In wake of IL&FS and banking sector crisis the Indian economy is slowing down its pace primarily due to liquidity crunch. The estimated growth rate of economy has also been revised to 7% from 7.2% in April by RBI. The Indian economy has grown by 6.8 per cent in 2018-19 and 7.2 per cent in 2017-18, according to CSO estimates. RBI, in its second monetary policy review on June 6, 2019, cut repo rate and reverse repo rate by 25 basis points to 5.75 per cent and 5.50 per cent respectively, giving much needed liquidity to the market.
Retail inflation in India rose to 3.18 per cent in June 2019 compared to 3.05 per cent in May 2019, primarily due to rising food inflation from lower levels. while, the core inflation (inflation excluding food and fuels) softened slightly to 4.1 per cent YoY from 4.2 per cent in previous month. CPI inflation remained well below RBI’s medium term target of 4 to 6 per cent.
India’s merchandise exports growth fell for the first time in nine months in June 2019 while imports contracted first time in four months. The exports growth slowed down to 9.71 per cent in June 2019, while imports declined 9.06 per cent, mainly on account of growing US-China trade war tensions and associated uncertainties. India’s trade deficit narrowed slightly to USD 15.28 billion in June compared to USD 15.36 billion in previous month.
After a sharp bounce in April, India’s Index for Industrial Production (IIP) growth slowed down somewhat in May 2019, primarily due to deceleration in manufacturing and mining. The IIP increased by 3.1 per cent YoY in May 2019, compared with 4.3 per cent increase in April 2019.
Government Bond Yields:
Yield on 10 year government bond yield fell by 15 basis points to 6.88 per cent, as RBI reduced its key policy rates. Globally also the 10 year government bond yields of all major economies are going down as the pace of growth is slowing down. Rupee gained by 1 per cent and closed at 69 Rs per USD.
Indian Equity Markets:
India’s equity markets remained range bound in June 2019, as market awaited announcements in the first budget of the re-elected BJP government, which is scheduled in the first week of July 2019.
Equity markets in India corrected marginally in June 2019, after rally in the past three months. In line with the movement in the broad-based benchmark indices, the market capitalisation of BSE and NSE too decreased by 1.6 per cent and 1.5 per cent respectively. At the end of June 2019, the total market capitalisation of BSE and NSE stood at 152 lakh crore and 150.3 lakh crore respectively. Sensex and Nifty corrected by 0.8% and 1.1% respectively closing at 39395 and 11789.
Source: NSE, BSE and MSEI
Trends in the Secondary Market
In the month of June 2019, most of the major sectoral indices closed negative. Among BSE indices, S&P BSE Small Cap decreased by 4.2 percent, followed by S&P BSE Healthcare (-3.1 per cent), S&P BSE 500 (-1.5 per cent) and S&P BSE FMCG index (-1.4 per cent). On the other hand, S&P BSE Capital Goods index, S&P BSE power index and S&P BSE Metal index grew by 5.8 per cent, 4.2 per cent and 3.3 per cent respectively. In terms of volatility, S&P BSE Metal index was most volatile with daily volatility of 1.4 per cent.
Among select NSE sectoral indices, Nifty Media index declined highest by 7.5 percent during June 2019, followed by Nifty Small 100 index (-5.3 per cent) and Nifty Pharma index (-4.6 per cent). In terms of volatility, Nifty PSU bank index was most volatile with daily volatility of 1.6 per cent.
Trends in Resource Mobilisation by Corporates
During June 2019, the total equity issuance (both public and private issuance) declined by 63.8 per cent to 16,038 crore from 44,329 crore in May 2019, mainly on account of slowdown in the public and rights issues. The corporate sector raised 569 crore through public issuance of equity compared to 25,527 crore raised in the previous month.
While equity issuance witnessed some slowdown, the debt issuance by private placement continued its momentum in June 2019. The total debt issuance (both public and private issuance) increased by 11.9 per cent. The debt issuance through private placement increased by 12.6 per cent from 43,577 crore to 49,072 crore in June 2019, while amount raised through public issue of debt fell from 1,048 crore in May 2019 to 852 crore in June 2019.
Trading in Corporate Debt Market
During June 2019, BSE noted 3,662 trades of corporate debt with a traded value of ₹ 56,679 crore as compared to 4,839 trades of corporate debt with a traded value of ₹ 65,109 crore in May 2019. At NSE, 5,845 trades were noted with a traded value of ₹ 1,14,725 crore in June 2019 as compared to 6,650 trades with a traded value of ₹ 1,29,918 crore in May 2019. Together, the trading in corporate debt at BSE and NSE amounted to ` 1,71,404 crore during June 2019.
Trends in Institutional Investment
- Trends in Investment by Mutual Funds
The mutual fund industry saw a net inflow of 1,09,701 crore in June 2019. While growth/equity oriented schemes and exchange traded funds (ETFs) saw net inflow of 1,07,970 crore and 42,940 crore respectively, income/ debt oriented schemes witnessed net outflow of 48,320 crore.
During June 2019, mutual funds made net investment of 49,803 crore in the Indian securities– secondary market (` 6,232 crore in the equity and ` 43,571 crore in the debt securities).
- Trends in Investment by the Foreign Portfolio Investors (FPIs)
Foreign portfolio investors (FPIs) were a net buyer for June 2019. FPIs made net investment of ` 13,111 crore in Indian securities market in June 2019 compared to an investment of ` 11,370 crore in May 2019. FPIs invested ₹ 2,596 crore in equity securities, ` 8,319 crore in debt securities and ₹ 2,196 crore in hybrid securities in June 2019.
- Trends in Portfolio Management Services
During June 2019, the total AUM of the portfolio management industry increased by 0.5 per cent to ₹ 16.3 lakh crore from ₹ 16.2 lakh crore in May 2019. Of the total AUM of ₹ 16.3 lakh crore at the end of June 2019, AUM of fund managers of EPFO/PFs contributed ₹ 11.9 lakh crore in the total AUM (or 72.7 per cent of total AUM).
- Trends in Substantial Acquisition of Shares and Mergers & Acquisitions:
During June 2019, four open offers with offer value of ₹ 5,181 crore was made to the shareholders as against five open offers with offer value of ₹ 249 crore made in May 2019. All the four open offers were for change in control of management.
Global Economy update:
During the second quarter of 2019, the global activity has been slowing down compared to the previous quarter. The ongoing trade war between US and China has affected the general investor confidence. The gross domestic product (GDP) of the USA grew by 3.2 per cent (quarter-on-quarter, annualised) in first quarter of 2019. The first quarter GDP growth for the Eurozone was confirmed at 0.4 per cent Q-o-Q. The British economy has been suffering over the uncertainty of the Brexit. While British GDP grew by 0.5 per cent in the first quarter, the Office for National Statistics (ONS) revealed that the economy actually shrank by 0.4 per cent in April, primarily due to sharp fall in car production related to Brexit uncertainty. The Japanese economy on the other hand recorded a surprising increase in the growth rate. During the first quarter, the economy grew by 0.5 per cent QoQ, beating the market expectation of a 0.1 per cent contraction.
Economic activity slowed in major emerging market economies (EMEs). India has lost its spot as the world’s fastest-growing major economy after it grew at 5.8 per cent in the first quarter of 2019. In the previous quarter, the economy grew at 6.6 per cent. The ongoing trade war with the USA has dented growth of the Chinese economy. China’s economy in the second quarter of 2019 grew at 6.2 per cent. Both Brazil and Russia recorded slowdown.
Crude oil prices remained volatile, reflecting evolving demand-supply conditions underpinned by the production stance of the OPEC plus, rising shale output, weakening global demand and geo-political concerns.
Global Equity Markets:
Uncertainties surrounding US-China trade negotiations and Brexit have affected the investment sentiments across the globe. Stock markets were supported by increasingly accommodative central banks. In the US the S&P 500 set a new record high. Investors were broadly cheered by continued dovishness from the Federal Reserve and indications of progress in trade tensions by the end of June. In the Eurozone, indices advanced in June following a sharp drop in May. Sentiment towards trade-exposed areas of the market such as semiconductors and car makers ebbed and flowed over the quarter as trade tensions persisted. The lack of any further escalation in the trade wars in June helped the market to recover after May’s pull-back.
Global Debt Markets:
There has been clear signals that central banks would keep monetary policy loose. There is also a possibility of US rate cuts. At their meetings in mid-June, comments from the Fed and ECB confirmed the growing dovishness among policymakers, with both clearing the way for further policy measures if needed. Government bond yields fell markedly as prices rose. The 10-year US Treasury yield at the end of June 2019 fell by around 12 basis points (bps) from its previous month’s value. Yield of the German Bund also decreased by more than 12 bps. The UK 10-year yield fell by about 5 bps.
Among the emerging markets bond yields fell substantially for Brazil 10-year bonds by 100 bps. In India, the yields on 10-year government bonds fell by 15 bps buoyed by the prospect that the central bank will effect deeper rate cuts to bolster growth amid low inflation.
Acknowledgements: RBI Bulletin (www.bulletin.rbi.org.in), SEBI Bulletin (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
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