513 1188
CY16 151 475
Source: BSE, NSDL (CY19 FPI data and DII data as on 30 December 2019)
The year CY19 ended on a positive note and achieved new all-time high
levels with domestic benchmark indices, the S&P BSE Sensex and Nifty
50, gaining by 14.4% YoY and 12.0% YoY respectively. In the month of
Dec‟19, the S&P BSE Sensex and Nifty 50 also ended higher by 1.1%
MoM and by 0.9% MoM, respectively.
The S&P BSE Smallcap index also ended higher by 1.0% MoM, while
S&P BSE Midcap index fell by 0.8% during the same period.
On the sectoral indices front, S&P BSE Metal index and S&P BSE Realty
index were top two outperformers with a gain of 6.6% MoM and 5.3%
MoM, respectively. The S&P BSE Oil & Gas index and S&P BSE FMCG
index were top two underperformers as they declined by 2.7% MoM
each.
During the month of Dec‟19, Foreign Portfolio Investors (FPIs) were net
buyers to the tune of ~Rs.73 bn, and Domestic Institutional Investors
(DIIs) were net buyers to the tune of ~Rs.17 bn. For CY19, FPI were net
buyers to the tune of ~Rs.1011 bn while DII were net buyers to the tune
of ~Rs.528 bn.
22000
25000
28000
31000
34000
37000
40000
43000
Dec
-15
May
-16
Oct
-16
Mar
-17
Jul-1
7
Dec
-17
May
-18
Oct
-18
Mar
-19
Jul-1
9
Dec
-19
S&P
BSE
Sens
ex L
evel
s
BSE Sensex Price Earning (PE) 1 year forward
19x
21x
17x
23x
Source: Bloomberg
______________________________________________________________________
34
Market Outlook Global equity markets saw sharp volatility in CY19 but majority of global indices ended on a positive note owing to improvement in market sentiments.
While US-China trade war impacted Chinese economy, a meaningful progress towards Phase-I deal led to some positivity towards the end. Amongst developed nation, US economic
data remained steady with the support of interest rate cut by US Fed three times during CY19. ECB maintained its quantitative easing program as economic data in Euro region
remained muted.
On the commodity front, on the one hand, crude oil prices remained range bound during CY19 barring few months, on the other prices of many industrial metals had come off.
Emerging markets remained a mixed bag during the year, owing to uncertainty over trade war, lower commodity prices and mixed FPI inflows affecting the investor sentiments.
Global growth concern and uncertainty over trade war led many multilateral agencies to cut their global growth forecast for CY19, lowest since 2009.
Indian market saw sharp volatility during CY19, however, headline indices continued to trade higher and reached to new all-time high levels driven by large cap and few large mid cap
stocks.
Amid weak macro data points, corporates reported mixed results in H1FY20, where revenue growth was subdued, while PAT growth was higher due to lower tax rate.
CY19 saw incumbent government coming back to power in General Election with strong majority, which led to continuity in reform announcement by government in second term as well.
However, a continuous decline in India‟s GDP growth remained a cause of concern in CY19.
In CY20, PSU divestment would be one of the key data to watch out for, as pick up in the same would help government in improving its revenue and thereby help in containing fiscal
deficit. An improvement in trade data and in import cover is another trend, which would be closely monitored during CY20.
Above normal monsoon and high water reservoir levels have led to rise in agri crop sowing in CY19, benefits of the same in terms of high farm income and there by revival in rural
demand is likely to be taking place in CY20.
While many macro-economic data points have remained subdued or witnessed deterioration, Low base effect and inventory destocking, can work positively for the economy in 2020.
CY20 is also likely to see a reform undertaken by the government so far to start bearing fruits, though some of them have already started but larger benefits are likely to come from
hereon and Banking, infrastructure and other cyclical sectors may see better performance.
Globally, Food inflation has started to inch up and also destruction in crop production due to climate changes may affect the food prices in domestic market and may lead to rise in
inflationary expectations in India.
On the positive side, global trade environment can improve with US-China reaching to a trade deal, which can lead to general improvement in global growth.
As Sensex and NIfty continued to move higher and made new all-time high levels, valuation have also moved up. The S&P BSE Sensex trading at 17.6x FY21E Bloomberg consensus
EPS of Rs.2350. (S&P BSE Sensex price as on 31.12.2019). Valuation differential between Large cap and Mid cap indices have widened marginally.
While broad basing of economic growth may still take time therefore initial beneficiary would be large companies and large mid cap companies, which are efficient, underleveraged and
are have pricing power.
In long term, India is likely to see a steady growth on the back of improvement in Rural economy, higher urbanization, rising government expenditure, revival of private capex and higher
disposable income in the hands of consumers. With strong demographic dividend that India is seeing, we expect the economic growth and demand conditions in the country to remain
strong for a long period. This is likely to augur well for investment in equities. Hence, investors should use any major volatility in the equity markets as an opportunity to adding into their
exposure in line with their risk profile with a 2-3 years investment horizon.
Some of the key global events like Rising demand for safer assets, Rising trend of protectionism across economies, Slowdown in global growth, Rising food prices and Rise in volatility
in commodity prices amongst few other reason would be key to watch out for in CY19. Certain domestic events like Rupee movement, Corporate credit cycle tightening, Lower
government spending, Large fiscal slippage and Weakening of discretionary consumption demand are key to watch out for in near term.
We therefore continue to maintain our investment strategy of 50% lumpsum and the rest to be staggered over the next 4-5 months. From an Equity Mutual Fund perspective, investors
could look at investing in Large Cap and Multicap Funds and could do SIP (12-15 months) into Midcap and Small cap funds.
______________________________________________________________________
35
Fixed Income
______________________________________________________________________
36
2019 An action packed year…
______________________________________________________________________
37
10 year G-sec yield seesawed in 2019… eventually closing lower
The 10 year benchmark G-sec yield closed at a level of 6.55% on 31st December 2019, compared to 7.37 % on 31 December 2018.
While the two halves of the year witnessed side ways movement in the G-sec yield, it was accompanied by an intermittent sharp
decline mid year, wherein the 10 year benchmark G-sec yield touched a low of 6.33%.
That said, the reason for the sideways movement in both the halves was fears of fiscal slippage and higher market borrowings.
Towards the end of the year, RBI‟s pause on interest rate cuts also prevented the yields from declining.
The sideways movement in H1CY19 was
marked by global central banks beginning to become
accommodative; including rate cuts and change in stance to neutral
from calibrated tightening by our own central bank; RBI using Forex
Swap auctions to infuse liquidity instead if OMOs; Rise in headline
CPI but decline in Core CPI; and rise in crude oil prices due to US
sanctions on Iran.
Then came the decline tracking, lower crude oil prices, strengthening of
Rupee and RBI‟s announcement of OMO
purchases; Muted headline CPI and Core CPI
coupled with muted IIP data; continued Repo
rate cuts by RBI along with change in stance to
accommodative; Dovish monetary policies of
major central banks; and finally government
reducing fiscal deficit estimates in final budget,
sticking to its market borrowing numbers for
FY20 and indication of overseas sovereign
bond issue.
H2CY19 was also marked by sideways
movement. While domestic interest rate cuts happened, markets
continued to worry on fiscal deficit and pick up in
headline CPI inflation. Globally uncertainty over US-
China trade tensions led to caution in the bond
markets. RBI finally paused on interest rate cuts which
led to rise in yields.
______________________________________________________________________
38
A regime of surplus liquidity to complement interest rate cuts and an accommodative policy stance…
Source:- RBI
Source:- RBI
H1CY19 witnessed liquidity being in the deficit mode largely on account of currency leakage in the run upto the 2019 Lok Sabha elections.
However, as has been the case historically, post the elections, the liquidity conditions improved as the liquidity entered back into the system.
Additionally, the RBI‟s positive liquidity stance, to compliment interest rate cuts and its accommodative monetary policy stance, moved the
liquidity in the surplus zone.
Muted credit growth, and RBI‟s forex operations also added to the surplus liquidity.
Source:- RBI
Source:- Bloomberg
______________________________________________________________________
39
Yield Movement Across Segments – A Perspective
With RBI‟s 135 bps Repo rate cut and surplus liquidity regime, bond yields have declined; however the decline has not be uniform.
High quality and short term segments of the bond markets have seen higher and meaningful decline; as against medium to long and
riskier segments.
Thus, indicating that baring the very short end and quality bonds, a meaningful decline may not have completely seeped in.
Additionally, the lower rated segments of the corporate bond markets have not seen any decline at all.
Source:- IDFC MF Source:- Bloomberg Source:- Bloomberg
Source:- Bloomberg Source:- Bloomberg
Source:- Nippon India MF
______________________________________________________________________
40
The story of 5 rate cuts, surplus liquidity and TRANSMISSION
While market yields have declined, the lending and deposit rates of the
banks have not seen any meaningful reduction.
Along with policy interest rate cuts, the RBI has also ensured that
system liquidity remains in surplus mode in order to make effective, the
rate cut it has undertaken so far.
While the banks have reduced the lending rates, full transmission has
remained muted.
Banks have reduced their lending rates in the range of 40-82 bps since
the beginning of CY19.
Thus, a meaningful rate cut transmission is yet to take place.
Additionally, interest rates on the National Small Savings Schemes
have not been reduced, as required, by the government, thus
preventing the deposit rates of banks from coming down.
Reduction in Bank Weighted Average Lending Rates (Bps)
(On Fresh Rupee Loans Sanctioned)
January-October 2019
Reduction in Bank Weighted Average Domestic Term Deposit
Rates (Bps) (Outstanding Rupee Term Deposits)
January-October 2019
Public Sector Banks 47 11
Private Sector Banks 40 20
Foreign Banks 82 88
Scheduled Commercial Banks
44 16
Source:- RBI Source:- RBI
Source:- RBI
National Savings Products and Interest Rates (%) Dec-18 Dec-19
1 Year Term Deposit 6.90 6.90
5 Years Term Deposit 7.30 7.20
National Savings Certificate 8.00 7.90
Public Provident Fund Account 8.00 7.90
Kisan Vikas Patra 7.70 7.60
Sukanya Samridhhi Account 8.50 8.40
Source:- National Savings Institute
______________________________________________________________________
41
Global Central Banks moved from tightening monetary policies, to easing…
Source:- US Federal Reserve Source:- European Central Bank
In the year 2018, the major central banks were in a tightening mode, including RBI.
However, 2019 witnessed a sequential decline in growth rates the world over, which stoked fears of recession.
This resulted in central banks starting to ease interest rate as well as monetary policies.
The US Federal Reserve cut the Federal Funds rate by 75 bps.
The US Fed also began purchasing USD 60 bn worth of Treasury bills each month starting October 2019 to infuse liquidity in the
system.
The European Central Bank also reduced the interest rate on bank reserves by a 10 bps to -0.5% from -0.40% and vowed to keep the
interest rates at lower levels.
Its also restarted the quantitative-easing (QE) by announcing to buy Euros 20 bn worth of bonds per month.
______________________________________________________________________
42
Other macros were largely supportive for lower bond yields…
Source:- Bloomberg Source:- Bloomberg
INR depreciated by ~2.31% YoY on CY19 as against a depreciation of
~9.23% YoY in CY18.
While the crude oil prices rose by close to 25% YoY in CY19 as against a
decline of ~20% Yoy in CY18, despite geo-political tensions the crude oil
prices remained range bound tracking global slowdown.
India‟s CAD declined to 0.9% of GDP in Q2FY20 from 2% in Q1FY20.
Decline in both imports as well exports amidst economic slowdown
helped the decline CAD.
CY19 saw net buying by FPIs to the tune of Rs.258.52 bn as against a
net selling of Rs.477.95 bn in CY18. Chase of higher yields and
relatively stable macros led to positive net flows.
______________________________________________________________________
43
Inflation movement dictated by economic slowdown and elevated food prices
Starting the year with 18 months low, Inflation based on Consumer Price Index CPI rose to 40 months high by November 2019.
From 1.97% YoY in January CPI inflation rose to 5.54% YoY in Nov 2019.
Movement in inflation was predominantly driven by movement in food inflation; wherein vegetable prices were the main reason for the
rise in the food inflation.
Unseasonal rains prevented the seasonal decline in the food prices, thus, pushing the overall inflation higher.
Core CPI inflation (inflation ex Food and Fuel) declined gradually, as economic slowdown impacted demand conditions.
Source:-Ministry of Statistics and Program Implementation
Source:-Ministry of Statistics and Program Implementation
______________________________________________________________________
44
Fiscal deficit situation became worrisome as the year progressed…
Source:- http://pib.nic.in/
Fiscal deficit for the period April-Nov 2019 stood at ~114% of the Budgeted Estimates (BE) for FY20.
Tax revenues stood at mere ~45.5% of BE as against 49.4% of BE for the same period last year.
Non-Tax revenues on the other hand, were better at ~74.3% of BE as against ~56.6% BE last year.
While the Union Budget gave hopes of sovereign bond issuances to take care of G-sec Demand-Supply dynamics, lack of any action on
the same, lead to fatigue at the longer end of the yield curve and prevented it from declining.
The government has budgeted a divestment target of Rs.1.05 trillion for FY20, so far the government has been able to garner only Rs.
173.64 bn from divestment proceeds.
Source:- CGA
______________________________________________________________________
45
Bond Spreads Remained elevated amidst flight for safety…
Credit spreads remained elevated during the year, and declined only marginally towards the end of CY19.
That said spreads for the riskier credits did not decline during the year tracking flight for safety in a year marked with credit
events and growth slowdown.
The AAA corporate bond yield curve also steepened during the year tracking sharper decline at the shorter end of the yield as
compared to the longer end.
Source:- Nippon India MF Source:- Bloomberg
______________________________________________________________________
Source:- IDFC Mutual Fund
The G-sec yield curve steepened gradually during CY19 with the shorter end witnessing a sharp decline, while the longer end
being somewhat stubborn.
Spread between 3 Months T-bills and the 10 year G-sec widened to 155 bps in Dec 2019 from 77 bps in Jan 2019.
The 3 months T-bill yield decline to ~5% end of Dec 2019 from ~6.60% in Jan 2019.
Whereas the 10 year benchmark G-secs yield declined to 6.55% in Dec 2019 from 7.38% in Jan 2019.
The G-sec yield curve steepened increasingly…
______________________________________________________________________
47
Expectations From 2020
______________________________________________________________________
48
The Big Bang Union Budget FY21:- Here’s what to watch out for, from bond market perspective
The most Important – Fiscal Deficit
Quantum of increase in estimates for FY19 and path for next few fiscal years.
The Second most Important – Ways to fund the revised Fiscal Deficit
Some of the probable routes could be:-
Increase in FPI investments limits in G-secs; currently at 6%.
Overseas Sovereign Bond issue; this was announced in last year‟s budget and still remains a possibility.
Resorting more to National Small Savings Schemes.
Market borrowings
In FY19 the budgeted market borrowings for the center was at Rs. 7.10 trillion.
It is likely to be higher for FY20 given that the fiscal deficit for FY20 could be higher and also due to higher maturities of short term
G-secs.
Measures to revive economic growth
The most talked about measures is income tax cuts to boost consumption.
Money directly in the hands of the poor to give an immediate boost to consumption may also be considered.
______________________________________________________________________
49
Inflation
The direction of CPI inflation hinges upon 1. Trajectory of food prices and
2. Economic growth and demand conditions.
While food prices have seen some moderation in December 2019, it is only
marginal and some vegetable prices continue to remain at elevated levels.
That said better crop production is likely to be a saving grace and hopefully
winters may also finally bring down the vegetable prices. Though global food
prices seem to be inching higher.
However, taking into account government’s growth supporting measures, RBI’s
rate cuts, ample surplus liquidity and higher fiscal deficit, possibility of reversal in
CPI inflation cannot be ruled out.
Fiscal deficit
While the government likely to revise the estimated fiscal deficit for FY20 higher
due to lower revenue growth; but the million dollar question is “by what
quantum?”
While some believe that the government may go for the so the called escape
clause from the FRBM act of a 50 bps of slippage, given the state of the
domestic and global economic growth rates, the government may possibly look
at a higher number, as a one time adjustment to the fiscal deficit path to
support growth.
In that case the modes of funding the same and the impact on other macros will
have to be tracked very closely to gauge the impact on the bond markets.
Liquidity and interest rates
While system liquidity is likely to stay in the surplus mode in the near to medium
term given that rate cut transmission and flow of credit to key sectors of the
economy is need of the hour; a lot also depends on how other macros pan out
simultaneously.
For example, inflation; though demand conditions are currently weak
domestically, an eventual rate cut transmission may fuel demand and thus bring
about demand push inflation (while that may not happen in a hurry) and any
signs of that happening needs to be watched out very vigilantly.
When such signs do emerge, the RBI may start first by pulling out liquidity from
the system, followed by change in stance and then hiking interest rates.
That said, this is not likely to happen in a hurry, thus, interest rates may remain
lower in the near to medium term.
The Yield Curve The yield curve may witness some flattening in CY20, given that the RBI is now actively influencing the term spreads through OMOs; in the absence of which the yield curve
would have continued to steepen.
The short to medium term segment of the yield curve has moved up since the RBI has been selling the short term maturities and buying the longer maturity securities. More
such OMOs are being anticipated, so what happens to the yield curve then?
Well it’s a function of 1. Liquidity 2. Revision in fiscal deficit, 3 Inflation trajectory and 4. RBIs OMOs.
While ample system liquidity is likely to prevent the short term from rising meaningfully, the longer end of the yield is likely to move depending on the quantum and quality of
fiscal revisions. The pause in the RBI’s interest rate cuts was to see the incoming data on inflation and government’s measures on growth in the Union Budget for FY21; thus
making these two variables important. Also, the quantum of OMO purchase will determine the extent to which the longer end declines. While we expect some relative
flattening of the yield curve, it is likely to remain steep in the near to medium term.
What is going to drive the bond markets…?
Geo-Political Tensions
US-China trade tensions, US-Iran situation, Brexit, are amongst some of the
brewing geo-political tensions that brought world growth to a halt.
These have impacted (negatively) the world economy as a whole, thus also
impacting macros including interest rate regimes.
Growth rates, crude oil prices, trade balances, capital flows and in turn interest
rates are likely to track the developments in geo-political tensions, and thus
remain an uncertainty and risk to the movement in bond yields.
______________________________________________________________________
50
While the positive liquidity stance of the RBI has led the liquidity surplus to remain at higher levels; muted credit growth given economic slowdown also contributed to
high liquidity surplus. Since growth recovery may take time and that RBI is likely to continue with its accommodative monetary policy stance to support economic, liquidity
is likely to remain comfortable for the time being.
Impact of unseasonal rains and erratic weather, on Rabi crops as well as vegetable crops need to be tracked very closely. While Rabi crop sowing progress has been
good and vegetable prices have declined to some extent, weather conditions going forward will be an important variable for food prices. Additionally, the impact of
sustained surplus liquidity on inflation in a scenario of lack of growth recovery currently, also needs to be kept a watch on. That said, the RBI is likely to focus on
transmission of the interest rate cuts given that economic growth revival is the focus at this juncture. However, it is likely that the RBI may turn cautious on inflation, as
inflation is now well above its 4% medium term inflation target.
The major global central bankers continue to be accommodative, and are likely to remain accommodative unless the macro-economic variables start indicating recovery
in economic growth. This could also add on to the RBI‟s current accommodative stance, thus giving some visibility on interest rate trajectory in the near term.
Additionally, with relatively steady economy, attractive yields, a stable currency and stable government at the center could continue to make Indian bonds attractive to
FPIs‟.
While the bond yields are currently pricing in a higher fiscal deficit number for FY20, actual revised estimates and ways to fund the same, would give further direction to
the bond yields. To that effect, the longer end of the yield curve is likely to remain volatile in a range, with RBI intervening at higher levels on the longer end. That being
said, the longer end of the yield curve may start reacting positively once the uncertainty on fiscal deficit is over.
Good quality corporate bond yields though have started reacting to easy monetary and interest rate regime, the spreads continue to remain relatively attractive on
account of the credit events seen over the past one year. Thus, finally, when interest rate cut transmission improves, high quality corporate bonds may be bigger
beneficiaries of the same.
The yield curve may witness some flattening in CY20, given that the RBI is now actively influencing the term spreads through OMOs; in the absence of which the yield
curve would have continued to steepen. The short to medium term segment of the yield curve has moved up since the RBI has been selling the short term maturities and
buying the longer maturity securities. Movement of the yield curve is likely to be a function of liquidity, fiscal deficit, inflation trajectory and the RBIs OMOs. While ample
system liquidity is likely to prevent the short term from rising meaningfully despite the OMO selling, the longer end of the yield is likely to move depending on the
quantum and quality of fiscal revisions. At the same time the quantum of OMO purchase will determine the extent to which the longer end declines. While we expect
some relative flattening of the yield curve, it is likely to remain steep in the near to medium term.
Thus, amidst uncertainty and the biggest event domestically (the Union Budget), it is prudent to be in a space which provides relatively more visibility and certainty and
that would be true for both „Quality‟ as well as „Duration‟. At this point sticking to high quality accrual and the medium term segment offers relatively better risk adjusted
returns, in our view.
Investors who are looking to benefit from relatively better accruals can look at Corporate Bond Funds and Banking and PSU Funds for a horizon of 15 months and
above.
Investments in Medium Duration Funds can be considered with a horizon of 15 months and above.
Investments into Short Duration Funds can be considered with an investment horizon of 12 months and above.
Investors who are comfortable with intermittent volatility, can also look at strategies that have allocation to the longer end of the yield curve, through Dynamic Bond
Funds with an investment horizon of 24 months and above.
Investors looking to invest with a horizon of up to 3 months can consider Liquid Funds, while Ultra Short Duration Funds and Arbitrage Funds can be considered for a
horizon of 3 months and above.
Fixed Income Outlook
______________________________________________________________________
51
Equity Mutual Funds – Based on SEBI Categorisation
Large Cap Fund
1. Axis Bluechip Fund – An actively managed large cap equity fund
2. ICICI Prudential Bluechip Fund - An actively managed large cap equity fund
3. HDFC Top 100 Fund – An actively managed large cap equity fund
Multi Cap Funds
1. Kotak Standard Multicap Fund - An actively managed multi cap fund investing across select sectors with large cap bias
2. HDFC Equity Fund - The fund is a multi cap equity fund that invests across market capitalisation with large cap bias
Focused Fund
1. Axis Focused 25 Fund – An actively managed focused fund that invest in upto 25 high conviction stocks with large cap bias.
Large & Mid Cap Fund
1. Sundaram Large and Mid Cap Fund – An actively managed large and midcap fund that invests minimum 35% in both large cap and mid cap companies
Dynamic Asset Allocation/Balanced Advantage Funds
1. ICICI Prudential Balanced Advantage Fund – A hybrid fund that dynamically manages exposure to equity and debt depending upon market valuations
2. HDFC Balanced Advantage Fund - A hybrid fund that dynamically manages exposure to equity and debt within a certain range
Equity Savings Fund
1. ICICI Prudential Equity Savings Fund – The un-hedged equity exposure of the fund can be maintained upto 50% of the portfolio with flexibility to invest across market capitalisation
Arbitrage Fund
1. IDFC Arbitrage Fund – The fund buys securities in spot market while selling the same in derivate market simultaneously to take the advantage of a temporary price differential .
______________________________________________________________________
52
Recommended Equity Oriented Mutual Funds – Performance
Returns (%) as on 31 December 2019.Returns are absolute for < = 1year and CAGR for > 1 year.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
Scheme Name SEBI Categorisation 1M 3M 6M 1Y 2Y 3Y
HDFC Top 100 Fund - Growth Large Cap Fund -0.25 4.78 -3.09 7.70 3.83 12.47
Axis Bluechip Fund - Growth Large Cap Fund 1.32 3.02 6.87 18.57 12.36 20.34
ICICI Prudential Bluechip Fund - Growth Large Cap Fund 1.10 5.15 2.95 9.77 4.34 13.05
Kotak Standard Multicap Fund - Reg - Growth Multi Cap Fund 0.33 5.04 2.90 12.28 5.48 14.32
HDFC Equity Fund - Growth Multi Cap Fund -0.02 4.66 -3.86 6.83 1.51 12.13
Aditya Birla Sun Life Equity Fund - Growth Multi Cap Fund 0.63 6.78 4.79 8.53 2.02 11.59
Sundaram Large and Mid Cap Fund - Reg - Growth Large & Mid Cap Fund -0.36 4.46 4.74 10.31 5.23 14.65
Axis Midcap Fund - Growth Mid Cap Fund 0.05 5.03 7.91 11.33 7.33 17.82
Axis Small Cap Fund - Reg - Growth Others 2.16 5.91 9.53 19.38 4.25 14.55
Invesco India Contra Fund - Growth Contra Fund 0.32 4.94 1.66 5.94 1.23 14.27
Tata Equity P/E Fund - Reg - Growth Value Fund -0.13 3.69 2.44 5.30 -1.07 10.89
Axis Focused 25 Fund - Growth Focused Fund 0.79 4.84 7.47 14.65 7.40 18.74
SBI Focused Equity Fund - Growth Focused Fund 0.49 5.62 5.65 16.06 5.64 17.33
ICICI Prudential Equity & Debt Fund - Growth Aggressive Hybrid Fund 1.02 6.55 2.14 9.33 3.55 10.19
HDFC Balanced Advantage Fund - Growth Dynamic Asset Allocation or Balanced Advantage 0.12 4.34 -2.55 6.89 1.78 9.83
ICICI Prudential Balanced Advantage Fund - Reg - Growth Dynamic Asset Allocation or Balanced Advantage 0.67 4.44 5.42 10.79 6.52 10.53
IDFC Arbitrage Fund - Reg - Growth Arbitrage Fund 0.23 1.18 2.71 6.15 6.19 5.98
ICICI Prudential Equity Savings Fund - Reg - Growth Equity Savings 0.80 3.74 4.14 10.37 6.82 8.15
Kotak Tax saver Fund - Reg - Growth ELSS 1.02 6.14 2.36 12.67 4.09 13.17
Nippon India Power & Infra Fund - Growth #N/A -0.32 -0.25 -7.09 -2.89 -12.43 7.41
Nifty 50 0.90 6.05 3.19 12.02 7.47 14.11
Nifty Midcap 100 -0.67 6.72 -3.09 -4.32 -10.01 6.01
S&P BSE 200 0.61 5.93 3.05 9.13 4.17 13.08
Nifty Infrastructure -1.98 1.46 -3.34 2.52 -5.38 6.27
NIFTY 50 Hybrid Composite Debt 65:35 Index 0.63 4.74 4.32 12.69 8.93 12.74
______________________________________________________________________
53
Fixed Income Mutual Fund Options
______________________________________________________________________
54
Performance of recommended Debt Funds
Please note that returns data for Crisil indces is not available.
Returns (%) as on 31 December 2019. Returns are absolute for < = 1year and CAGR for > 1 year. Portfolio as of 29 November 2019.
Source for entire data stated above is ICRA Online Ltd. (For Disclaimer of ICRA Online Ltd, refer http://www.icraonline.com/legal/standard-disclaimer.html)
3 Mths 6 Mths 1 Year 2 Years 3 Years
IDFC Bond Fund - Income Plan - Reg - Growth Medium to Long Duration Fund 100.00% 9.89 6.85 1.51 4.37 10.39 8.45 6.66
ICICI Prudential Long Term Bond Fund - Growth Long Duration Fund 93.20% 11.38 7.46 2.33 4.47 12.13 9.40 7.62
IDFC D B F - Reg - Growth Dynamic Bond 100.00% 10.43 6.88 1.74 4.89 10.98 8.85 7.04
Kotak Dynamic Bond Fund - Reg - Growth Dynamic Bond 81.18% 6.05 7.44 2.04 4.52 11.08 9.15 7.97
IDFC Bond Fund - Short Term Plan - Reg - Growth Short Duration Fund 100.00% 2.12 6.51 2.12 4.92 9.74 8.08 7.36
ICICI Prudential Short Term Fund - Growth Short Duration Fund 82.55% 2.84 7.23 2.34 4.85 9.67 7.72 7.12
IDFC Bond Fund - Medium Term Plan - Reg - Growth Medium Duration Fund 100.00% 4.80 6.69 1.43 4.03 9.13 7.66 6.83
Nippon India Banking & PSU Debt Fund - Reg - Growth Banking and PSU Fund 100.00% 2.81 6.48 2.11 5.34 10.49 8.41 7.59
Kotak Banking and PSU Debt Fund - Reg - Growth Banking and PSU Fund 79.13% 3.88 6.97 2.44 5.20 10.84 8.74 7.88
ICICI Prudential Corporate Bond Fund - Reg - Growth Corporate Bond Fund 100.00% 2.58 6.80 2.27 4.87 9.89 8.12 7.50
HDFC Corporate Bond Fund - Growth Corporate Bond Fund 98.20% 4.17 7.10 2.01 4.72 10.32 8.37 7.75
3 Mths 6 Mths 1 Year 2 Years 3 Years
IDFC Low Duration Fund - Reg - Growth Low Duration Fund 100.00% 330 5.81 1.74 4.05 8.33 7.75 7.50
ICICI Prudential Savings Fund - Reg - Growth Low Duration Fund 85.97% 343 6.46 2.06 4.36 8.78 7.99 7.70
UTI Money Market Fund - Reg - Growth Money Market Fund 100.00% 134 5.52 1.60 3.73 7.98 7.88 7.47
Aditya Birla Sun Life Money Manager Fund - Reg - Growth Money Market Fund 100.00% 131 5.53 1.57 3.79 8.04 7.98 7.56
HSBC Cash Fund - Growth Liquid Fund 100.00% 40 5.30 1.38 2.95 6.66 7.05 6.92
Nippon India Liquid Fund - Growth Liquid Fund 100.00% 40 5.33 1.37 2.94 6.70 7.07 6.94
ICRA Composite Bond Fund Index -- -- -- 2.19 5.13 12.20 9.08 7.89
NIFTY Short Duration Debt Index -- -- -- 1.86 4.55 9.15 7.89 7.38
ICRA Liquid Index -- -- -- 1.38 2.97 6.74 7.00 6.86
Returns (%)
SEBI CategorisationAAA or
Equivalent
Avg.
Maturity
(Days)
Scheme Name Portfolio
Yield (%)
Returns (%)
Scheme Name AAA or
Equivalent
Avg.
Maturity
(Yrs)
Portfolio
Yield (%) SEBI Categorisation
______________________________________________________________________
55
Disclaimer: This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. HDFC Bank Limited ("HDFC Bank") does not warrant its completeness and accuracy. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument / units of Mutual Fund. Recipients of this information should rely on their own investigations and take their own professional advice. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance of this material may, from time to time, have investments / positions in Mutual Funds / schemes referred in the document. HDFC Bank may at any time solicit or provide commercial banking, credit or other services to the Mutual Funds / AMCs referred to herein. Accordingly, information may be available to HDFC Bank, which is not reflected in this material, and HDFC Bank may have acted upon or used the information prior to, or immediately following its publication. HDFC Bank neither guarantees nor makes any representations or warranties, express or implied, with respect to the fairness, correctness, accuracy, adequacy, reasonableness, viability for any particular purpose or completeness of the information and views. Further, HDFC Bank disclaims all liability in relation to use of data or information used in this report which is sourced from third parties. HDFC Bank House, 1 st Floor, C.S. No. 6 \ 242, Senapati Bapat Marg, Lower Parel, Mumbai 400 013. Phone: (91)-22-66521000, ext 1311, Fax: (91)-22-24900983 \ 24900858
![Understanding your program benefits · 2018. 10. 2. · Microsoft PowerPoint - EAP Presentation CY19 Final.ppt [Compatibility Mode] Author: Reina.Espinoza Created Date: 9/24/2018](https://img.pdfslide.us/doc/110x75/5fc77e584d4c193b6b34b8c5/understanding-your-program-benefits-2018-10-2-microsoft-powerpoint-eap-presentation.jpg)
