o   In its latest outlook, the IMF raised its forecasts for global growth to the fastest since 2011, upgrading projections for major economies including the U.S., Germany and China. India to reclaim its tag as the fastest growing major economy at 7.4% and 7.8% in FY 18 and FY 19 respectively.


o   Government announced the much awaited details of the Rs2.11tn bank recapitalization plan unveiled in Oct17 with capital infusion of ~Rs880bn (~$13.8bn) into public sector banks in this fiscal year.


o   GST Council cut tax rate on 29 goods, including second-hand vehicles, confectionery and bio-diesel, while veering around to simplifying return filing process for businesses.


o   The government collects Rs 86,703 crore as GST for December as against Rs 80,808 crore in November.


o   Nov IIP surged to 8.4% vs 2.2% in Oct led by manufacturing sector. Capital goods output improved further to 9.4% vs 6.6% in Oct. Electricity production inched up to 3.9% vs 3.2% and mining also rose marginally to 1.1% in Nov.


o   Dec trade deficit rose to 3 year high to $14.88bn vs $13.8bn in the previous month led by rally in crude, and gold prices.


o   Indian equities (+4.7%) started the year on a strong note with Nifty crossing the 11100 mark.

o   Inflation :

– Retail inflation stood at 5.21% in the month of December 2017 - higher from 4.88% in November 2017 and 3.41% in the similar month of previous year.


o   Trade Data :

– India's exports grew to $27.03 billion (up 12.36%) last month from $26.19 billion in November 2017.

– Imports during the month, posted a sharper rise of 21.12 per cent to $41.91 billion led by gold, silver, precious stones, petroleum and electronic goods.

– This widened the trade deficit to $14.88 billion in December 2017 compared to $10.54 billion in December 2016.


o   Growth of the eight core sectors slowed to a five-month low of 4 per cent in December 2017 due to negative performance of segments like coal and crude oil.


o   U.S. economic growth unexpectedly slowed (slowed to 2.6% from 3.2% in third quarter) in the fourth quarter as the strongest pace of consumer spending in three years resulted in a surge in imports. This brings the growth in 2017 to 2.3%.


o   Federal Reserve officials, meeting for the last time under Chair Janet Yellen, left borrowing costs unchanged while adding emphasis to their plan for more hikes, setting the stage for an increase in March under her successor Jerome Powell.

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§  BJP won its 6th consecutive term in Gujarat with 99 of 182 seats and also secured a comfortable win in Himachal Pradesh with 44 of 68 seats. Key to note in Gujarat is while BJP has done well in urban seats the race was tighter than expected for the rural seats.

§  In line with street expectations, RBI held status quo on policy rates at 6% (voted 5-1) and maintained neutral policy stance. The MPC statement however struck a vigilant tone on inflation and revised its 2HFY18 CPI forecast marginally higher to 4.3-4.7% from 4.2-4.6% earlier.

§   The Finance Ministry notice in the last week of Dec confirmed fears of fiscal slippage as it announced extra borrowing of INR 500 bn (0.3% of GDP) through government bonds over and above the budgeted net borrowing of INR 3482 bn for FY18.

§   Oct IIP slowed to 2.2% vs 3.8% in Sep as manufacturing sector slowed to 2.4% vs 3.4% last month. Capital goods output was in the green for the 3rd straight month.

§  FIIs reversed position to net sellers in Dec after 2 consecutive months of buying with net outflows $ 1025mn. The total net inflows from FIIs for the year 2017 stood at $7.8bn. DIIs continued to remain buyers for the 9th straight month with net inflows of $1.2bn led by Mutual Funds at $951mn.

Macro Data:

§  India reported a fiscal deficit of 6.12trillion Rs($95.77 billion) for Apr-Nov, or 112% of the budgeted target for the current fiscal year that ends in Mar. This was mainly due to lower GST collections and higher expenditure.

§   The RBI kept the repo rate unchanged at 6% in its latest credit and monetary policy review, as was widely expected given the concerns on the rising headline inflation and firm global crude oil prices.

§   Inflation : Retail inflation soared to a 15-month high of 4.88% in November mainly due to higher food prices.

§  Trade Data : India's exports rose at a fast clip in November, reversing the contraction in the previous month. Value of exports was $26.2 billion against imports of $40 billion, yielding a trade gap of $13.8 billion, higher than $13.4 billion same month last year but less than $14 billion in October.

§  Eight core sectors grew by 6.8% in November 2017, on robust performance in segments like refinery, steel and cement. Favourable base effect also helped.

§  India's factory activity expanded at the fastest pace in five years in December, buoyed by a rise in output and new orders, which allowed firms to raise prices. The Nikkei Manufacturing Purchasing Managers' Index, rose to 54.7 in December from November's 52.6.

§  The government reduced the interest rates on small saving schemes, including National Savings Certificates (NSCs), Public Provident Fund (PPF) and Kisan Vikas Patra (KVP), by 0.2% for the fourth quarter of the fiscal (January-March).

§  The U.S. economy grew at its fastest pace in more than two years in the third quarter, powered by robust business spending, Gross domestic product expanded at a 3.2 % annualized rate last quarter.

§  US Federal Reserve officials followed through on an expected interest-rate (target range of 1.25% to 1.5%) increase and raised their forecast for economic growth in 2018, even as they stuck with a projection for three hikes in the coming year.

Ø  Macro Data:

  • ·         The government's fiscal deficit during the first seven months (April-October) of the current fiscal was Rs 5.25 lakh crore, or 96.1% of the budgeted target for the current fiscal year that ends in March 2018.
  • ·         Inflation :

– Consumer prices in October rose 3.58 % over the same month last year, on the back of rising food and fuel prices. CPI inflation in September was revised to 3.28 %

– Wholesale inflation picked up in October to a six-month high to 3.59% in October driven by faster rises in prices of food and fuel products.

  • ·         Manufacturing activity improved in November to its highest level since October 2016 on the back of growth in new orders and output. The Nikkei India Manufacturing Purchasing Managers’ Index recorded a value of 52.6 in November, up from 50.3 in October.
  • ·         Eight core sectors grew at a slower pace of 4.7% in October, chiefly due to subdued performance of cement, steel and refinery segments.
  • ·         The country’s Index of Industrial Production rose 3.8 % in September, compared with the revised 4.5 % in August (a nine-month high) and 5.7 % in September last year.
  • ·         The RBI cancelled a bond sale via open market operation worth Rs 10,000 crore scheduled, citing “evolving liquidity conditions


Ø  Trade Data :

  • ·         India’s merchandise exports declined for the first time in 14 months in October as exporters struggled with a liquidity crunch because of delayed refunds under the goods and services tax (GST) regime.

– Exports fell 1.1% in October to $23.1 billion (against $28.6 billion in September,2017) while imports expanded at the slowest pace in 10 months at 7.6% to $37.1 billion (against $37.6 billion in September)

– India’s trade deficit in the month was $14 billion (against $9 billion in September)


Ø  India’s Rating:

– Global rating agency Moody’s upgraded India’s sovereign bond rating for the first time in nearly 14 years. It lifted the India’s rating to Baa2 from Baa3, changed its rating outlook to stable from positive as “risks to its credit profile were broadly balanced.

– Global rating agency Standard and Poor on Friday retained India’s sovereign rating at BBB- with a stable outlook



– The GST Council reduced rates on 210 items of which 180 were in the top 28 per cent bracket.

– A uniform 5 per cent tax was prescribed for all restaurants, both AC and non-AC

·         Sovereign Rating Upgrade: India’s improving growth outlook and structural reforms agenda got a boost with Moody’s upgrading India’s local and foreign currency rating to Baa2, a notch above Baa3 earlier. Moody’s cited reforms such as GST, measures to address the banking system NPL, Aadhaar-enabled direct benefit transfer etc.

·         The Q2 GDP print came in at 6.3% reversing the decelerating trend. The recovery was led by manufacturing which saw a smart rebound to 7%. In terms of expenditure, both private and govt consumption growth remained weak but investments i.e: GFCF (Gross fixed Capital Formation) growth improved to 4.7%. Net exports were up marginally as well.

·         India’s rank improving by 30 places in World Bank’s Ease of Doing Business Survey supporting the view of transitions being underway in the economy.

·         The Central Cabinet approved an ordinance approving an amendment to the Insolvency and Bankruptcy Code to prevent wilful defaulters from bidding for stressed assets.

·         FIIs finally turned into large net buyers once again with $2.8bn of buying in November; taking the YTD net buying to $8.6bn. DIIs remained buyers to the tune of $1.4bn in November; which took the DII YTD tally to a staggering ~$12.8bn. Mutual Funds once again drove the inflows with $1.6bn being poured-in; while Insurers were small net sellers of $220mn.

·         Capital market activity swelled in Nov-17, with some sizeable IPOs like HDFC Life and block trades like that in Bharti Airtel.

Macro Data:

  • ·         Inflation :

– Consumer prices in September rose 3.28 % over the same month last year. CPI inflation in August was revised to 3.28 %

– Wholesale inflation fell to 2.60% in September as prices of food articles, led by vegetables, softened.

  • ·         India’s factory output rebounded strongly to a nine-month high of 4.3% in August as companies stepped up production to restock warehouses ahead of the festival season, after they reduced output in June and July owing to uncertainties regarding implementation of the goods and services tax (GST).
  • ·         Services sector activity expanded for the first time in three months in September -- but only slightly. The Nikkei India Services PMI stood at 50.7 in September -- from 47.5 in August.
  • ·          India’s fiscal deficit at the end of the first half of the current fiscal touched 91.3% of the budget estimate, mainly due to rise in expenditure. In absolute terms, the fiscal deficit was Rs4.99 trillion during the April-September period of 2017-18.
  • ·         Trade Data :

– India’s merchandise exports grew (rose 25.7% to $28.6 billion) at the fastest pace in six months in September, on the back of expansion in shipments of chemicals, petroleum and engineering products

– While imports too rose by 18.09 % to USD 37.6 billion in September from USD 31.83 billion in the yearago month.

– Trade balance stood almost flat at USD 8.98 billion in September 2017 against USD 9 billion in September 2016


                           Economical Update:

  • ·         The finance ministry announced a Rs2.11 trillion bank recapitalisation plan for state-owned lenders weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment.
  • ·         Out of the total commitment, Rs1.35 trillion will come from the sale of so-called recapitalisation bonds. The remaining Rs76,000 crore will be through budgetary allocation and fundraising from the markets.
  • ·         India jumped 30 spots to secure a place among the top-100 countries on World Bank's ease of doing business ranking list in 2018.
  • ·         Bharatmala highway road project launched: Finance Minister Arun Jaitley announced a number of highway/road projects at an estimated cost of Rs 7 lakh crore.
  • ·         The Railways is looking to invest over USD 150 billion over the next five years which would help create one million additional jobs.
  • ·         Narendra Modi’s ambitious National Investment and Infrastructure Fund has got a major boost with the Abu Dhabi Investment Authority committing to put in up to $1 billion.
  • ·         The RBI left its key interest rates unchanged, while slashing the statutory liquidity ratio (SLR) by 50 basis points.

·         Game changing event unveiled by Finance Ministry – recapitalisation of PSU banks to tune of Rs 2.1 lakh crores announced. The two components of the plan are – issuing recapitalization bonds worth Rs1.35trn (~0.8% of GDP) and Rs760bn through fiscal resources and capital raise.

·         Government has announced ambitious plans to develop 83,677km of roads with an investment of Rs6.92trn over the next five years with Bharat-Mala scheme. The funding will be mix of Government funds, debt and private investment.

·         Aug IIP surged to 4.3% vs 1.2% in Jul, the highest since demonetisation indicating normalization post GST rollout. Manufacturing output rebounded to 3.1% in Aug as Capital Goods recorded 5.4% growth after months of decline. Mining expanded to 9.4% vs 4.8% in Jul and electricity generation also picked up to 8.3% vs 6.5% in previous month

·         India World Bank business ease ranking improves to 100, jumping 30 points from previous survey

·         Deal activity stayed strong in Oct with total of 19 deals amounting to ~$3bn largely led by primary market.

·         Indian equities (+5.6%) rallied in Oct led by Government’s large scale recapitalization plan to boost public sector banks and continued domestic inflows.

Equity Market

  • Series of Articles on Economic Slowdown appeared in the Media creating doubts in the minds of Investors.
  • Significant tension over developments in North Korea and subsequent posturing by US President Donald Trump pointing to increased escalations led to global jitters, impacting Indian equities.
  • Since government has significantly front-ended capex, deficit has already reached 96%(Apr-Aug) of full year budget estimate. With inflation also bouncing off from its lows, bond yields and Indian rupee traded a bit weak during the month.
  • Clamor for government’s need for a stimulus gained ground – from recapitalizing PSU banks to providing sops to communities impacted by GST.
  • FII selling intensity was the highest on a monthly basis after Jan 2008. Continued strong flows to Mutual Funds and other DII absorbed most of the FII selling during this period.
  • High frequency indicators suggest an encouraging trend for multiple consumption categories, however private capex and bank credit continue to be subdued.

   Debt Market

  • India’s GDP growth slumped to a three-year low of 5.7% during April June—lagging China for the second straight quarter —as manufacturing slowed ahead of the GST launch amid demonetisation effect.
  • Factory output grew unexpectedly in August to bring the country’s manufacturing sector back into growth zone on surge in new business orders after the GST-related contraction in July, a monthly survey showed. The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rebounded to 51.2 in August from a low of 47.9 in the previous month, indicating a substantial turnaround from July’s contraction amid confusion over the new GST (Goods and Services Tax) regime.
  • India’s fiscal deficit at July- end touched 92.4 % of the budget mainly because of front loading of expenditure by various government departments.
  • Monetary Policy: 
  1. The RBI, in its fourth bi-monthly policy review for 2017-18, kept the repo rate unchanged at 6 percent.
  2. Reverse repo has been retained at 5.75 percent.
  3. Cuts economic growth forecast to 6.7% from 7.3% for FY’18.
  4. Projects inflation at 4.2-4.6 pc in the second half.
  5. Focus on keeping headline inflation close to 4 pc on a durable basis.

The market continues to swing from end to end. As I write this, the market is consolidating at its peaks but remains steady. At one end the growth moderation has caused some concerns. But at the other end is the uptick in the industrial production as marked by IIP. In July, IIP grew by 1.2% yoy against -0.1% in June. In Aug-17, exports picked up by 10% over the last year. But we will have to wait and see if this trade growth is more sustainable.

Point remains that there are some issues. But the structural reforms have come in. The push for transparency in capital management, tax compliance and general corporate governance may stimulate entrepreneurship. This is likely to result in sustainable long term growth over a period of time. Having said that, much needs to be done on the policy front.

The initial teething troubles howsoever temporary, have an economic cost. Simplification and ease of doing business are the hallmarks of GST; and that principle must be ensured.

The monetary policy stance continued to remain unchanged for October 17. Inflation concerns are clearing dominant in central banker??s risk matrix. Growth may now increasingly be dependent on the swift resolution of the stressed banking assets; and the resumption of the banking credit to the commercial sector.

In this backdrop, the market valuations may appear on the higher side to some. Especially to those comparing their experiences with the 2007- 08 market. But we forget that that market fell because the rest of the world was in a major global crisis then. No such shock risk is on the horizon. At least in the financial space for now.

Moreover, FIIs sentiments decided the market direction in 2008. But in 2017, domestic institutions, especially the Mutual funds have emerged as the major force in the equities market. And they are adding depth to the market. It's likely that major indices may remain range bound with some volatility from time to time. However, value may be available for picky fund managers. And such funds are likely to lead the performance pack henceforth.

The Aum inflow in the mutual funds industry continues to remain robust. The Q2 quarter has seen an incremental growth of around Rs 1.42 Lakh crore over Q1 FY18. That is a Q-o-Q growth of around 7%. Kotak Mutual Fund Average Aum for July-Sept 17 quarter was at around Rs 1.10 lakh Crore. We saw an average Aum growth of around 9% Q-o-Q in the said period. We remain convinced that this trend is set to continue as more and more households reallocate their savings from physical to financial assets.

The opportunity for us as investment professionals is to now provide a robust service structure and build sacred trust with the retail investors. We must remember that not all investors are Kumbhakarna. Many investors tend to adopt an Ekalvya route with their investment decisions. And unless such an investor is focussed, disciplined and self-learning, the possibility of getting exposed to high risks is rather huge. Therefore we would need to help them appreciate the quality of our advice/service in generating alpha for the investors. And such businesses who do that; will be able to retain most of their investors through the market cycle.