THE WORLD THIS WEEK 27th March – 3rd April 2020

Indian Equity Summary-

·         Global and domestic equity markets remained tepid on the back of rising concerns about the rapid spread of Covid-19. Indian benchmarkØ indices extended losses for the seventh consecutive week as the BSE Sensex and Nifty 50 fell 7.46% and 6.66% respectively .Investor sentiments were also dented by the downgrading of India's growth forecast by Fitch ratings for the current fiscal to a 30-year low of 2 per cent, from 5.1 per cent projected earlier. Sector indices like Oil & Gas, Healthcare and FMCG were the only gainers amongst all the other major sectoral indices. 

·         On the positive side a rise in coal, cement and electricity production, India's eight infrastructure industries expanded at an 11-month high inØ February, while the Met had forecasted that the southwest monsoon is likely to get a boost this year, as the El Nino, which sometimes disrupts the rainfall, is unlikely this year. We expect the trading range for Nifty between 7800 -9000 in the near term.

Indian Debt Market- 

·         Government bond prices ended weaker, Yield of the 10 year benchmark 6.45% 2029 paper settled at 6.31% on April 3 as against 6.14% onØ March27 

·         Bonds prices fell sharply on concerns about a heavy government borrowing amid a nationwide lockdown diminishing the trading activity inØ the domestic financial markets. 

·         Reserve Bank of India (RBI) announced the third targeted long-term repo operation (TLTRO) for Rs 25,000 crore to be conducted on April 7.Ø 

·         The Centre notified that it would borrow a total Rs 4,88,000 crore via issuance of dated securities over the April to September 2020.Ø 

·         We expect the 10 year benchmark yield to trade between 6.15-6.40% in near term with a downward bias.

Domestic News

·         The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) fell to 51.8 in March as against 54.5 in February.Ø 

·         India’s eight infrastructure sectors grew at an 11-month high of 5.5% on year in February compared with 1.4% in January.Ø 

·         The World Bank approved a $1 billion emergency financing for India to tackle the Covid-19 pandemic.Ø  SØ&P Global Ratings cut its forecast on India’s economic growth to 3.5% for fiscal 2021 from 5.2% earlier. 

·         India’s fiscal deficit for April 2019 to February 2020 touched 135.2% of the revised target of 3.8% of GDP for the fiscal.Ø 

·         Goods and Services Tax collections for March came in at Rs 97,597 crore, lower than Rs 1.05 lakh crore collected in February.Ø 

·         The Government of India recorded a shortfall in its direct tax collections of Rs 1.75 lakh crore as compared with the revised estimates and hasØ collected Rs 9.98 lakh crore as direct taxes during fiscal 2020. 

·         The Union government plans to borrow Rs 4.88 lakh crore, 62.6 percent of its total borrowing, during the first half of the current fiscal.

International News 

·         US Institute of Supply Management (ISM) manufacturing index dipped to 49.1 in March after edging down to 50.1 in February.Ø 

·         Jobless claims of around 6.65 million were filed in US in the week ended March 28, being more than double the claims filed in the prior weekØ i.e .3.31 million as per the US Labor Department, around 

·         UK IHS Markit manufacturing PMI fell to 47.8 in March, down from 51.7 in February .As a result of weak production activity, Britain’s FTSE fellØ by 0.6%. 

·         UK economic growth expanded 1.1% annually in fourth quarter of calendar 2019 compared with 1.3% growth in the third quarter.Ø 

·         UK GfK consumer confidence saw the sharpest plunge and fell to -7 in March as compared to -9 in February amid Coronavirus lockdown.

·         China’s official manufacturing PMI rose to 52 in March from 35.7 in February while non-manufacturing PMI jumped to 52.3 in March fromØ 29.6 in February. 

·         China Caixin manufacturing PMI rose to 50.1 in March from 40.3 in February.

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The World This Week - 3rd April 2020 to 9th April 2020

Indian Equity Summary- 

·       Domestic equity markets gained during a truncated trading week and closed in the green after 7 weekly losses in a row. Benchmark indices,Ø Sensex closed at Rs 31159, surging by 12.93% and Nifty closed up by 12.72% at 9111 on WoW basis. Sentiments were also lifted by positive FPI/FII inflows of RS 2462 Crore recorded in the week ending 9th April as compared to outflows of Rs 10,131 in the previous week. Sectorally, massive rally was witnessed in Auto sector while other top gaining sectors include banking, healthcare, metals and consumer durable . 

·         Further, global cues also impacted the market as the major oil producers agreed on their biggest-ever cut in oil production.

·         Going forward, the growth in number of COVID-19 cases among other factors such as the movement of rupees, crude oil prices, foreignØ currency inflows and outflows will continue to determine the forward-looking market pattern. We expect the trading range for Nifty between 7600 -9000 in the near term.

Indian Debt Market- 

·         Government bond prices ended lower. Yield of the 10 year benchmark 6.45% 2029 paper settled at 6.49% on April 9 as against 6.31% on April 9.

·         Concerns about the mounting fiscal deficit of India and also heavy borrowing plan of Government amid nationwide lockdown continues to pull the bond prices down. 

·         States raised a total notified Rs 37,500 crore via sale of dated securities in the state development bond auction.

·         The RBI conducted a 3-year targeted long term repo auction for a notified Rs 25,000 crore on the last trading day of the week, receiving bidsamounting to ~Rs 1.13 lakh crore. Further , RBI announced the auction of state development bonds for a total of Rs 13,128 crore on April 13. 

·         We expect the 10 year benchmark yield to trade between 6.25-6.50% in near term.

Domestic News

·         India Services PMI declined to 49.3 in March 2020 from February’s 85-month high of 57.5, and below market expectations of 52.5.

·         India’s Industrial Production Growth accelerated to 4.5% year-on-year in February 2020, from 2.1% in the previous month.

·         The Finance ministry has released about Rs 34,000 crore in two phases to states as compensation for their revenue loss in the goods and servicesØ tax (GST) regime in order to provide further relief to states amid the extended lockdown due to coronavirus outbreak.

·         The government has disbursed the first installment of Rs 15,841 crore to 7.92 crore farmers under the PM-KISAN scheme.

·         World Bank sees FY21 India growth at 1.5-2.8%; slowest since economic reforms three decades back while Asian Development Bank (ADB) expected India’ growth to slow down to 4% in the current fiscal owing to weak global demand.

·         India’s Fiscal deficit stood at 5.07% of GDP in February and is likely to increase in March.

·         Asian Development Bank has assured India $2.2 billion in its fight against the Covid-19 pandemic.

International News 

·         US Broader indices, Dow Jones and Nasdaq gained by~11% and `10% respectively on hopes of additional fiscal stimulus by the government toØ combat the rampant spreading of Covid-19 

·         US non-farm payrolls plunged by 701,000 jobs in March after jumping by an upwardly revised 275,000 jobs in February

·         US Institute of Supply Management (ISM) non-manufacturing index fell to 52.5 in March from 57.3 in February. 

·         UK services PMI posted 34.5 in March, down sharply from 53.2 in February, while the composite PMI was at 36.0 in March, down sharply fromØ 53.0 in February.

·         Japan’s core machinery orders, which is regarded as an indicator of near term capital spending, rose 2.3% in February on a M-o-M basis.

·         Japan Current Conditions Index of the Economy Watchers' Survey decreased to 14.2 in March from 27.4 in FebruaryØ 

·         Japan’s outlook index that signals future activity fell for the second straight month to 18.8 in March from 24.6 in the previous month.

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The World This Week

Indian Equity Summary-Benchmark indices Sensex and Nifty closed in green for the second consecutive week in line with the global key equity indices. Nifty 50 andØ Sensex rose by 1.7% and 1.4% respectively . Sectorally, all the sectors indices barring Consumer durable and IT closed in green. BSE Metal , BSE Power and BSE Bankex were the top performers and rose by 6.65%, 4.99% and 3.41% respectively.  Investor sentiments were also lifted by the announcement of further relief package of TLTRO by RBI targeted towards small and medium-sizedØ financial institutions including NBFCs and MFIs . Reverse repo rate has been cut by another 25bps to 3.75% to incentivize the banks to lend.  India VIX continues to cool off and has dropped to ~42.59 on Friday. It has dropped by ~32% in 1 month.Ø  Going forward, the growth in number of COVID-19 cases among other factors such as the movement of rupees, crude oil prices, foreignØ currency inflows and outflows will continue to determine the forward-looking market pattern. We expect the trading range for Nifty between 8700 -9500 in the near term.

Indian Debt Market-  Government bond prices ended sharply higher .Yield of the 10 year benchmark 6.45% 2029 paper settled at 6.35% on April 17 as against 6.49 %Ø on April 9.  Bond prices lifted on account of the announcement of further monetary policy easing by the central bank along with additional liquidityØ boosting measures to ease the economy in stress.  Reverse repo was cut by RBI by 25 basis points (bps) to 3.75% with a view to encourage more lending by banks .Ø  RBI conducted its fourth targeted long-term repo auction on April 17 of three-year duration for a notified Rs 25,000 crore.Ø  We expect the 10 year benchmark yield to trade between 6.15-6.40% in near term.

Domestic News  Headline CPI in India fell to a four month low of 5.91% year on year in March 2020 from 6.68 in previous month.Ø  India’s inflation based on the Wholesale Price Index (WPI) eased to 1% in March from 2.26% in February on the back of a sharp fall in food pricesØ  The income-tax department has set its budgetary direct tax collection target for 2020-21 at Rs 13.19 lakh crore, 28% more than the actualØ collections in the year ended March 31.  IMF has downgraded the projections on India's growth rate from 5.8% to 1.9% for FY21 and has forecasted global recession due to COVID-19.Ø  India’s southwest monsoon this year is expected to be normal at 100% of the long period average ,according to the India MetrologicalØ Department.  RBI announced Rs 50000 crore targeted long term repo operation (TLTRO 2.0),with a view to boost small and medium-sized financialØ organizations including NBFCs and MFIs .

International News  China’s CPI rose 4.3% on-year in March, compared with 5.2% in February, while Producer Price Index fell 1.5% in March compared with a 0.4%Ø fall in February.  China's GDP fell to 6.8% in the first quarter from a year earlier , the worst performance since at least 1992.Ø  US benchmark index ,Nasdaq gained by 4.65% as the US Federal Reserve (Fed) announced a $2.3 trillion financial support package to boostØ local governments and small and mid-sized businesses in its latest move to keep the US economy intact.  US retail sales plummeted 8.7% in March after falling by a revised 0.4% in February.Ø  Capacity utilisation for the industrial sector in US decreased to 72.7% in March from 77% in February while US industrial production plungedØ 5.4% in March after rising by a downwardly revised 0.5% in February.

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Advice for the wise

FROM THE CEO’s DESK

Dear Investors,

“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.“ - Peter Lynch. At some periods, stock markets are volatile and the normal response for investors will be to reduce the exposure to stock or get away from equity; resisting the urge to panic during the unstable period and following a strategy during this period is crucial. There were very few better times to grow an equity portfolio than now, as the recent downturn in stock prices and favourable valuations would make a significant contribution to long-term wealth building efforts. There are several valuation indicators that suggest favourable entry points for long-term investors, such as market cap to GDP, price to book value and earnings ratio. This short-term volatility is less important if we take into account the longer investment horizon. In the last three decades, the stock markets have faced many adversities, and from all events the markets have emerged stronger than ever, and this time it will do so too. Given the "sudden pause" in global economic activity in 1Q2020, it is promising to see fiscal and monetary steps are being taken by various central banks and governments to limit the economic effects. The G-20 countries suggested that they would jointly invest more than 5 tn US dollars (i.e. 6 percent of global GDP).The US Government has proposed a ~2 trillion dollar stimulus package to support the US economy ravaged by the Covid-19 outbreak, while the European Central Bank (ECB) has pledged a huge € 870 billion injection. The Bank of England agreed to hold the interest rate at 0.1 per cent and offered a quantitative easing of 645 billion pounds during this time to help its economy. Owing to Covid-19 virus and potential slowdown in FY21 GDP numbers, the GOI and RBI had come out with a slew of reliefs. potential tailwinds for the Indian equities are low oil prices which would have a positive impact on the Indian economy. India's monthly trade deficit with China has been narrowed, due to import restrictions. Shift of manufacturing operations from China to other EMs is a huge opportunity and India could be one of the key beneficiaries. As the Covid-19 scenario plateaus, the FII / FPI's hopes of returning to emerging markets and India in particular are not unreasonable on the back of humongous global liquidity and low interest rate scenarios; while SIP flows will continue to support the market in the near future. Although we expect FY21 to see a growth recovery, difficulties may emerge in Q1/Q2 FY21 due to disruption of inventories. Reforms such as GST and corporate tax cuts, improvement in ease of doing business, and economy formalization will support the supply side We recommend being overweight on private banks, FMCG and the healthcare space while being neutral on IT. We suggest being overweight on equity keeping in mind the attractive valuations post the steep recent decrease in stock prices and advise investors to use any corrections, as a buying opportunity. Mid & small caps took a beating too in the recent correction. In the course of CY20 we expect mean reversal to happen which will allow mid & small caps to catch up on their last two years of underperformance vis-à-vis the Nifty-50 index. We encourage investors in mid-and small-cap space to look for companies with good earnings growth prospects and with fair valuations available at beaten-down prices. The 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 propose 65% for Large Cap, 25% for Midcap, 10% for Small Cap as part of the distribution among Equity-sub Asset Class. On the debt side, investors are suggested to purchase quality credit papers and stick to accrual funds,while maintaining 5%-7% as a volatility hedge allocated in gold.

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Real Estate Advisory Services

We provide our clients advice in not just acquiring property but also in investing and / lending to the real estate sector through structured transactions that offer with attractive returns.

DIRECT PROPERTY PURCHASE

At Karvy, we empower you to make the right decision in your property investments. We support you through selection of locality, finalizing the property and closing the deal. As part of the whole process, we help select and compare from various available options. We also assist in the financing the property through various financial intermediaries.

The advantage of directly investing in property is that it gives you greater control over your investment. Karvy can help you invest in to the following types of property.

RESIDENTIAL PROPERTY

Our networks of specialists are always at hand to provide expert knowledge on the current market trends and upcoming projects.

There are three kinds of investment opportunities available:

·        Pre-launches – Where the construction work has not yet begun

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·        Ready to move-in – Buildings which are ready with occupation certificate

These can be further divided into two types of markets. Primary Markets where we directly deal with developers for the property of your choice and Secondary Markets where property is sourced through our trusted retail partners.

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WEALTH MANAGEMENT SERVICES

It is not how exotic your portfolio is but how well it is structured to meet your objectives and give you regular returns whatever the economic environment.

Karvy, with over 25 years’ expertise in the financial markets, is offering comprehensive wealth management solutions for its customers through Karvy Private Wealth (KPW). Our wealth managers provide direction to a client’s financial decisions, enabling him achieve his financial and life goals. As a wealth manager, we collate the relevant financial information and life goals of the client, assess his risk tolerance level, examine his current financial status, and identify a strategy to fulfill his goals.

Wealth management  is an all-encompassing service, providing comprehensive research-based advisory along with convenient and personalized investment execution. KPW offers an unmatched product basket, ranging from debt, equity, mutual funds, insurance, derivatives, commodities, structured products, international funds, art funds and real estate. It is a unique service aimed at transforming clients’ dreams into reality

KPW was set up to cater to HNIs, keeping in mind that they require a different kind of financial planning and management. Our services include planning and protection of finances, planning of business and retirement needs, and a host of other services, which will help augment their existing as well as future finances and lifestyle. We combine a hard-nosed business approach with a soft touch of personalized attention and dedicated customer care.

Our research reports have been widely appreciated by the HNI segment. The delivery and support modules have been fine-tuned by giving our clients access to online portfolio information, constant updates on their portfolios as well as value-added advice on portfolio churning, sector switches, etc. Moreover, the investment recommendations given by our research team in the cash market have enjoyed a high success rate.

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CURRENCY DERIVATIVES

Karvy Currency Derivatives Segment, a specialized group vertical within Karvy Stock Broking Limited, has been established in 2008 to cater to the growing needs of corporate houses to manage currency exchange rate risk. With the changing dynamics and increasing volatility of exchange rates across the globe, companies exposed to currency risk face the challenge of maintaining continued profit margins. Currency Derivatives would be one of the best options to manage any related exchange rate risk and be free from the worries of market uncertainties.

At Karvy Currency Derivatives Segment (CDS), we provide customized hedging strategies for importers, exporters and companies with foreign exchange exposure. We offer forex advisory and brokerage service for the Indian currency derivative market, and provide a robust and reliable online trading platform. Currency Derivatives Segment – Karvy Stock Broking Limited is an active member of the National Stock Exchange (NSE), Metropolitan Stock Exchange of India (MSEI) and Bombay Stock Exchange (BSE).

WHAT ARE CURRENCY DERIVATIVES?

These are options and futures contracts through which you can buy or sell specified quantities of pairs of currencies at a future date (which is predetermined). The price or exchange rate is decided on the date of purchase. The derivatives are similar to options and futures in the stock market, aside from the fact that currency pairs are the underlying assets.

Currencies are often traded in by banks and financial trading institutions. Individual investors can also trade in currency derivatives to take advantage of variations in currency exchange rates. The market for currency trading is one of the biggest and fastest growing in the world.

HOW DO CURRENCY DERIVATIVES WORK?

Trading in these derivatives gives you an option to trade in four foreign currencies which are pegged against the Indian rupee. You can trade through futures trading contracts for different foreign currencies through leading stock exchanges in India. However, foreign institutional investors and non-resident Indians cannot trade in this market.

Investors can hedge against foreign exchange risk and benefit from the rupee’s movement against major foreign currencies. There has been an increase in volumes of trading in currency futures over the years. The euro, Japanese yen, British pound and US dollar are the major currencies for which you can get currency derivatives paired with the rupee.

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