Global Markets continued their run from March, climbing higher on recovery in Metals and Oil prices. Around mid-month, the Federal Reserve, in its scheduled meeting, left interest rates unchanged and maintained that the rate hikes will only be gradual - this was well received by markets. The rally ended abruptly in the last week of the month with a surprise move from the Bank of Japan which maintained a status quo instead of market expectations of additional monetary stimulus. A sharp rally in the Yen led to a “risk-off”sentiment, leading to a correction across global equity markets. Japanese GDP forecast was also revised downwards from 1.5% to 1.2%. Markets are now expecting the Yen to demonstrate an appreciating trend and thereby place pressure on equities. Interestingly Apple broke its uninterrupted track of 51 quarters of continuous quarterly growth on slowdown in China sales – another disappointment for global equities.
India had a great run with the RBI monetary policy early in the month where interest rate was cut by 25bps. More importantly, the RBI announced several measures to improve the liquidity scenario which should lead to a positively sloping yield curve over a period of time. The Indian Meteorological Department’s forecast of an above-normal monsoon (106% of long term average) was another highlight of the month.
At home, the Parliament has made notable progress in the Budget Session, by passing key bills such as the Real Estate Bill and the Aadhaar bill. All eyes will be on the RBI next week and the markets should remain well-supported in the lead up to the policy review.
Indian equities (+1.4%) were marginally up in April with decent start to Q4 earnings season. In the commodity space - Crude staged a good recovery of over 20% on the back of a surprise drop in US crude stockpiles. Real Estate, Metals and Telecom were the major outperformers in the month while IT, FMCG and Power were the key laggards. FIIs remained net buyers in Apr albeit of smaller quantum while DIIs were net sellers led by insurance companies. Foreign Portfolio Investors (FPIs) invested US$ 552 mn. DIIs sold equity worth US$ 355 mn in the cash segment
Fixed Income markets eased in yield terms in the month of April. Yield on the 10 year benchmark moved down 3 basis points from 7.46% to 7.43%. Indian Rupee weakened by 0.12% on April 30th, 2016 to 66.33 from 66.25 on March 31st, 2016.
Index of Industrial Production (IIP) in February rebounded to 2% versus 1.5% in January led by electricity generation and mining. Manufacturing recorded a marginal growth, capital goods continued to contract.
Consumer Price Index Inflation (CPI) for March eased to a 6 month low of 4.8% vs 5.2% in February, it was a four-month low as easing in food inflation (vegetables and pulses) continued.
Core CPI also softened to 4.7% vs 5% in previous month. WPI inched up marginally as March WPI came in at -0.85% vs -0.91% in February as inflation in food articles moved up.
March trade deficit narrowed further to US$ 5.1bn vs $ 6.5bn in February as the contraction in imports deepened to -21.6% YoY. Exports continued to contract at 5.5% YoY, a contraction for the 16th straight month. Imports decline was led by fall in gold imports as several jewelers went on strike in response to 1% excise duty on non-silver jewelry in the budget. Non-oil imports contracted in March, while oil imports slumped due to falling crude oil prices.
The earnings season for FY16 especially with relation to asset quality issues on the banking system would be closely observed for future cues. In addition, a G7 summit in end-May, the Brexit vote in June and developments to the run up in the US presidential elections will be key factors to watch apart from the verdicts on the state elections currently underway in India.