2. CONTENTS
• From The CEO’s Desk
• Did You Know?
• Domestic Equity Outlook
• Domestic Debt Outlook
• Domestic Debt Strategy
• Global Equity Outlook
• Global Economy Update
• Global Debt Outlook
• Sector Outlook
• Real Estate Outlook
• Commodities
• Foreign Exchange
• What’s Trending.
• Disclaimer
3. FROM THE CEO’s DESK
Dear Investors,
“May you live in interesting times” says an old Chinese expression. I certainly believe that we are living in exciting times, an age in which we are
witness to new innovations almost every other day. Disruptive innovations and new technologies have unleashed a wave of opportunity in the market
place in the last decade. Innovation and disruption are similar in that they create new “never-thought-about” reality; they change the game. Harvard
Business School professor and disruption guru Clayton Christensen says that a disruption displaces an existing market, industry, or technology and
produces something new and more efficient and worthwhile. It is at once destructive and creative. Be it in the domain of digital marketing, e-
commerce or telecom, innovation has revolutionised the way we live today. The recent launch of the Unified Payments Interface (UPI) by RBI
Governor Raghuram Rajan is going to be a game changer in the Financial space that will simplify cash transfers and enable us to move further
towards a cashless economy. We are also seeing another disruptor in the FMCG space, one that has taken the country by storm and threatens to
shake the stalwarts in this industry.
Analysts have been keenly awaiting the Q4 results to get a sense of the country’s growth trajectory. In contrast to the last few quarters, corporate
results of many companies this quarter have been in line with market expectations with some of them even surprising on the upside. Of the results
declared so far, fairly good numbers have been reported across various sectors like IT, Banking, Cement, Petrochemicals and even Telecom. This
leads me to believe that the green shoots of economic recovery are strengthening and confidence is slowly returning.
4. On the global front, the US Federal Reserve decided to leave policy rates unchanged while the Bank of Japan surprised markets by showing
reluctance to provide further stimulus to the Japanese economy. “Brexit” appears to be an imminent risk at this point of time, with the UK likely
to hold an in-out referendum in June this year to decide on the possibility of its exit from the European Union. The other major risk is China’s
growing debt to GDP ratio which is reported to be a staggering 280%, stoking fears of a credit blowout.
The last two months have seen the Sensex recovering significantly from its February lows of 23,000 to make a new 2016 high of 26,100. After
this breathtaking sprint, equity markets will do well to consolidate at these levels. If near term triggers like the Monsoon turn out to be
favourable, we could see higher levels in the coming months. However, it remains a stock-pickers market and investors should make their
investments decisions wisely.
5. DID YOU KNOW
The mutual fund industry in India
began in 1963 with the formation of
the Unit Trust of India (UTI) as an
initiative of the Government of
India and the Reserve Bank of
India.
Sweden's central bank is believed
to be the world's oldest,
forming in 1668, making it
245 years older than the
U.S. Federal Reserve.
There are a total of 21 stock
exchanges in India, with the
Bombay Stock Exchange (BSE)
and the National Stock Exchange
(NSE) being the largest
7. • An optimistic outlook for above average monsoon provided the
much needed momentum to the domestic equity markets. Higher
outlay for rural sector and increase in infrastructure investments
in the February budget catalyzed the markets further. Seventh
pay commission and OROP should boost consumption and
growth in the coming years.
• Uncertain global environment and weak inflation prevented US
Fed from making any rate hikes during the month. Global equities
too cheered the move as one would expect only two rate
increases this year as against four envisaged earlier. Domestic
macros remained mixed. Industrial growth continued to be mixed;
mainly on account of inconsistent performance across the
manufacturing and capital goods segment. However, retail
inflation surprised positively with a stronger than expected
comeback. Declining crude and gold imports led to lower trade
deficit. In this backdrop, April monetary policy emphasized on
providing more liquidity to the banking system. At a broader level,
markets continue to await recovery in the corporate earnings. Till
the time we see a full-fledged economic recovery, rate-sensitive
and consumer discretionary themes are expected to out-perform
the overall markets.
As on 25th
April 2016
1 Month Change
1 Year
Change
Equity Markets
BSE Sensex 25,678 2.85% -5.51%
CNX Nifty 7,855 3.15% -4.37%
BSE Mid Cap 11,003 5.99% 7.71%
BSE Small Cap 11,035 6.85% 3.19%
80
85
90
95
100
105
110
115
120 S & P BSE Sensex CNX Nifty BSE Midcap BSE Smallcap
8. DOMESTIC EQUITY OUTLOOK
GOVERNMENT POLICY
With the budget now behind us, focus would be on continuing the reforms that would help in rejuvenating the investment cycle thereby pushing
overall growth. Progress on pending bills including the key GST bill would be keenly monitored.
9. WHOLESALE PRICE INDEX
• India's wholesale prices index stood at -0.85% for March,
2016 as compared to -0.91% for the month of February.
• Food inflation increased in the month of March by 3.73%.
Vegetables declined by 2.26%. Inflation in the fuel and power
segment was -8.30%%, while that of manufactured products it
was 0.40% in February.
CONSUMER PRICE INDEX
• CPI for the month of March came in at 4.83% as compared to
5.18% in February.
• Year-on-year, cost of food and beverages rose 5.27 percent
(5.52 percent in February).
• The food prices rose at a slower 5.2% compared to 5.3% in
the previous month.
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
WPI CPI
10. IIP
• Industrial output in India increased 2 percent year-on-year in
February of 2016, the first gain in four months.
• Manufacturing went up 0.7 percent, also recovering from falls in the
previous three months. Meanwhile, the mining sector output rose
by 5% in January 2016
• The cumulative growth for April – February 2016 stood at 2.6% as
per CSO.
GDP
• India's Gross Domestic Product (GDP) growth for the third quarter
of the current financial year grew at 7.3% versus an upwardly
revised 7.7% for the previous quarter.
• Manufacturing sector showed a robust growth of 12.3%, whereas
agricultural growth came in at -1%%. Mining sector witnessed a
growth coming at 1.2% Y-o-Y.
4.0
5.0
6.0
7.0
8.0
GDP
-5.0%
0.0%
5.0%
10.0%
15.0%
Feb
15
Mar
15
Apr
15
May
15
Jun
15
Jul
15
Aug
15
Sep
15
Oct
15
Nov
15
Dec
15
Jan
16
Feb
16
IIP
11. DOMESTIC DEBT OUTLOOK
The yields on 10 Yr G sec closed at 7.47% which is 4 bps lower
than the last months close of 7.51%
The central bank conducted open-market purchases of bonds
worth Rs30,000 crore in April, helping mitigate the impact of
government debt sales as Prime Minister Narendra Modi began
his record borrowing programme.
The Insolvency and Bankruptcy Code 2015 is before the Lok
Sabha and is being examined by the Joint Committee of
Parliament. It will replace the existing bankruptcy laws.
As on 25th
April 2016
1 Month
Change
1 Year Change
Debt Markets
10-Yr G-Sec-
Yield
7.47 (4bps) (32bps)
Fixed Deposit 7.25 0bps (125bps)
0
100
200
300
400
AAA AA+ AA AA- A+ A A- BBB+
Corporate Bond Spreads
5 Years 10 Years 15 Years
7.20
7.40
7.60
7.80
8.00
8.20
8.40
8.60
8.80
9.00 G-Sec
10 YR Gsec Yield 5 YR Gsec Yield 15 YR Gsec Yield
12. DOMESTIC DEBT STRATEGY
SHORT TERM DEBT
Investors who have a low appetite for interest rate volatility and seeking accrual returns with moderate duration can look
at short term debt funds with the time horizon of 1 year to 2 years. Even though, most of the short term fund’s YTMs
have fallen to sub-9%, our recommended short term debt funds still have high YTMs (9%-10.5%) providing interesting
investment opportunities.
CORPORATE BOND FUNDS
The macro economic outlook along with corporate profitability seems to be improving. We remain positive on the credit
outlook and we look for opportunities in the credit space. The corporate bond market segment continues to be attractive
over the medium to long term. The yields are at elevated levels and interest rate outlook seems favorable. The current
scenario offers the potential opportunity to lock in higher accruals, with the expectation that these levels of yields may not
sustain over the short to medium term. With credit easing, there are chances that the companies’ rating will be upgraded
that would further cause a rally in bonds, which in turn will benefit corporate bond funds.
DYNAMIC BOND FUNDS
As RBI has reduced the key policy rates, dynamic bond funds have benefited a lot as most of them have a mix of gilt and
long term bonds in their portfolio. Going ahead, we expect RBI to further reduce key policy rates only after studying the
macro-economic data, which will further boost dynamic bond funds. Investors who don’t want to time the market and who
can depend on fund managers to take view on interest rates can look at dynamic bond funds.
LONG TERM DEBT FUNDS
As RBI is expected to further reduce key policy rates, long term debt and gilt funds having long maturity will benefit from
rate cuts. Investors looking for long term investments in debt with medium to high risk appetite can look at Long term
debt and Gilt funds.
14. As on 25th
April 2016
1 Month
Change
1 Year
Change
Equity Markets
MSCI World 1682 3.38% -6.60%
Hang Seng 21304 4.71% -25.07%
S&P 500 2087 2.49% -1.00%
Nikkei 17439 1.78% -12.73%
GLOBAL INDICES
70
80
90
100
110
120
130
140
MSCI World Hang Seng S&P 500 Nikkei
15. GLOBAL EQUITY OUTLOOK
• The US Fed kept the key policy rates unchanged during the month.
• Uncertain global economy and weak inflation were the key reasons for no monetary tightening. However with improving labor market and uptick
in consumer spend, one could expect a hike in June quarter.
• With Chinese officials not showing any intent of near term Yuan devaluation, emerging markets and related currencies should stabilize.
• A rebound in crude and commodities has been a welcome relief for emerging markets whose economies are driven by those prices.
•In an unexpected move, the bank of Japan decided to hold on to the monetary stimulus, impacting the sudden appreciation of the yen.
•Overall the global markets are currently stable and will continue to be in tandem with the corporate results worldwide.
16. GLOBAL ECONOMY UPDATE
UNITED STATES U.S. economic growth braked sharply in the first quarter to its slowest pace in two years as consumer
spending softened and a strong dollar continued to undercut exports.
Weaker bank earnings in the first quarter were not a surprise given the macroeconomic backdrop that
included fears of a global slowdown, negative interest rates in the US, energy-related concerns and a
strong dollar, according to Fitch Ratings.
JAPAN Yen soars, stocks slump as BOJ holds policy, pushes back inflation target The yen surged the most
against the dollar and the euro in nearly six years as the decision caught investors off guard, while the
Nikkei share average sank 3.6 percent
Japan's seasonally adjusted unemployment rate fell to 3.2 percent in March, data by the Ministry of
Internal Affairs and Communications showed.
Source – Reuters
17. GLOBAL ECONOMY UPDATE
EUROPE Uncertainty about the outcome of Britain's European Union referendum gnawed at consumers and
businesses in April , consumer confidence fell to its weakest reading since December 2014.
Manufacturing growth was strong in Italy and Spain last month and Germany showed signs of reviving, but
activity in France contracted at the steepest rate in a year.
EMERGING
ECONOMIES
China has rolled out a value-added tax (VAT) system across all industries that previously had a business
tax, in the most ambitious overhaul of its tax regime in three decades.
The official purchasing managers’ index (PMI) was 50.1 in April, easing from March’s 50.2 and barely
above the 50-point mark that separates expansion in activity from contraction.
Source – Reuters
18. GLOBAL DEBT OUTLOOK
The world’s biggest bond underwriter, JPMorgan Chase & Co.
predicts record-low global yields ahead, based on forecasts of $1.86
trillion of net worldwide issuance this year versus $1.74 trillion of
estimated net purchases. While those figures signal that supply will
outstrip demand for the fifth straight year, the key for the bank is that
the gap -- the amount of excess issuance -- is set to shrink the most
since 2009.
Argentina barreled back into the bond market with the largest
emerging-market debt sale on record, attracting intense investor
interest after years as a financial pariah. The $16.5 billion global
debt offering was more than double the previous highs from
governments in developing countries.
Ratings Country 10 Yr G-Sec Yield
1 Month
Change
AAA
Germany 0.25% 10 bps
Hong Kong 1.32% (9 bps)
Sweden 0.63% 12 bps
Switzerland -0.26% 10 bps
AA+ USA 1.82% 1 bps
AA-
China 2.90% (4 bps)
Japan -0.12% (9 bps)
20. SECTOR OUTLOOK
SECTOR STANCE REMARKS
Automobiles
Passenger vehicles and CVs will continue to outperform two-wheeler segment. Tractors to benefit on
account of base effect and expected normal monsoons.
Auto-ancillaries expected to do well due to revival of demand and stable global markets.
IT/ITES
Select verticals displaying better growth. Digital segment to drive revenues.
Long term outlook to improve once global uncertainties come down.
FMCG
We prefer “discretionary consumption” theme within FMCG. Key beneficiaries such as durables and
branded garments, as the growth in this segment will be disproportionately higher vis-à-vis the increase
in disposable incomes. A bounce in raw materials could put pressure on margins. Expect uptick in
volumes post monsoons.
E&C
Order inflows expected to improve as spending and capital expenditure likely to move up on economic
recovery. Moreover, sluggish execution and weak macros create a challenging environment.
21. SECTOR OUTLOOK
SECTOR STANCE REMARKS
Power Utilities
Lack of fuel linkages , poor SEB health, adverse CERC guidelines have compromised the ROE’s
leading to de-rating in near term. Reform initiatives through UDAY can improve sector prospects in
long run.
BFSI
Private sector banks continue to deliver earnings in line with expectations. However, PSBs delivering
muted numbers on higher slippages and lower credit growth. We expect this trend to continue for next
few quarters.
Cement
Cement volumes and realizations continue to witness pressure in South region. However, early signs
of recovery, specifically hopes of bounce back in North and West region. Cost benefits would drive
earnings. Pricing would be key for sector valuations.
Healthcare
Regulatory risks have become more evident and frequent with FDA inspections for Pharma companies.
US growth continues to be muted for large caps due to lower approvals and regulatory issues.
22. SECTOR OUTLOOK
SECTOR STANCE REMARKS
Energy
With declining crude prices and price deregulation of diesel, we believe the total subsidy burden on Oil
PSU’s will come down significantly this year. Govt. has decided to pay full subsidy to OMC’s .
Telecom
Regulatory uncertainties have come down. However, aggressive bids for spectrum has revived fears of
sub-optimal returns on capital. Further, expected launch of R-Jio at competitive prices in 4QFY16 will
have negative implications.
Metals
Lower global growth and Chinese slowdown has kept the growth subdued. Absence of US monetary
stimulus will lead to further downward pressure on prices.
24. REAL ESTATE OUTLOOK
The Central Government has eased FDI norms and lifted
restrictions on ticket size, Project size and stage of entry
of capital thus, paving way for virtually any project to
receive Foreign equity funds. Residential Prices have
remained stagnant across Tier I markets. All Tier I
markets have continued to witness moderate decrease in
demand with sluggish market sentiments.
With improvements in infrastructure across cities like
Chandigarh, Jaipur, Lucknow, Ahmedabad, Bhopal,
Nagpur, Patna and Cochin and quality products being
offered the end users /investors are being spoilt for
choice. The Demand drivers have increased
nuclearization, rising disposable incomes and easier
availability of credit.
RESIDENTIAL Tier I Tier II
25. REAL ESTATE OUTLOOK
Bangalore NCR and Hyderabad have seen strong
demand in the commercial segment and even Mumbai
has picked up in the later half of the year. The capital
values have also been on rise in major markets except in
NCR where values have remained stable. Absorption
volumes have been surpassing new completions
consistently, since H1 2014, as a result of which, the
vacancy levels in India have been dwindling.
Low unit sizes have played an important role in
maintaining the absorption levels in these markets. Lease
rentals as well as capital values continue to be stable at
their current levels in the commercial asset class.
COMMERCIAL Tier I Tier II
26. REAL ESTATE OUTLOOK
In Mumbai demand for space in successful malls
continued to be on the rise and categories such as F&B,
premium apparel and entertainment dominated leasing
activity. International brands were seen increasing their
footprints . Hyderabad has seen a steady growth in
demand while markets like NCR, Bangalore and Chennai
remained stagnant.
The Mall concept is new to Tier II cities and High Street
retail is still popular. Anecdotal evidence suggests that
rentals have remained stagnant in this space.
RETAIL Tier I Tier II
27. REAL ESTATE OUTLOOK
Fringe areas with improving connectivity to Metro cities
and other top 8 to 10 cities in India have seen interest in
purchase of Plotted / Villa developments due to lower
ticket size and better marketing by developers
/aggregators. There is an uptick in demand for
warehousing with the growth of E commerce.
Land in Tier II and III cities along upcoming / established
growth corridors have seen good percentage appreciation
due to low investment base in such areas.
LAND Tier I Tier II
28. COMMODITIES
GOLD
During April, the “Risk-on” strategy was back as the preferred
theme. After posting double digit gains in previous months, gold
prices consolidated and remained in a narrow range. For near to
medium term, the larger band of $1100-1300 remains.
• As on 25th April, 2016 : 29,110 per 10gm
• 1 month change : 2.31%
• 1 year change : 9.30%
24000
25000
26000
27000
28000
29000
30000
31000
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
Gold
29. COMMODITIES
CRUDE OIL
Crude oil prices recovered 12% month on month to close at
$42.97 per bbl
• As on 25th April, 2016: $42.97 per bbl
• 1 month change : 12.10%
• 1 year change : -31.60%
0.00
20.00
40.00
60.00
80.00
Crude
30. Currency
As on 25th
April 2015
1 Month Change 1 Year Change
USD/INR 66.68 0.02% -4.61%
GBP/INR 96.32 2.15% 0.24%
Euro/INR 74.95 0.71% -7.70%
Yen/INR 59.99 2.16% -10.90%
USD/Euro 0.89 -0.70% -4.77%
FOREIGN EXCHANGE
• The U.S. government's inclusion of Korea on its monitoring
list of foreign exchange policies is expected to reduce room
for Korean financial authorities to maneuver the won on
currency markets
• The Nigerian economy recorded a decline of $7.95bn in
foreign exchange inflows in the last quarter of 2015, figures
obtained from the Central Bank of Nigeria have revealed.
• China’s foreign-currency reserves rose during March, the
first increase in five months, a sign Beijing may have
partially succeeded in stemming heavy capital outflows
that destabilized global markets earlier this year and
encouraged some investors to bet big against the yuan.
0.02%
2.15%
0.71%
2.16%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
USD GBP EURO YEN
31. WHAT’S TRENDING
BREXIT
What is it?
Withdrawal of the United Kingdom from the European Union, often shortened to Brexit is a political aim of some advocacy groups, individuals
and political parties in the United Kingdom (UK). The central group of advocates for Brexit is VoteLeave, which is composed of a broad range of groups
ranging from Labour to Conservative.
Impact of Brexit?
• It is plausible that Brexit could have a modest negative impact on growth and job creation. But it is slightly more plausible that the net impacts will
be modestly positive. This is a strong conclusion when compared with some studies.
• There are potential net benefits in the areas of a more tailored immigration policy, the freedom to make trade deals, moderately lower levels of
regulation and savings to the public purse. In each of these areas, it is not believed that the benefits of Brexit would be huge, but they are likely to
be positive
• Meanwhile, costs in terms of financial services, foreign direct investment and impacts on London property markets are more likely to be short-
term and there are longer-term opportunities from Brexit even in these areas
• It is not likely that any particular region or regions of the country would be more adversely affected by Brexit than the country overall. Likewise, its
not found that support for the notion that Brexit would benefit some sectors more than others, but the range of outcomes for production /
manufacturing industries is probably wider than for services
Source – Wikipedia, www.woodfordfunds.com
32. DISCLAIMER
Karvy Investment Advisory Services Limited [KIASL] is a SEBI registered Investment Advisor and provides advisory services. The information in this newsletter has been prepared by KIASL based on information obtained from
public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed and the same are subject to change without any notice. This newsletter and
information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe to the securities mentioned. The securities discussed and opinions
expressed in this newsletter may not be taken in substitution for the exercise of independent judgment by any recipient as the same may not be suitable for all investors, who must make their own investment decisions, based on
their own investment objectives, financial positions and needs of specific recipient. The information given in this document is for guidance only. Final investment decisions have to be made by the recipients themselves after
independent evaluation of the investment risk. Recipients are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. Affiliates of KIASL may from time to time, be engaged in
any other transaction involving such securities/commodities and earn brokerage or other compensation or act as a market maker in the securities/commodities discussed herein or have other potential conflict of interest with
respect to any recommendation and related information and opinions. Wherever products offered by the Karvy Group entities may be recommended, it is to be noted that KIASL does not provide execution services and further
KIASL does not receive any monetary or non monetary benefit as regards such recommendations made. This newsletter and information contained herein is strictly confidential and meant solely for the selected recipient and may
not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KIASL. Past performance is not necessarily a guide
to future performance. KIASL and its Group companies or any person connected with it accepts no liability whatsoever for the content of this newsletter, or for the consequences of any actions taken on the basis of the information
provided therein or for any loss or damage of any kind arising out of the use of this newsletter.
Nothing in this newsletter constitutes investment, legal, accounting and tax advice or a representation that any of the investment mentioned is suitable or appropriate to your specific circumstances. The information given in this
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endeavor to update the information herein on reasonable basis, KIASL , its associated companies, their directors and employees (“Karvy Group”) are under no obligation to update or keep the information current. Also, there may
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