• 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
• Foreign Exchange
• What’s Trending.
FROM THE CEO’s DESK
At the outset, let me wish you all a very Happy Diwali and may the Festival of Lights spread peace, harmony and good cheer in your lives!
The month of November has an important event to watch out for from a global perspective. With the US Presidential Elections barely a week
away, all eyes and ears seem to be glued to the media bytes coming from that part of the globe. While early polls predicted a Clinton victory,
recent polls are suggesting that Trump might make it to the finishing line, causing much volatility in global equity markets. Significant as the
event may be, its long term impact on the Indian markets will however, be limited. The likelihood of a Fed rate hike in December is also
gradually getting factored in.
The drivers for our market are far more domestic in nature. The effects of a good monsoon have already started trickling in. Inflation in
September came in at 4.3%, the lowest since August 2015. The RBI, taking cognisance of a benign inflation figure and the need to push growth
further, has decidedly become more dovish. The Monetary Policy Committee in its first meeting announced a 25bps rate cut and is expected
to move again before the end of the financial year.
The implementation of GST will be a major trigger in 2017, one that will not only result in simplification of tax administration, but also ensure
better compliance, thus boosting revenue collection. The recently concluded Income Declaration Scheme (IDS) had pan-India declarations of
Rs.65,000 crores, which enabled the Government to garner revenue to the tune of Rs.30,000 crores. The huge success of the IDS coupled with
the Government’s tough stance on unaccounted income will make sure that all these resources will now move to the mainstream economy.
The second quarter results have been rather muted in overall terms and clearly disappointing in some areas. Notable among these is
the IT sector which has been under pressure for several quarters now, both in terms of volumes and pricing. Domestic consumption
plays continue to do well. With the implementation of the 7th Pay Commission, we expect higher disposable incomes to benefit urban
discretionary spending in the form of automobiles, white goods, etc. Growth in rural incomes as a result of the good monsoon is likely to
benefit the FMCG sector, tractors, two-wheelers and a whole host of agri-based companies.
While markets may consolidate or even correct in the near term, we urge investors to have a longer horizon. To quote Ben Graham,
“The individual investor should act consistently as an investor and not as a speculator.” We expect significant flows into the Indian equity
markets over the next couple of years. There is increasing awareness among domestic investors of the importance of Equity in their
overall Asset Allocation and we are seeing evidence of this in the regular month-on-month inflows into mutual funds and other equity
products. We believe that Equity is an asset class that you cannot afford to ignore anymore.
On behalf of Karvy Private Wealth, I wish you all a Happy Samvat 2073! Health, happiness, prosperity and good fortune – may they all be
with you in the coming Year!
DID YOU KNOW
Cash transactions are down to
just three per cent of the
national economy in Sweden.
The first bank card, named
"Charg-It," was introduced in
1946 by John Biggins, a banker in
The Amsterdam Stock Exchange was
established in 1602 by the Dutch East
India Company, was the first to
formally begin trading in securities.
As on 25th
1 Month Change
BSE Sensex 28,091 -0.72% 2.67%
CNX Nifty 8691 -0.36% 4.29%
BSE Mid Cap 13543 2.13% 22.23%
BSE Small Cap 13,518 4.90% 18.20%
Equity markets showed some consolidation; after witnessing profit
booking at higher levels. The month began on a weak macro with
September manufacturing and services PMI below previous
month’s figures. A 25 bps rate cut by the new RBI governor failed
to cheer the markets as central bank acknowledged upside risks to
the target inflation. Industrial growth continued to show
contraction on monthly basis. However, positives came in form of
lower CPI and WPI. Exports growth at 4.6% was a welcome
surprise. Globally, the scene remained cautious as probability of
rate hike by US Fed in coming months became high. Larger macro
trend is expected to be positive on back of increased consumer
spend that should happen with the disbursements of 7th Pay
Commission. Ongoing festive season should also drive spending
and overall growth, benefiting sectors like automobiles, fmcg,
financials and consumer durables. In the near term, above average
valuations are keeping the markets under check and thus leading
to a healthy consolidation. Upcoming US Presidential elections are
also keeping market participants on the sidelines. Quarterly result
season so far has been overall in line with expectations.
140 S & P BSE Sensex CNX Nifty BSE Midcap BSE Smallcap
DOMESTIC EQUITY OUTLOOK
• The much awaited GST bill has been finally passed by both houses of Parliament and is likely to be ratified by half the
Indian state legislatures paving the way for its rollout for FY17-18. Railway budget is likely to be subsumed in the Union
budget for FY17-18 marking a historic departure from convention.
WHOLESALE PRICE INDEX
• India's wholesale prices index continued in positive
territory at 3.57% for September, 2016 as compared to
3.74% for the month of August.
• Food articles inflation increased in the month of
September by 5.75%. Vegetables decreased by 10.91%.
Inflation in the fuel and power segment was 5.6%, while
that of manufactured products it was 2.48% in September.
CONSUMER PRICE INDEX
• CPI for the month of September eased further to 4.31% as
compared to 5.05% in August.
• Year-on-year, cost of food and beverages decreased 4.31
percent (5.83 percent in August).
• The food prices slowed by 3.88% compared to 5.91% in
the previous month.
Source – Tradingeconomics
Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16
• Industrial output in India contracted by 0.7 percent year-on-
year in August of 2016, against -2.5% in July 2016.
• Manufacturing declined 0.3%, as against he decline of 3.04% in
July. Meanwhile, the mining sector output decreased by 5.6% in
• India's Gross Domestic Product (GDP) growth for the first
quarter of the current financial year slowed down to 7.1%
versus 7.9% for the previous quarter.
• Private consumption growth eased to 6.7 percent from 8.3
percent in the previous quarter while government spending
jumped 18.8 percent, accelerating from a 2.9 percent growth
in Q1. Gross fixed capital formation shrank at a faster 3.1
percent, following a 1.9 percent contraction in the previous
Source – Tradingeconomics
DOMESTIC DEBT OUTLOOK
Government bonds slipped on selling pressure from banks and
corporates but the overnight call money rates turned higher
following good demand from borrowing banks amid tight liquidity
in the banking system. The 7.59% government security maturing in
2026 slid to 104.71 from 104.8275 previously, while its yield went
up to 6.89%.
Low rated Indian companies have collectively raised about $5
billion this year –a new high –overseas. Nine domestic companies
including, Delhi International Airport, Jubilant Pharma, Novelis,
Indiabulls Housing Finance, collectively issued bonds worth $4.873
billion, the highest in atleast 6 years.
As on 25th
1 Year Change
6.87 (6bps) (74bps)
Fixed Deposit 7.25 0bps (75bps)
Source – Reuters
AAA AA+ AA AA- A+ A A- BBB+
Corporate Bond Spreads
5 Years 10 Years 15 Years
10 YR Gsec Yield 5 YR Gsec Yield 15 YR Gsec Yield
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-7%, our recommended short term debt funds still have
high YTMs (7.5%-10.3%) 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 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 such as inflation, movement in crude oil prices and so
on. 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 has little room left for further rate cuts, we expect Indian Debt Market to factor the same. Since the
US Fed rate hike is expected in the medium term, we expect there will be very little juice left in staying
invested in long term debt funds. Investors should start exiting their investments in Gilt Funds and Long
Term Income Funds and go for accrual based short to medium term debt funds.
As on 25th
MSCI World 1701 -1.65% -0.22%
Hang Seng 23565 1.06% 1.94%
S&P 500 2143 -0.14% 3.48%
Nikkei 17365 4.96% -8.35%
MSCI World Hang Seng S&P 500 Nikkei
GLOBAL EQUITY OUTLOOK
US Fed once again kept the key interest rates on hold at its latest policy meeting. However, improving macros and support from key
members indicate a rate hike by December. Recent comments from the Fed and ECB officials indicate that global central banks would be
less accommodative compared to earlier times.
GLOBAL ECONOMY UPDATE
UNITED STATES U.S. consumer spending rose more than expected in September as households boosted purchases
of motor vehicles and inflation increased steadily, which could bolster expectations of an interest
rate hike from the Federal Reserve in December. Consumer spending, which accounts for about 70
percent of U.S. economic activity, increased 0.5 percent after dipping 0.1 percent in August. Last
month's rise in consumer spending offered a fairly strong handoff from the third quarter to the
The U.S. economy grew at its fastest pace in two years in the third quarter as a surge in exports and
a rebound in inventory investment offset a slowdown in consumer spending. Gross domestic
product increased at a 2.9 percent annual rate after expanding at a 1.4 percent pace in the second
Japan's core consumer prices fell for a seventh straight month and household spending slumped in
September, endorsing the central bank's view it will take some time for inflation to accelerate to its 2
percent target as the economy stagnates. While the sluggish indicators come as little surprise to
policymakers, the numbers add to a recent run of gloomy data that will keep the Bank of Japan
under pressure to maintain an aggressive stimulus program.
Japanese household spending fell 2.1 percent in September from a year earlier in price-adjusted,
Source – Reuters
GLOBAL ECONOMY UPDATE
EUROPE The euro zone economy grew at the same slow pace in the third quarter as the second and core
inflation dipped in October, reinforcing expectations that the European Central Bank will decide to
extend its asset-buying program in December. The European Union's statistics office Eurostat said
gross domestic product in the 19 countries sharing the euro rose 0.3 percent quarter-on-quarter in
the July-September period and by 1.6 percent year-on-year.
Consumer prices rose 0.5 percent year-on-year in October, Eurostat estimated, picking up from 0.4
percent in September and 0.2 percent in August as the drag on the index from energy diminished.
Indian factory activity expanded at its fastest pace in almost two years in October, boosted by a
surge in output and new orders, but it came alongside a sharp rise in input costs and some pass on
Activity in China's manufacturing sector expanded at the fastest pace in more than two years in
October, adding to views that the world's second-largest economy is stabilising thanks to a
construction boom. The official Purchasing Managers' Index (PMI) stood at 51.2 in October,
compared with the previous month's 50.4 and above the 50-point mark that separates growth from
contraction on a monthly basis.
Source – Reuters
GLOBAL DEBT OUTLOOK
Global bond yields are rising at a rapid clip as traders try to adjust to the
idea of a world that isn't flush with easy money from central banks
anymore. The move in bonds has been abrupt, taking the U.S. 10-year yield
to a five-month high of 1.87 percent by midmorning Thursday, from 1.79
percent the day earlier. The German 10-year bund was yielding 0.17, after
being at zero just a few days ago, and the U.K. 10-year gilt was at a pre-
Brexit high. Yields were also rising Thursday in Japan, Canada and Brazil,
U.S, Government Debt prices were under pressure as investors awaited
new developments coming out of leading central banks, amid uncertainty
surrounding the U.S. election. The yield on the benchmark 10 year Treasury
Note sat higher at around 1.854 percent, while the yield on the 30 year
Treasury Bond was also up at 2.605 percent. Bond yields move inversely to
Global bond markets experienced a significant selloff last week, sparking
fears that something much more serious could be developing. There are
two main reasons for the bond sell-off. The first is the expectation of a
December interest rise by the US Federal Reserve, coupled with uncertainty
over the future of the European Central Bank’s (ECB) quantitative easing
(QE) program of bond purchases. The second is signs that inflation may be
moving upward, which tends to depress bond prices.
Ratings Country 10 Yr G-Sec Yield
Germany 0.13% 23 bps
Hong Kong 1.04% 3 bps
Sweden 0.30% 12 bps
Switzerland -0.35% 20 bps
AA+ USA 1.80% 18 bps
China 2.75% 1 bps
Japan -0.06% 1 bps
Source – Reuters
SECTOR STANCE REMARKS
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.
Private sector banks continue to deliver earnings in line with expectations. However, PSBs delivering poor numbers
on higher slippages and lower credit growth. We expect this trend to continue for next few quarters.
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.
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.
SECTOR STANCE REMARKS
Cement volumes and realizations saw uptick in South region. Early signs of recovery, specifically hopes of bounce
back in North and West region due to pick up in infrastructure. Cost benefits would continue to drive earnings.
Positive impact would be due to currency volatility which would be offset by the Negative impact from the slower
volume growth in the EU regions
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.
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.
SECTOR STANCE REMARKS
Crude prices at 6 month high though at substantially lower on annual basis. Nil subsidy in FY16 for OMC’s is a
positive. Trend expected to continue.
Regulatory uncertainties have come down. However, aggressive bids for spectrum has revived fears of sub-optimal
returns on capital. Further launch of R-Jio would lead to price disruption thereby impacting the entire sector
Lower global growth and Chinese slowdown has kept the growth subdued. Some recovery seen over past few
months with Chinese economy stabilizing. Long term prospects continue to remain weak.
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
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
COMMERCIAL Tier I Tier II
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
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
Gold has seen a smart appreciation in this calendar year. Global
uncertainties have pushed international gold prices beyond
$1250. Any risk aversion due to macro or geo-political news
flows could strengthen its prices. Near term range remains
• As on 25th October, 2016 : 30,002 per 10gm
• 1 month change : -4.16%
• 1 year change : 12.64%
Crude prices have stabilized between $40- $50 per barrel.
Crude along with Gold continues be the prime indicator of
global risk appetite. A breakout from current range is
• As on 25th October, 2016 : $49.08 per bbl
• 1 month change : 5.30%
• 1 year change : 5.40%
As on 25th
1 Month Change 1 Year Change
USD/INR 66.76 0.08% -2.70%
GBP/INR 81.36 -5.90% 22.35%
Euro/INR 72.81 -2.76% -1.61%
Yen/INR 64.13 -3.02% -16.37%
USD/Euro 0.91 3.11% 1.19%
• The Yuan joined the elite basket of currencies that
together form the Special Drawing Right (SDR), a unit of
account created by the International Monetary Fund
(IMF). The designation represents an important “seal of
approval” from the IMF and its 189-country
membership, and marks a big milestone in the
internationalisation of China’s currency. While the Yuan
is still far from being a major global reserve currency,
inclusion in the SDR basket will help nudge it in that
• The Reserve Bank of Australia (RBA) is widely expected
to keep the benchmark interest rate at the record-low
of 1.50% in November, but the fresh batch of central
bank rhetoric may fuel the near-term rebound in
AUD/USD should the central bank endorse a wait-and-
see approach for monetary policy.
USD GBP EURO YEN
The TATA Fiasco
• On 24th October evening after the markets closed, Tata Sons Ltd released a statement saying that its board has replaced Cyrus Mistry as
chairman. It also added that Ratan Tata, the previous chairman, will take over in the interim and that a search panel has been constituted to
find a new boss.
• The ouster of Mistry from the 148-year-old conglomerate is a classic example of management clashes over strategy, leadership styles, and
corporate structure. Mistry was the company’s first chairman from outside the Tata family. Mistry alleges that right after his appointment in
2012, the board tweaked the company’s articles of association to limit the chairman’s power.
• Media reports speculate that the family was unhappy with some of the business decisions Mistry took. And when Ratan Tata, the patriarch of
the Tata family, took over from Mistry as the interim chairman, it raised questions about whether he was too reluctant to cede control over
the group, which had more than $100 billion in revenue last year.
• As individual companies enjoy wide autonomy and are being managed by professionals, any changes at the level of holding company would
have minimal impact on day-to-day operations.
• The long-term capex plans may get reassessed to ensure that they are in consonance with the new leadership's vision for growth for the
• Tata Group is the country’s most valuable group and has an estimated 4.1 million shareholders across various listed companies. The
combined market valuation of all listed companies of Tata Group almost doubled during the four-year tenure of outgoing chief Cyrus Mistry.
• There have been reports that Cyrus Mistry has decided to move the Bombay High Court against Tata Sons' decision to remove him from the
Chairman's post. But it will not have a long-term impact on Tata group stocks.
Source – Econmic Times, www.wikipedia.com
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
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