The World This Week – 31st July 2020 to 7th August 2020

 Indian Equity Summary-  

·        Reflection of the global volatility was visible in the domestic equity markets .The nifty small cap (+5%) indices outperformed the benchmarkØ indices, Nifty (+1.5%) on WoW basis. The overall market closed with strong market breadth, and lower volatility while the INR marginally weakened. Top gaining sectoral indices includes Bse Metals ,BSE Auto and BSE CD while BSE Bankex and BSE IT were laggards.

·        In the recently conducted MPC meeting RBI maintained status quo on the rates.Ø  

·        Going forward, global factors like development on the US -China relationship front , and domestic factors like the monsoon trajectory andØ remaining earnings season ; will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 10900-11,400 in the near term.

Indian Debt Market-  

·        Government bond prices fell marginally as the yield of the 10-year benchmark 5.79% 2030 paper settled at 5.89% on August 7 as against 5.84%Ø on July 31 .  

·        The Reserve Bank of India (RBI) left the key interest rates unchanged and allowed banks to restructure certain loans as part of efforts to reviveØ the economy.  

·        We expect the 10 year benchmark yield to trade between 5.80-6.05% in near term.Ø

Domestic News  

·        India Manufacturing Purchasing Managers’ Index (PMI) PMI stood at 46 in July, down from 47.2 in June.Ø

·        India posted a trade surplus of $790 million in June, its first in over 18 years, with imports plunging as the coronavirus pandemic depressedØ domestic demand for crude oil, gold and other industrial products, reflecting a slowing economy.  

·        Mutual funds that invest in equity showed a net outflow of 24.80 billion rupees ($331.02 million) in July compared with an inflow of 2.41 billionØ rupees in June, data published on Monday by the Association of Mutual Funds in India (AMFI) showed.

International News  

·        US initial jobless claims tumbled to 1.186 million, a decrease of 249,000 from the previous week's revised level of 1.435 million.Ø

·        Japan first-quarter GDP unchanged at 2.2% annualised contraction after 2nd revision.Ø  

·        Fitch Ratings has affirmed United States' Long-Term Foreign-Currency (LTFC) and Local-Currency (LC) Issuer Default Ratings (IDRs) at 'AAA' andØ revised the Outlooks to Negative from Stable.  

·        SOUTH Korea's manufacturing activity shrank at a much slower pace in July, signalling that a gradual recovery in demand is gaining momentumØ on easing lockdowns, although the resurgence in infections remained a risk.

 

Disclaimer :

The information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock Broking Limited) or other Karvy Group companies. The information contained herein is based upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. Karvy Private Wealth is only a distributor of securities and financial market products.

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The World This Week – 24th July 2020 to 31st July 2020

Indian Equity Summary-  

·        SØ&P BSE Sensex and Nifty 50 fell by 1.4% and 1% respectively on a WoW basis, and the six-week positive trend in Indian equities came to a pause as negative feelings prevailed among market participants, on the back of rising Covid-19 cases as well as a decline in US GDP at an annualized rate of 32.9% in 2Q 2020. Healthcare and IT were the best-performing sectors, while oil & gas and banks were the worst-performing ones on a weekly basis.  

·        Going forward, global factors like development on the US -China relationship front , and domestic factors like the outcome of the RBI MPCØ meeting ( we expect a pause in Repo rate cut in the August RBI MPC meeting) and the monsoon trajectory ; will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 10700-11,100 in the near term.

Indian Debt Market-  

·        Government bond prices fell marginally as the yield of the 10-year benchmark 5.79% 2030 paper settled at 5.84% on July 31 as against 5.82% onØ July 24 .

·        India’s fiscal deficit during the first quarter of this fiscal widened to Rs 6.62 lakh crore or 83.2% of the budget estimates, mainly on account of poorØ tax collections due to the lockdown; fiscal deficit during the corresponding period of last year was 61.4% of the budget estimates.  

·        RBI introduced new 5.77% GS 2030 last week.Ø  

·        We expect the 10 year benchmark yield to trade between 5.80-6.05% in near term.Ø

Domestic News  

·        Deposit growth in the banking system continued to grow at 10.1 percent on a year-on-year basis, even though banks have reduced their depositØ rates sharply in the absence of credit growth and liquidity induced by RBI due to Covid-19.  

·        India’s factory slump deepened in July as renewed lockdown measures to contain surging coronavirus cases weighed on demand and output,Ø raising the chances of a sharper economic contraction, a private business survey showed on Monday.  

·        Indian power plants used the most gas in at least 3-1/2 years in the June quarter, as operators along the west coast snapped up cheap liquefiedØ natural gas (LNG) imports that have become competitive against coal, government data showed.

International News  

·        US real gross domestic product plummeted at a record annual rate of 32.9% in the second quarter of 2020 following a 5% decline in the firstØ quarter  

·        U.S. manufacturing activity accelerated to its highest level in nearly 1-1/2 years in July as orders increased despite a resurgence in new COVID-Ø 19 infections  

·        Tens of millions of people in and around the Philippine capital will go back to a strict lockdown from Tuesday, threatening incomes and hopesØ for reviving a once dynamic economy as authorities take drastic measures to halt surging virus cases.

 

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ADVICE FOR THE WISE – JULY 2020

FROM THE CEO’s DESK

Dear Investors, “More money has been lost trying to anticipate and protect from corrections than actually in them.” Peter Lynch. The BSE Sensex had the best quarter since June 2009 and had risen more than 35 percent from lows in March, despite Covid-19 lockdown having seriously hampered economic activity. Backed by better-than - expected economic data in recent months, along with a proactive government stance and central bank policy intervention coupled with the resurgence of FPI flows into the domestic equity market, indicates towards a "V-shaped" recovery. Corrections in the equity market offer incentives for buying quality stocks at lower valuations. Instead of worrying, we expect this downturn and the year 2020 from an investment opportunity perspective as the risk-reward ratio in the current scenario is in favour of equity investments. In regards to the domestic market, while we expect second half of FY21 to see a turnaround in production, difficulties may emerge in Q1/Q2 of FY21 because of inventory disruption and the lockdown. Bold reforms in areas like land, labour, system liquidity, enhancing business-friendliness and formalizing the economy would help to re-create a “self-reliant India". The announcement of the Rupees 21trillion Covid-19 package will go a long way to help India come out of the slowdown and foster economic growth. Emergence of robust rural demand (good khariff crops harvest and forecasted above normal monsoon); a fall in the international crude prices thus relieving pressure on the CAD, rupee and inflation; a low interest rate scenario will increase the ROCE for the corporate, all of which will act as a tailwinds for the domestic equity market. We are positive on private banks, healthcare, telecom and utilities space while remaining neutral in IT and FMCG. On the equity market front, we remain optimistic and encourage investors to use any corrections, as a buying opportunity. On the domestic debt markets front, range bound movements in the benchmark yield curve is foreseen in near term, with a gradual shift downwards, though slight uptick of yield in near term due to rise in fiscal deficit pressure (post announcement of 21tn rupees Covid-19 package ), FII/FPI selling in the debt category and Moody’s downgrade of sovereign ratings for India, cannot be 4 ignored. Measures like TLTRO, LTRO and expectations that RBI may come up with OMOs for G-Secs and SDLs will bode well in reduction of the elevated spreads and limit the spike in yields. In the recent correction, mid & small caps had taken a beating too. We expect mean reversal in the course of CY20 which will allow mid & small caps to catch up on their last two years of under performance vis-à - vis the Nifty-50 index. We urge investors who are interested in mid- and small-cap space to look for companies with strong prospects for earnings growth and with reasonable valuations at beaten-down rates. Attractive equity market valuations reinforce our view of equity overweight with a bias towards large-cap stocks and selective multi-cap mutual funds and PMS (Portfolio Management Services) We suggest 65 percent for Large Cap, 25 percent for Midcap, 10 percent for Small Cap as part of the equity-sub asset class allocation. On the debt side, we remain overweight on conservative strategies and reiterate our focus on risk adjusted return on portfolios of fixed income. It is suggested that investors buy quality AAA corporate bond funds , Banking & PSU debt funds while maintaining 5 percent -7 percent as a gold-allocated volatility hedge.

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The World This Week 10th July 2020 – 17th July 2020

Indian Equity Summary-  

·        Sensex ended higher by 1.2 percent as the bullish trend persisted for the fifth consecutive week in the domestic equity market ,on the back ofØ positive global cues and optimism over the development of Covid-19 vaccine .The focus is now turning to Q1FY21 earning season and more importantly for guidance and viewpoints of management.

·        Going forward, global factors like development on the US -China relationship front , any resurgence of Covid-19 cases globally, as economiesØ have started opening up ; will continue to dictate the trend of the domestic equity market. We expect the trading range for Nifty between 10800-11200 in the near term.

Indian Debt Market-  

·        The bond prices fell as the yield on the latest 10-year benchmark 5.79% 2030 paper settled at 5.80% on Jul 17 compared with 5.76% on Jul 10.Ø  

·        Reserve Bank of India announces the auction of three Government of India 91day, 182 day and 364 day Treasury Bills for an aggregate amount ofØ ₹35,000, to be conducted on 22nd July 2020.  

·        State Governments announced to sell securities by way of an auction to be conducted on 21th July 2020, for an aggregate face value of ₹ 9,000 Cr.Ø  

·        We expect that RBI will be in wait and watch mood before taking any major decision of rate cut on the back of recent inflation print.Ø  

·        We expect the 10 year benchmark yield to trade between 5.80-6.05% in near term.Ø

Domestic News

·        India’s retail trade has suffered a business loss of about Rs 15.5 lakh crore in past 100 days due to the COVID-19 pandemic as per theØ Confederation of All India Traders (CAIT).  

·        The Foreign Direct Investment (FDI) from the US to India has crossed the $40 billion mark as on year to date, reflecting the growing confidence ofØ American companies in the country.

·        Forex reserves rose by $3.1 billion on a WoW basis to hit a record high of $516.36 billion for the week ended July 10, according to Reserve BankØ of India (RBI).  

·        According to the latest data released by the Ministry of StatisticsØ & Programme Implementation (MoSPI), India’s retail inflation(CPI) grew to 6.09% in the month of June as against the prior released figure of 5.84 in April for the month of March.

International News  

·        Hong Kong's April-June unemployment rises to 6.2%, being the highest in over 15 years.Ø

·        Japan’s exports plunged 26.2% in June while Imports fell by 14.4% in June on a year on year basis , as per the data released byØ Ministry of Finance (MOF).  

·        Foreign direct investment (FDI) into China fell 1.3% in the first half of this year from a year earlier to 472.18 billion yuan ($67.47Ø billion)as per China’s commerce ministry.  

·        Gross domestic product (GDP) of China rose to 3.2% in the second-quarter from a year earlier as per the National Bureau ofØ Statistics, faster than the 2.5% forecast by analysts in a Reuters poll, with the easing of lockdown measures and ramping up of stimulus by policymakers to combat the virus-led downturn.  

·        US GDP is expected to contract by an annualised rate of 37% in the Q2 2020 and by 6.6%for 2020 as a whole as per theØ International Monetary Fund (IMF) staff.

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