economy and markets - mutual fund india - sbi mutual fund, … presentation_april 2020.pdf ·...
TRANSCRIPT
Economy and Markets
April 2020
Coronavirus outbreak becomes pandemic
Source: WHO, as of 6th April 2020
Total number of confirmed cases
stands at 12,10,956 as of 6th April 2020(Source : WHO)
• Mortality rate has increased from 2.1% on 20th Jan 2020 to 5.6% as on 6th April 2020.
(Source : WHO)
0
200000
400000
600000
800000
1000000
12000000
1-F
eb
-20
06-F
eb
-20
11-F
eb
-20
16-F
eb
-20
21-F
eb
-20
26-F
eb
-20
02-M
ar-
20
07-M
ar-
20
12-M
ar-
20
17-M
ar-
20
22-M
ar-
20
27-M
ar-
20
01-A
pr-
20
06-A
pr-
20
No. of confirmed cases (Globally)
COVID-19 cases in India rise sharply in the last few days
Source: WHO, as of 6thh April 2020;
• Cases in India stands at 4,067 (as on 6th April 2020)• Mortality rate in India: 2.7% as of 6th April 2020.
Source: WHO
0
800
1600
2400
3200
4000
0
200
400
600
800
1000
1200
21
-Jan
-20
23
-Jan
-20
25
-Jan
-20
27
-Jan
-20
29
-Jan
-20
31
-Jan
-20
02
-Feb
-20
04
-Feb
-20
06
-Feb
-20
08
-Feb
-20
10
-Feb
-20
12
-Feb
-20
14
-Feb
-20
16
-Feb
-20
18
-Feb
-20
20
-Feb
-20
22
-Feb
-20
24
-Feb
-20
26
-Feb
-20
28
-Feb
-20
01
-Mar
-20
03
-Mar
-20
05
-Mar
-20
07
-Mar
-20
09
-Mar
-20
11
-Mar
-20
13
-Mar
-20
15
-Mar
-20
17
-Mar
-20
19
-Mar
-20
21
-Mar
-20
23
-Mar
-20
25
-Mar
-20
27
-Mar
-20
29
-Mar
-20
31
-Mar
-20
02
-Ap
r-2
00
4-A
pr-
20
06
-Ap
r-2
0
No. of new cases (India) No. of cumulative cases (India) - RHS
Worst affected countries with COVID-19 cases
Source: WHO
US has the highest share of confirmed COVID-19 cases (25% of the total cases) followed by Spain and
Italy (11% each) , Germany (8%) and China (7%)Source: WHO
As of 6th April 20203
,03
,71
8
1,3
0,7
59
1,2
8,9
48
95
,39
1
83
,00
5
69
,60
7
58
,22
6
47
,81
0
21
,06
5
19
,69
1
17
,85
1
13
,90
4
11
,98
3
11
,27
8
10
,28
4
10
,27
8
8,0
18
6,8
30
5,7
44
5,6
40
-
50,000
1,00,000
1,50,000
2,00,000
2,50,000
3,00,000
3,50,000
Un
ited
sta
tes
Spai
n
Ital
y
Ger
man
y
Ch
ina
Fran
ce
Iran U
K
Swit
zerl
and
Bel
giu
m
Net
her
lan
ds
Can
ada
Au
stri
a
Po
rtu
gal
Sou
th K
ore
a
Bra
zil
Isra
el
Swed
en
Au
stra
lia
No
rway
No. of confirmed cases
GLOBAL ECONOMIC RESPONSES TO THE SITUATION
Global central banks deliver sharp rate cuts
Source: Bloomberg, SBIMF Research; NB: * Indonesia had announced to use new policy benchmark i.e. 7-day reverse
report rate as its benchmark policy rate in April 2016;
• Host of global central banks reacted promptly by reducing rates in order to support growth
0 0
0 0 0 0
-25
-25
-50
-50
-50
-50
-50
-50
-50
-65
-75
-75
-75
-75
-75
-84
-12
5
-12
5
-12
5
-12
5
-15
0
-15
0
-22
5
-250
-200
-150
-100
-50
0
Ch
ina
Jap
an
Sin
gap
ore
Euro
zon
e
Swit
zerl
and
Swed
en
Taiw
an
Ru
ssia
Au
stra
lia
Sou
th K
ore
a
Ind
on
esia
Thai
lan
d
Mal
aysi
a
Po
lan
d
Co
lom
bia
UK
Ind
ia
Ph
illip
pin
es
New
Zea
lan
d
Bra
zil
Mex
ico
Ho
ng
Ko
ng
No
rway
Sau
di A
rab
ia
Sou
th A
fric
a
Ch
ile
US
Can
ada
Turk
ey
Policy rate cut (YTD change - in bps)
Other monetary measures undertaken by Global Central Banks
Source : IMF, SBIMF Research; *As of 23rd March 2020
Countries Other monetary policy measures announced
United States • US$700bn of QE (US$500bn of treasury securities and US$ 200bn of mortgage backed securities)
which has now been extended to the ‘amounts needed’. Commercial mortgage backed agency
securities have also been included in purchases.
• Announced a primary dealer credit facility and money market mutual fund liquidity facility (MMLF).
• Supporting the flow of credit to employers, consumers, and businesses by establishing new
programs that, taken together, will provide up to US$300 billion in new financing which include:
o The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide US$30
billion in equity to these facilities.
o Establishment of two facilities to support credit to large employers – the Primary Market Corporate
Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate
Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
United Kingdom • Announced QE of GBP 200bn (9% of GDP).
• Reduced counter-cyclical capital buffer to 0% from 1%.
• Introduced term funding schemes for SMEs.
China • Increased OMO after CNY: RMB 3trn in February (net -380bn, better than last year's -1.3trn).
Targeted RRR cut for banks that met "inclusive finance" threshold in 2019 on March 16, releasing
liquidity of RMB 550bn.
• On-lending and Re-lending facilities: RMB 300bn for corporates related to virus control (interest
subsidized by Ministry of Finance) and RMB 500bn for SMEs.
• As of March 10, policy banks issued RMB 51 billion of anti-coronavirus special bonds at low interest
rates to support virus control; they will also allocate special-purpose credit funds totalling RMB
350bn to SMEs and the private sector.
Denmark* • The standing swap line with ECB was doubled to EUR 24 billion.
• The Danmarks National Bank (DN) reached an agreement with Federal Reserve to establish a USD
30 billion swap line that will stand for at least 6 months.
• An extraordinary lending facility has been announced by the DN which will make full allotment, 1-
week, collateralized loans to banks at -0.5% interest rate.
• It has also been decided to pre-emptively release the countercyclical capital buffer and cancel the
planned increases meant to take effect later.
Other monetary measures undertaken by Global Central Banks
Source : IMF, SBIMF Research.
Countries Other monetary policy measures announced
Japan • Purchases of Japanese government bonds (JGBs) to the tune of JPY 80 trillion a year and the U.S. dollar
funds-supplying operations.
• Risk asset purchases: ETFs (from JPY6tn per year to 12tn), J-REIT (from JPY 90 bn to 180bn), CB (JPY1
trillion), CPs (JPY1trillion)
European
Union
• Targeted LTRO III at concessional rates and conditions. EUR120bn of asset purchases.
• EUR750 billion of pandemic emergency purchase programme (PEPP) up to end of 2020.
Singapore • Enterprise working capital loan scheme enhanced in Budget 2020. Available loan quantum increased to
SGD 1m from 300k, risk guarantee raised to 80% from 50-70%. Valid for a year from March 2020.
• USD 60bn swap line with US Fed.
Hong Kong • Reduce banks counter cyclical capital buffer to 1% from 2%
Australia • Purchase of Australian government securities and repo operations including LTROs.
• Launched targeted term lending facility to support SME lending ($90 bn i.e. 4.5% of GDP).
• Decreased the spread between cash rate and deposit rate to 15bps (deposit rate now at 0.1% rather than
0%)
Canada • Purchases will begin with a minimum of $5bn per week, across the yield curve. That's at least about 1% of
GDP per month.
• Creation of a Bankers' Acceptance Purchase Facility (BAPF) to support funding of small and medium-size
businesses.
• Introduction of a program to purchase Canada Mortgage Bonds (CMBs), a Provincial Money Market
Purchase (PMMM) program and a Commercial Paper Purchase Program (CPPP).
• Lowered the Domestic Stability Buffer requirement for domestic systemically important banks by 1.25% of
risk weighted assets.
Fiscal measures rolled out by various countries to contain the slowdown
Source: IMF, SBIMF Research ; *As of 23rd March 2020
Countries Amt
announced
Fiscal stimulus announced
United
States
US$2.3 trillion
(around 11%
of GDP)
o US$250 billion to provide one-time tax rebates to individuals;
o US$250 billion to expand unemployment benefits;
o US$24 billion to provide a food safety net for the most vulnerable
o US$510 billion to prevent corporate bankruptcy by providing loans, guarantees
o US359 billion in forgivable Small Business Administration loans and guarantees to help small
businesses that retain workers;
o US$100 billion for hospitals;
o US$150 billion in transfers to state and local governments
United
Kingdom
1.4% of GDP
to be
implemented
immediately
and 0.7% of
GDP to be
implemented
in the longer
term
o Additional funding for the National Healthcare Service and other public services (GBP5 billion)
o Measures to support businesses (GBP27 billion), including property tax holidays, direct grants for
small firms in the most-affected sectors, and compensation for sick pay leave;
o Strengthening the social safety net to support vulnerable people (by nearly GBP7 billion) by
increasing payments under the Universal Credit scheme as well as expanding other benefits.
o The government is also launching with the British Business Bank the Coronavirus Business
Interruption Loan Scheme to support SMEs; deferring VAT payments for the next quarter until the end
of the financial year; and will pay 80 percent of the earnings of self-employed workers or furloughed
employees (to a maximum of GBP2,500 per employee per month) for an initial period of 3 months
o To support the international response, the government has made available GBP150 million to
the IMF’s Catastrophe Containment and Relief Trust.
China RMB 1.3
trillion (or 1.2%
of GDP)
o Increased spending on epidemic prevention and control.
o Production of medical equipment.
o Accelerated disbursement of unemployment insurance.
o Tax relief and waived social security contributions.
Denmark* DKK 60 billion
(2.5% of GDP)
o The package will finance the healthcare needs and will support workers and businesses. Another
2.5% of GDP in countercyclical support is expected to come.
Fiscal measures rolled out by various countries to contain the slowdown
Source: IMF, SBIMF Research
Countries Amt announced Fiscal stimulus announced
Japan JPY 108 trillion (20%
of GDP).
o Measures to contain the spread of the virus and enhance preparedness of the
healthcare system
o Cash handouts worth JPY 6 trillion for households and small businesses hit by
the virus
o Measures to mitigate the economic impact including subsidies to firms who
maintain employment during scale down of operations.
o The deadline for tax return filing and payment of personal income tax, gift tax,
and consumption tax (for the self-employed) was extended from mid-March to
mid-April.
European
Union
EUR 37 billion 0.3 %
of 2019 EU27 GDP)
o Establishing a Corona Response Investment Initiative in the EU budget to
support public investment for hospitals, SMEs, labor markets, and stressed
regions;
o Extending the scope of the EU Solidarity Fund to include a public health crisis
within its scope, with a view of mobilizing it if needed for the hardest-hit EU
member states (up to EUR 800 million is available in 2020);
o Redirecting EUR 1 billion from the EU Budget as a guarantee to the European
Investment Fund to incentivize banks to provide liquidity to hit SMEs and
midcaps
o Announcing that credit holidays to existing debtors that are negatively affected
will be provided.
Singapore S$ 54.4 bn
o Amount to Ministry of Health ( S$800 million)
o The Care and Support Package provides support to households (S$1.6 billion)
o The Stabilization and Support Package provides support to businesses (S$4.0
billion) etc.
Fiscal measures rolled out by various countries to contain the slowdown
Source: IMF, SBIMF Research
Countries Amt announced Fiscal stimulus announced
Hong Kong HK$152 billion (or
5.3% of GDP)
o Establishment of a new Anti-Epidemic Fund (HK$30 billion or 1.0 percent of GDP)
to enhance anti-epidemic facilities and services;
o Tax and fee reliefs and other one-off relief measures (HK$51 billion or 1.8 percent
of GDP);
o Cash payout to Hong Kong SAR permanent residents aged 18 or above (HK$71
billion or 2.5 percent of GDP).
Australia AS $ 194 bn (9.7% of
GDP) o Sizeable wage subsidies (6.7 percent of GDP),
o Income support to households, cash flow support to businesses, investment
incentives, and targeted measures for affected regions and industries.
o Loan guarantees between the Commonwealth government and participating
banks to cover the immediate cash flow needs of SMEs (up to AS$20 billion),
o Separately, the Commonwealth government has committed to spend almost an
extra AS$5 billion (0.3 percent of GDP) to strengthen the health system and
protect the vulnerable people
Canada CAD 193 bn
(8.4% of GDP) o CAD 3.175 billion (0.1 percent of GDP) to the health system to support increased
testing, vaccine development, medical supplies, mitigation efforts, and greater
support for Indigenous communities.
o Around CAD105 billion (4.6 percent of GDP) in direct aid to households, including
payments to workers without sick leave and access to employment insurance, an
increase in existing GST tax credits and child care benefits, and a new
distinctions-based Indigenous Community Support Fund.
o Around CAD85 billion (3.7 percent of GDP) in support to businesses through
income and sales tax deferrals.
INDIA’S RESPONSE
Govt of India’s response to COVID-19: Mobility restrictions
Source:SBIMF Research
Travel restrictions in/out country were imposed. On 25th Jan, Indianswere advised to avoid all non-essential travel to China. Thereafter, Indiasuspended visas in phases to foreign nationals from countries heavily affectedwith COVID-19 cases
Social distancing/mobility restrictions were announced by variousstates in the form of closure of educational institutions, religious places,political rallies, sporting events) and services industry (malls, gyms ,museums, swimming pools, theatres)
All international aircraft was banned from 19th March 2020 till 14th April2020 and domestic aircraft flights from 24th March 2020 till 14th April
Nation-wide lockdown announced from 24th Mar for 3 weeks, till 14April. All train services including sub-urban rail services, metro services,inter-state rail services suspended till 14 April. To ensure the essentialsupplies in various parts of the country , movement of trains carrying suchgoods were permitted to continue.
Govt of India’s response to COVID-19: Relief actions
Source: Ministry of Finance, SBIMF Research
Category Relief Beneficiaries
Financial security Insurance over worth Rs. 5 mn for health care workers 2.2 mn workers
Food security Additional 5 kg (rice/wheat) and 1 kg of pulses per person through PDS for free 800 mn people
Income security
Farmers Frontload first instalment of Rs 2000 of PM kisan in the first week of April 87 mn people
MNREGA An increase of Rs 2000 per worker via increasing the daily wage of Rs 20* 136 mn families
Senior citizens, widows
and differently abled
Rs 1000 for next three months in two instalments 30 mn people
Women Rs 500 per month for the next three months to Jan Dhan account holders 204 mn women
Gas cylinders Free cylinders for next three months 80 mn families
Self-help groups (SHGs) Increase in collateral free loan limit to Rs 2mn from Rs 1mn earlier 68.5 mn families
Organized sector workers
Government to pay 24% of the monthly wages of wage earners (earning less than
Rs 15000) into their PF accounts for next three months.
8 mn employees,
0.4 mn
establishments
Amend EPFO regulation to allow non-refundable advance of 75% of the amount or
three months of wages whichever is less, from their accounts
40 mn EPFO
registered families
Construction workers
Use their welfare fund for building and construction workers (Rs 310 bn) to help
battle disruption
Use the district mineral fund for testing activities, medical screening, providing
health attention
35 mn registered
workers
Total cost (Rs bn) 1700
% of GDP 0.80%
Fiscal stimulus to the tune of Rs 1.7 trillion (0.8% of GDP) – a mix of cash transfers and food security schemes
RBI’s response to COVID-19: Sharp easing of monetary conditions
Source : RBI, SBIMF Research.
RBI reduced the repo rate by 75 bps in order to combat slowdown due to COVID-19
Reverse Repo rate has been lowered by 90bps to 4.00% leading to widening of LAF corridor to 65bps vs. 50bps previously
The cash reserve ratio has been brought down by 100 bps to 3% for one year starting March 28, 2020 (first time in last seven
years)
The sharper reduction in
Reverse repo is to dissuade
the banks from parking their
surplus liquidity with the RBI
and lend it out.
The CRR cut will release Rs
1.37 trillion of primary liquidity
into the system right from the
day of its implementation
RBI hopes to inject liquidity
worth Rs. 3.74
trillion (1.8% of GDP) with
help of TLTROs, CRR and
MSF
6.506.00
6.50
5.15
4.40
3
5
7
9
Jan
-11
Jun
-11
No
v-1
1
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
Dec
-13
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
Dec
-18
May
-19
Oct
-19
Mar
-20
RBI reduced the repo rate by 75 bps to 4.4% in March 2020
Other monetary measures by the RBI
Source : RBI , SBIMF Research.
Introduction of Target Long term repo operations (LTRO)
Increased borrowing under MSF
Moratorium on term loans for three months
Deferment of interest on Working capital facilities
Increase the WMA limits to 30% for all the states
Deferment of Net Stable Funding Ratio (NSFR) and Last tranche of Capital Conservation Buffer
Not necessary to activate countercyclical capital buffer for a period of one year
Permitting Banks to Deal in Offshore Non-Deliverable Rupee Derivative Markets
To de-freeze the corporate bond
market
This option, if utilized, will create
additional liquidity of Rs 1.37 trillion
Enables the businesses to fulfil their
other fixed cost requirements
Enables the businesses and state
governments to tide over theCOVID-
19 related issues
Facilitate banks to lend more
aggressively by giving them more
money in hands
Help in reducing the volatility in the
offshore rupee market by increasing
the no. of participants in the market
GROWTH IMPACT
Economic activity gets disrupted due to COVID-19 crisis
Source: CMIE Economic outlook ,POSOCO; SBIMF Research
Electricity consumption (a proxy for economic activity) has gone
substantially down in last week of March 2020
Other pain points:
• News articles suggest that companies including Maruti Suzuki, Hyundai motor and Mahindra and Mahindra witnessed sharp
decline in auto sales in March 2020. The companies have started to cut down on volumes to match the retail demand.
• Growth in domestic bank credit is at an all time low of 6% y-o-y in 2020 vs. 14.5% in 2019.
• Market expectation is getting increasingly tilted towards a global growth contraction in 2020 vs. 2.5-3% growth expectation
at the start of the year
• The US employment rate rose to 4.4% in March 2020 vs. 3.5% in Feb 2020, reflective of adverse impact of COVID-19
outbreak.
1% 1% 1%
9%6% 8% 9%
5% 5%
-4% -5% -5%-28%
-30%
-20%
-10%
0%
10%
20%
1-7th Jan2020
8-14th Jan2020
15-21st Jan2020
22-28th Jan2020
29-4th Feb2020
5-11th Feb2020
12-18th Feb2020
19-25th Feb2020
26-4th March2020
5-11th March2020
12-18thMarch 2020
19-25thMarch 2020
25-31stMarch 2020
Electricity demand (% y-o-y)
Manufacturing & Services PMI deteriorated
Source: CMIE Economic outlook , SBIMF Research
• The PMI Manufacturing index fell from 55.3 in February 2020 to 52.6 in March 2020 , reflecting weak global growth and
varying degrees of domestic lockdown since mid-March. Sharp contraction in new export orders led to moderation in the
PMI manufacturing activity. In addition, pace of expansion n output and input prices eased
• The PMI services activity fell to a 5-month low of 49.3 in March 2020 , reflective of economic costs that has begun to
show in data such as PMIs. Lower demand particularly from overseas market led to a fall in services PMI.
47.9
54.7 54.3
55.3
52.6
44
46
48
50
52
54
56
Jun
-15
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Sep
-16
De
c-1
6
Mar
-17
Jun
-17
Sep
-17
De
c-1
7
Mar
-18
Jun
-18
Sep
-18
De
c-1
8
Mar
-19
Jun
-19
Sep
-19
De
c-1
9
Mar
-20
PMI Manufacturing
Manufacturing PMI came in at 52.6 in Mar’20 Services PMI came in at 49.3, the lowest print in five months
53.2 53.8
48.7
57.5
49.3
40
45
50
55
60
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
PMI Services
Economic Activity: Other factors that will weigh down on growth
Source: SBIMF Research
Increased likelihood of
global growth contraction
• Markets expect the global growth to contract in2020 which will lead to weakness in exportdemand and further subdued industrial activity
Grim employment
situation in the past
• 58% of the income earners to come under thedirect impact owing to limited economic activity .The unemployment rate has moved to 6.1% as per2017-18 survey. This will impact consumption andthereby economic activity
Stressed Balance sheets
• The govt, household and financial sector’s balance sheets are not in a healthy shape to provide fillip to the economy.
Another year of loss in
agriculture income
• The lockdown scenario may affect the farmers’ income adversely.
Growth in FY21 to be materially low keeping the lockdown and the following factors in consideration
COVID-19 disruptions to lead to significant economic shock
Source : CMIE Economic outlook , SBIMF Research.
Indian economic growth could further moderate in FY21• We expect India’s growth to moderate in FY21 from an estimated growth
of 4.6% in FY20.
• Lockdown spread over March/April results in output loss of ~5.7% of the
total annual output. The limited human contact required to contain the
spread of the virus is hindering economic activity. Given elevated
infection rates, the public fear may result in below-normal activity for a
few more months. Even if demand for durable goods picks up,
consumption of services may stay weak.
• As corporate profits are squeezed (weakening operating leverage) they
are likely to delay capex plans, lower salaries and cut jobs, which in turn
will weaken consumption demand. As corporates struggle, banking
sector GNPAs are likely to deteriorate.
• The Rabi sowing was healthy and was expected to lay out good
prospects for Agri/rural income. Now against the lock down scenario, the
sale of these products are likely to face challenges when the rabi
products hit the mandi(s) in April/May
• Other factors that will weigh on growth are a) increased risks of a global
recession, b) grim domestic employment situation for nearly a decade, c)
high leverage in government and household balance-sheet, d) weakness
in financial sector health and e) erosion of wealth due equity price fall.
• On positive side, as per RBI estimates, the impact of the 10% fall in
crude oil price is expected to increase growth by 15 bps. But it is
contingent on benefits being passed on and leading to higher demand.
• Massive policy support (both fiscal and monetary) is needed to support
the growth conditions in India.
The projections of growth and inflation for FY21
would be heavily contingent on the intensity ,
spread and duration of COVID-19
5.5
6.4
7.48.0 8.3
7.0
6.1
4.6
0
2
4
6
8
10
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 E
Real GDP (% y-o-y)
EQUITY MARKET
Global equity market snapshot : March 2020
Source: Bloomberg, SBIMF Research
Performance in March 2020 (local currency returns) Performance Year-to-Date (local currency returns)
Performance in March 2020 (US$ returns) Performance Year-to-Date (US$ returns)
-30-23 -23 -23 -22 -22
-18 -17 -17 -16 -16 -14 -14 -14 -13 -12 -11 -10-5
3
-40
-30
-20
-10
0
10
BR
AZI
L
IND
IA N
IFTY
PA
KIS
TAN
MSC
I EM
- E
UR
OP
E
MSC
I In
dia
PH
ILIP
PIN
ES
SRI L
AN
KA
FRA
NC
E
IND
ON
ESIA
GER
MA
NY
MSC
I EM
TAIW
AN
UK
DO
W J
ON
ES
S&P
50
0
KO
REA
JAP
AN
HA
NG
SEN
G
CH
INA
RU
SSIA
% m-o-m (local currency
-37 -37-32 -29 -28 -28 -27 -26 -25 -25 -25 -24 -23 -20 -20 -20 -19 -16
-10
25
-45
-30
-15
0
15
30
BR
AZI
L
MSC
I EM
- E
UR
OP
E
PH
ILIP
PIN
ES
IND
IA N
IFTY
PA
KIS
TAN
IND
ON
ESIA
MSC
I In
dia
FRA
NC
E
SRI L
AN
KA
GER
MA
NY
UK
MSC
I EM
DO
W J
ON
ES
KO
REA
JAP
AN
S&P
50
0
TAIW
AN
HA
NG
SEN
G
CH
INA
RU
SSIA
% YTD (local currency terms)
-29-26 -26 -25 -23 -21 -20
-17 -17 -16 -16 -14 -13-10
-6
1 2 3 3 3
-40
-30
-20
-10
0
10
PA
KIS
TAN
IND
ON
ESIA
IND
IA N
IFTY
MSC
I In
dia
MSC
I EM
- E
UR
OP
E
PH
ILIP
PIN
ES
SRI L
AN
KA
FRA
NC
E
GER
MA
NY
UK
MSC
I EM
DO
W J
ON
ES
KO
REA
JAP
AN
CH
INA
HA
NG
SEN
G
S&P
50
0
TAIW
AN
BR
AZI
L
RU
SSIA
% m-o-m (US$ returns)-38 -37 -33 -33 -32 -31 -30 -28 -28 -27 -24 -24 -23
-19-11
110 11
1925
-45
-30
-15
0
15
30
IND
ON
ESIA
MSC
I EM
- E
UR
OP
E
IND
IA N
IFTY
PA
KIS
TAN
PH
ILIP
PIN
ES
MSC
I In
dia UK
FRA
NC
E
SRI L
AN
KA
GER
MA
NY
KO
REA
MSC
I EM
DO
W J
ON
ES
JAP
AN
CH
INA
HA
NG
SEN
G
TAIW
AN
BR
AZI
L
S&P
50
0
RU
SSIA
% YTD (US$ returns)
Indian equity market snapshot : March 2020
Source: Bloomberg, SBIMF Research
Performance in March 2020 (local currency returns) Performance Year-to-Date (local currency returns)
-36-34
-31 -31 -30 -29 -28 -26 -24 -24 -23 -23 -23 -23-21 -20 -18
-14-10
-6
-40
-30
-20
-10
0
REA
L ES
TATE
BA
NK
EX
AU
TO
MET
ALS
SMA
LL C
AP
CA
P G
OO
DS
MID
CA
P
CO
NSU
MER
DU
RA
BLE
S
PSU
BSE
50
0
NIF
TY
BSE
10
0
SEN
SEX
LAR
GE
CA
P
OIL
& G
AS
PO
WER
TELE
CO
M IT
HEA
LTH
CA
RE
FMC
G
% m-o-m-45
-42 -41 -40-36 -35
-32 -30 -29 -29 -29 -29 -29 -29 -28-23
-17-13
-10 -10
-50
-40
-30
-20
-10
0
MET
ALS
AU
TO
REA
L ES
TATE
BA
NK
EX
PSU
CA
P G
OO
DS
OIL
& G
AS
SMA
LL C
AP
MID
CA
P
NIF
TY
LAR
GE
CA
P
BSE
50
0
BSE
10
0
SEN
SEX
PO
WER
CO
NSU
MER
DU
RA
BLE
S IT
TELE
CO
M
FMC
G
HEA
LTH
CA
RE
% Year-To-Date
• Indian equity market delivered negative returns across all the sectors in March’2020. Nifty and Sensex were down by 23%
each during the month. Real estate witnessed the sharpest decline (36%) on m-o-m basis followed by banks (34%) , auto
(31%) and metals (31%).
• Performance across the capitalization curve was also similar with mid cap and small cap delivering 28% and 30% negative
returns respectively.
• Concerns surrounding global economic growth amid coronavirus spread in and outside China weighed on the Indian equity
markets.
• On YTD basis, Nifty and Sensex were down by 29% each. On sectoral basis, all sectors delivered negative YTD returns.
Valuations have turned attractive on several parameters
Source: Bloomberg, CMIE Economic outlook , SBIMF Research
10
15
20
25
30
35
Sep
-02
Jul-
03
May
-04
Mar
-05
Jan
-06
No
v-0
6
Sep
-07
Jul-
08
May
-09
Mar
-10
Jan
-11
No
v-1
1
Sep
-12
Jul-
13
May
-14
Mar
-15
Jan
-16
No
v-1
6
Sep
-17
Jul-
18
May
-19
Mar
-20
NIFTY 12M Traling PE Ratio
Mean
+1 SD
-1 SD
1
2
2
3
3
4
4
5
5
6
6
Sep
-02
Jul-
03
May
-04
Mar
-05
Jan
-06
No
v-0
6
Sep
-07
Jul-
08
May
-09
Mar
-10
Jan
-11
No
v-1
1
Sep
-12
Jul-
13
May
-14
Mar
-15
Jan
-16
No
v-1
6
Sep
-17
Jul-
18
May
-19
Mar
-20
NIFTY 12M Traling PB Ratio
Mean
+1 SD
-1 SD
44
.1
10
1.7
79
.5
79
.95
1.6
0
20
40
60
80
100
120
FY9
2
FY9
4
FY9
6
FY9
8
FY0
0
FY0
2
FY0
4
FY0
6
FY0
8
FY1
0
FY1
2
FY1
4
FY1
6
FY1
8
FY2
0
Market capitalization/ GDP (%)
0
2
4
6
8
10
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
Mar
-16
Sep
-16
Mar
-17
Sep
-17
Mar
-18
Sep
-18
Mar
-19
Sep
-19
Mar
-20
India 10 year Gsec yield (in %)
India earnings yield (%) - 12 M trailing
Earnings could be revised lower
Source: Bloomberg, SBIMF Research
-9.4
-7.6
-8.1
-4.4
-21.8
-16.8
-9.7
-12.6
-11.0
-25 -20 -15 -10 -5 0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Earnings upgrade downgrade- %chg
• Earnings were expected to recover sharply in FY20 and FY21.
• There could be material downward revision to earnings as growth and demand gets impaired due to COVID-19
Downgrade in NIFTY earnings during the fiscal year
Liquidity : FII outflows starker than Global Financial Crisis
Source: Bloomberg, SBIMF Research
FIIs sold US$ 8.3 bn in March 2020 in equities vs. US$0.4 bn
in February 2020
DIIs -MF purchased US$ 3.45 bn in March 2020 vs. US$
1.27 bn in February 2020
-2
-1
0
1
2
3
4
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20Net Domestic MF Investment (US$ billion)
Net DIIs as a percentage of Market capitalization
0.9
2.1
0.4
-0.3-0.1
-1.1-0.7
-0.2
0.9
0.2
0.80.5
1.2
-1.7
-1.0
-0.3
0.4
1.1
1.8
2.5
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Net DII Investment/ Market Capitalization (%)
-10.0
-5.0
0.0
5.0
10.0
May
-07
Dec
-07
Jul-
08
Feb
-09
Sep
-09
Ap
r-1
0
No
v-1
0
Jun
-11
Jan
-12
Au
g-1
2
Mar
-13
Oct
-13
May
-14
Dec
-14
Jul-
15
Feb
-16
Sep
-16
Ap
r-1
7
No
v-1
7
Jun
-18
Jan
-19
Au
g-1
9
Mar
-20
FII Investment - Equity (US$ Billion)
Net DIIs purchased US$ 7.5 bn in March 2020 vs. US$2.35 bn
in Feb 2020
-4
-2
0
2
4
6
8
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan
-20
Net DII Investment (US$ billion)
Equity Outlook
Source:Bloomberg, SBIMF Research
8
12
16
20
24
May
-06
Jan
-07
Sep
-07
May
-08
Jan
-09
Sep
-09
May
-10
Jan
-11
Sep
-11
May
-12
Jan
-13
Sep
-13
May
-14
Jan
-15
Sep
-15
May
-16
Jan
-17
Sep
-17
May
-18
Jan
-19
Sep
-19
NIFTY 12M Fwd PE Ratio
Mean
+1 SD
-1 SD
Nifty trading at 14.3 times forward earnings
• Coronavirus dominated headlines through the month and global risk assets
sold off sharply as the spread of the disease led to fears that slowdown in
global growth could be severe. Long-dated US bond yields plunged to
record lows.
• Nifty and Sensex fell by 23% each during March 2020. Broader markets fell
too with Nifty Midcap and Nifty Small-cap down 28% and 30% respectively.
FIIs sold US$ 8.4 billion in equities in March’2020.
• While it is too early to estimate the exact impact of Coronavirus on global
economy and consequently Indian economy, it is very likely that policy
action will stay very growth supportive. Yet growth continuing to struggle
globally even with all the monetary accommodation only suggests that
monetary policy has hit its limits. This only reaffirms our belief that fiscal
policy will have to play a major role going forward to take the global
economy out of this prolonged slump.
• Valuation attractiveness has increased somewhat post the recent fall. On
several measures of corporate performance such as return on equity, profit
margins, and corporate profits as proportion of GDP, we are at multi-year
troughs, though, there is a case for some downward reversion in economic
activity and earnings projection for FY21 as well.
• In the near-term, markets will have to navigate the pain of the crisis and its
aftermath. Heightened volatility should continue in the near term as
investors keep an eye on evolution of Covid-19 on one hand and policy
response on economic stress on the other. While the outlook for forward
earnings stays uncertain, we stay bottom-up in our approach by focusing on
resilient businesses that should emerge stronger on the other side.
FIXED INCOME MARKET
Bond yields in key developed markets: March 2020
Source: Bloomberg, SBIMF Research
• Bond yields across countries presented mixed picture with yields declining in the US, Germany and UK while increasing
in Italy, Japan, Spain and Switzerland.
• The 10-year US GSec yields have fallen by 125 bps. Increased safe haven assets buying by investors on account of
growth concerns amidst coronavirus scare helped the rally in US yields.
10 Year Gsec
Yield (% mth
end)
2017 end 2018 end 2019 end Jan-20 Feb-20 Mar-20m-o-m
(in bps)
YTD
change (in
bps)
Developed market
US 2.41 2.68 1.92 1.51 1.15 0.67 -48 -125
Germany 0.43 0.24 -0.19 -0.43 -0.61 -0.47 14 -29
Italy 2.02 2.74 1.41 0.94 1.10 1.52 42 11
Japan 0.05 0.00 -0.01 -0.07 -0.15 0.02 18 3
Spain 1.57 1.42 0.47 0.24 0.28 0.68 40 21
Switzerland -0.15 -0.25 -0.47 -0.73 -0.82 -0.33 49 14
UK 1.19 1.28 0.82 0.52 0.44 0.36 -9 -47
Bond yields at historic lows
Source : Bloomberg, SBIMF Research.
US 10 Year and 30 Year Treasuries yield at historic lows
Bond yields in the key emerging markets: March 2020
Source: Bloomberg, SBIMF Research
10 Year
Gsec Yield
(% mth end)
2017 end 2018 end 2019 end Jan-20 Feb-20 Mar-20m-o-m (in
bps)
YTD change
(in bps)
Emerging Market
Brazil 10.26 9.24 6.79 6.71 6.68 8.62 194 183
China 3.90 3.31 3.14 3.00 2.73 2.59 -15 -56
India 7.33 7.37 6.56 6.60 6.37 6.14 -23 -42
Indonesia 6.29 7.98 7.04 6.65 6.91 7.85 94 82
South Korea 2.47 1.96 1.67 1.56 1.33 1.55 23 -12
Malaysia 3.91 4.08 3.31 3.13 2.83 3.36 53 4
Phillippines 4.93 7.01 4.34 4.43 4.33 4.33 0 -2
Russia 7.49 8.70 6.36 6.27 6.48 6.75 28 39
Thailand 2.32 2.48 1.48 1.29 1.06 1.40 34 -8
Turkey 11.67 16.42 12.21 10.23 13.00 13.55 55 134
Mexico 7.66 8.66 6.91 6.63 6.87 7.12 25 21
Poland 3.30 2.83 2.12 2.14 1.79 1.68 -11 -44
South Africa 8.72 8.72 9.03 8.98 9.12 11.00 188 197
Colombia 6.48 6.75 6.34 5.95 5.80 8.42 262 208
Hungary 2.02 3.01 2.01 2.07 2.17 2.65 48 64
Commodity prices fall on the fear of low demand
Source : Bloomberg, SBIMF Research.
-51-48
-43 -42-40
-19 -18-16 -15 -15 -15 -13 -13 -12 -11 -10 -9 -8 -7 -5
-2 -2
5 712
-60
-40
-20
0
20
Gas
olin
e
WTI
Bre
nt
Gas
Oil
Hea
tin
g O
il
Nat
ura
l Gas
Pla
tin
um
Zin
c
Co
pp
er
Co
tto
n
Nic
kel
Silv
er
Co
ffee
Suga
r
Tin
Lead
Alu
min
ium
Co
rn
Soyb
ean
s
Co
al
Ura
niu
m
Wh
eat
Iro
n O
re
Go
ld
Pal
lad
ium
Average commodity prices
(% change YTD)
Gold prices at seven year high
Source : Bloomberg, SBIMF Research.
Gold prices at 7 year high, though it gave away some of the gains in March
India Rates Snapshot: March 2020
Source: Bloomberg, PPAC, RBI, CEIC, SBIMF Research; NB: **Crude oil price is average $/barrel for the month, rest of the
data are % month end; *Corporate bond rate is for AAA rated bonds ,*** Refers to PSU Banks’ CD rate; ^ INR and Oil price
changes are % change;
Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20
m-o-m
change (in
bps)
YTD
change (in
bps)
1 Yr T-Bill 5.60 5.25 5.11 5.19 5.29 5.20 4.94 -26 -25
3M T-Bill 5.24 5.02 4.88 5.04 5.13 5.06 4.36 -70 -68
10 year GSec 6.70 6.45 6.47 6.56 6.60 6.37 6.14 -23 -42
3M CD*** 5.75 5.25 5.33 5.08 5.38 5.40 4.83 -58 -25
12M CD*** 6.63 6.13 5.68 5.98 5.98 5.73 5.48 -25 -50
3 Yr Corp Bond* 7.12 7.03 6.65 6.95 6.83 6.34 6.54 21 -41
5 Yr Corp Bond* 7.44 7.29 7.14 7.17 7.15 6.80 7.02 22 -14
10 Yr Corp Bond* 7.87 7.84 7.74 7.63 7.83 7.43 7.51 7 -12
1 Yr IRS 5.09 5.11 5.01 5.34 5.26 4.97 4.30 -67 -104
5 Yr IRS 5.11 5.16 5.09 5.54 5.42 5.02 4.73 -29 -81
Overnight MIBOR Rate 5.52 5.25 5.25 5.26 5.05 5.09 4.81 -28 -45
INR/USD 70.9 70.93 71.74 71.38 71.36 72.18 75.63 -5^ -6^
Crude Oil Indian Basket** 61.7 59.70 62.54 65.52 64.10 54.90 33.30 -39^ -49^
• Indian G-sec market has been extremely volatile. The 10-year G-Sec yields declined by 23 bps from 6.37% in February
2020 to 6.14% in March 2020 but traced back to ~6.30% in first week of April.
• Benign crude oil prices, risk of lower growth and continued monetary easing support the fall in yields. However, concerns
surrounding the likely fiscal slippages to combat the impact of COVID-19 and FPI outflows limit the fall.
• Crude oil prices for the Indian basket declined by 39% in March to US$ 33/bbl in Mar 2020.Concerns over oil demand amid
outbreak of coronavirus and the non-agreement between OPEC countries exerted downward pressure on prices, though
recent news flows suggest some reconciliation between the members over production cut..
• Rupee weakened against the US dollar and reached 76.15/US$ on March 22, 2020. Concerns over Global recession have
led to investors rushing towards safe haven assets, thus leading to FII outflows from India and rupee depreciation.
FIIs sold Indian debt assets
Source : Bloomberg, SBIMF Research.
FIIs sold US$ 8.2 bn in March 2020 in debt
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
May
-07
No
v-0
7
May
-08
No
v-0
8
May
-09
No
v-0
9
May
-10
No
v-1
0
May
-11
No
v-1
1
May
-12
No
v-1
2
May
-13
No
v-1
3
May
-14
No
v-1
4
May
-15
No
v-1
5
May
-16
No
v-1
6
May
-17
No
v-1
7
May
-18
No
v-1
8
May
-19
No
v-1
9
FII investment - Debt (US$ bn)
India G-Sec yield curve
Source : Bloomberg, SBIMF Research.
4
5
6
7
8
1 Y
ear
2 Y
ear
3 Y
ear
4 Y
ear
5 Y
ear
6 Y
ear
7 Y
ear
8 Y
ear
10
Yea
r
15
Yea
r
30
Yea
r
31-Dec-19 31-Mar-20
Govt. bond yield (%)
Rates moved lower across the tenor, with relatively sharper fall in 1-5 year segment
0.00
0.50
1.00
1.50
2.00
2.50
Sep
-15
Feb
-16
Jul-
16
De
c-1
6
May
-17
Oct
-17
Mar
-18
Au
g-1
8
Jan
-19
Jun
-19
No
v-1
9
Spread 10 yr - 3mths
0.00
0.50
1.00
1.50
2.00
Sep
-15
Feb
-16
Jul-
16
De
c-1
6
May
-17
Oct
-17
Mar
-18
Au
g-1
8
Jan
-19
Jun
-19
No
v-1
9
Spread 10yr - 1 yr
-0.50
0.00
0.50
Sep
-15
Feb
-16
Jul-
16
De
c-1
6
May
-17
Oct
-17
Mar
-18
Au
g-1
8
Jan
-19
Jun
-19
No
v-1
9
Spread 10yr - 5 yr
COVID-19 disruptions to lead to significant economic shock
Source : CMIE Economic outlook , SBIMF Research.
Indian economic growth could further moderate in FY21• We expect India’s growth to moderate in FY21 from an estimated growth
of 4.6% in FY20.
• Lockdown spread over March/April results in output loss of ~5.7% of the
total annual output. The limited human contact required to contain the
spread of the virus is hindering economic activity. Given elevated
infection rates, the public fear may result in below-normal activity for a
few more months. Even if demand for durable goods picks up,
consumption of services may stay weak.
• As corporate profits are squeezed (weakening operating leverage) they
are likely to delay capex plans, lower salaries and cut jobs, which in turn
will weaken consumption demand. As corporates struggle, banking
sector GNPAs are likely to deteriorate.
• The Rabi sowing was healthy and was expected to lay out good
prospects for Agri/rural income. Now against the lock down scenario, the
sale of these products are likely to face challenges when the rabi
products hit the mandi(s) in April/May
• Other factors that will weigh on growth are a) increased risks of a global
recession, b) grim domestic employment situation for nearly a decade, c)
high leverage in government and household balance-sheet, d) weakness
in financial sector health and e) erosion of wealth due equity price fall.
• On positive side, as per RBI estimates, the impact of the 10% fall in
crude oil price is expected to increase growth by 15 bps. But it is
contingent on benefits being passed on and leading to higher demand.
• Massive policy support (both fiscal and monetary) is needed to support
the growth conditions in India.
The projections of growth and inflation for FY21
would be heavily contingent on the intensity ,
spread and duration of COVID-19
5.5
6.4
7.48.0 8.3
7.0
6.1
4.6
0
2
4
6
8
10
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 E
Real GDP (% y-o-y)
Inflation to moderate from here
Source : CMIE economic outlook, SBIMF Research.
0
2
4
6
8
10
12
14M
ar-1
2
Jun
-12
Sep
-12
De
c-1
2
Mar
-13
Jun
-13
Sep
-13
De
c-1
3
Mar
-14
Jun
-14
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Sep
-16
De
c-1
6
Mar
-17
Jun
-17
Sep
-17
De
c-1
7
Mar
-18
Jun
-18
Sep
-18
De
c-1
8
Mar
-19
Jun
-19
Sep
-19
De
c-1
9
Mar
-20
Jun
-20
Sep
-20
De
c-2
0
Mar
-21
CPI % y-o-y
CPI target range 4% + 2% Forecast
CPI inflation likely to average around 4.8% in FY20 and ~4.5% in FY21
• We expect inflation to average around 4.8% in FY20 and ~4.5% in FY21.
• Unusual rain pattern, supply adjustment in response to low food inflation during 2017-2019 and rise in global edible oil prices
contributed led to a sharp surge in food inflation and hence overall CPI inflation during Dec’ 2019-Feb’20. The up-move in food
inflation was broad based, though sharpest inflation was recorded in vegetables and pulses (which contributed to 40% of higher
inflation print). Higher inflation was more for supply reasons than demand factors. Fuel inflation also picked up in recent months
due to higher LPG and kerosene prices, but core inflation remained benign.
• Inflation is likely to moderate in FY21. All the current forces such as crash in global crude oil prices and likelihood of further
weakness in demand growth amidst coronavirus scare are deflationary in nature. Inflation may remain benign till they persist.
• We expect the inflation to fall below 6% as early as in March 2020. Part of it would be driven likely sharp crash in meat & fish
prices and moderation in some of the services prices (such as air-fare, hotels, entertainment etc..) due to COVID-19 scare. But
broadly, food inflation will normalize for veggies, cereals and spices. On the other hand, edible oil, milk, egg will continue to
exhibit firmness in inflation. At the current juncture, it is very difficult to predict how long these trends will last (we have penciled
some normalcy post June 2019). Even the crude price fall is partly political in nature. These prices could quickly revert upwards
once the normalcy restore. Moderation in CPI inflation will add support to RBI’s accommodative stance.
Crude price fall to lead to massive oil savings
Source : CMIE Economic Outlook, PPAC, SBIMF Research.
Sharp fall in crude oil prices
20
40
60
80
100
120
Ma
r-1
0
Au
g-1
0
Jan
-11
Jun
-11
Nov-1
1
Ap
r-12
Se
p-1
2
Fe
b-1
3
Jul-
13
Dec-1
3
Ma
y-1
4
Oct-
14
Ma
r-1
5
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-17
Se
p-1
7
Fe
b-1
8
Jul-
18
Dec-1
8
Ma
y-1
9
Oct-
19
Ma
r-2
0
Brent prices -average ( US $ per barrel)
9,812
4,082
3,724
3,185
2,574
1,888
1,531
1,274
1,233
1,222
US
China
Japan
India
Korea
Germany
Italy
Netherlands
Spain
UK
Crude Oil Imports ('000barrels per day)
Data is for 2018
229 239
279
1,585
0
400
800
1200
1600
2000
19
98
-99
19
99
-00
20
00
-01
20
01
-02
20
02
-03
20
03
-04
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
20
13
-14
20
14
-15
20
15
-16
20
16
-17
20
17
-18
20
18
-19
Crude- Domestic Production Crude Import
Million Barrel
India is the 4th largest importer of crude oil
India imports 87% of its crude oil need i.e. 1.6 billion barrel
annually
POL import bill and crude price
87 106 155 164 165 138 83 87 109 141 127 85
69
87
114 108 106
84
46 4857
7060
45
0
20
40
60
80
100
120
60
80
100
120
140
160
180
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0E
FY2
1E
POL Import (US$ billion)
Crude Prices (US$/barrel)- Avg Indian basket - RHS
But exports, remittances and services receipts to weaken too
Source : CMIE Economic outlook, SBIMF Research.
India’s export receipts have almost been flat for 9 yearsFall in crude oil prices(i.e. reflective of weak global demand)
result in decline in India’s exports
Net Travel receipts could fall by 2/3rd to US $2-3 bn in FY21
due to COVID-19
250
270
290
310
330
350
0
30
60
90
120
Fe
b-1
4
Jun
-14
Oct-
14
Fe
b-1
5
Jun
-15
Oct-
15
Fe
b-1
6
Jun
-16
Oct-
16
Fe
b-1
7
Jun
-17
Oct-
17
Fe
b-1
8
Jun
-18
Oct-
18
Fe
b-1
9
Jun
-19
Oct-
19
Fe
b-2
0
Brent (US$/bbl)- 3m earlier Total exports (US$ billion) -RHS
13 15 1622 21
2430
42 4552 53
63 64 65 6663
5763
71 72
20
40
60
80
100
120
10
20
30
40
50
60
70
80
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5
FY0
6
FY0
7
FY0
8
FY0
9
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0e
BoP: Private Transfers (US$ billion) Brent (US$/barrel)- RHS
Private transfers could fall sharply both due to crude
and COVID-19
On balance, current account will improve
Source : RBI, CMIE Economic outlook , SBIMF Research; *assuming flat growth in crude oil import demand
Average crude price in FY20 (US$/bbl) 60
Net POL import bill in FY20 (US$ billion)- estimated 87
Case 1 Case 2 Case 3 Case 4 Case 5
Crude Price (US$/bbl) 25 35 45 55 65
Export of POL products in FY21 (in billion barrel) 0.4 0.4 0.4 0.4 0.4
Imports of crude & POL products in FY21 (in billion barrel)* 1.9 1.9 1.9 1.9 1.9
Exports Receipts from POL exports (US$ billion) 10 14 18 22 26
Import bill from Crude & POL products (US$ billion) 48 67 86 105 124
Net POL import bill in FY21 (US$ billion) 38 53 68 83 98
Net Savings (US$ billion) 50 35 20 5 -11
2.9 2.9
4.34.8
1.71.4
1.10.7
1.82.1
0.70.5
0
1
2
3
4
5
6
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20 E
FY
21E
CAD (% GDP)
Current account deficit expected to narrow to 0.5% in FY21 FDI inflow will be sufficient to fund CAD in FY20 and FY21
48
78
88
3228
2215
4957
211412
22 20 22
33 36 3630 31
40
30
0
20
40
60
80
100
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21 E
CAD Net FDI - in US$ billion
External account: BoP to stay in surplus
Source : CMIE Economic Outlook ; SBIMF Research.
Balance of Payment likely to post a surplus in FY21
13 13
-13
4
16
61
1822
44
-3
41 41
-20
-10
0
10
20
30
40
50
60
70
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0E
FY2
1 E
BoP - US $ billion
India’s FDI inflows have been on a structural ascent since
FY07
8
16
2218
12
21.919.8 21.6
31.3
36.0 35.6
30.3 30.7
40.0
0
10
20
30
40
50
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20 E
Net FDI (US $ billion)
32 30
17
27
5
41
-5
8
22
-1
05
-10
0
10
20
30
40
50
FY1
0
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6
FY1
7
FY1
8
FY1
9
FY2
0E
FY2
1 E
Net FII (US$ Billion)
On a net Basis, FII inflows have been muted in four out of
five years between FY16 to FY20
Net ECB inflows at 12 year high in FY20
Brent and Policy rate
Source : SBIMF Research.
Change in Repo Rate
(in bps)
Change in Brent price
(in %)
May 2004-Jul 2006 100 119
Jul 2006 - Jan 2007 50 -27
Jan 2007- Jul 2008 150 147
Jul 2008- Dec 2008 -250 -70
Dec 2008-Mar 2012 200 214
Mar 2012- Apr 2016 -200 -67
Apr 2016 - Oct 2018 0 95
Oct 2018- till date -210 -59
0
40
80
120
160
2
4
6
8
10
Dec
-04
Jul-
05
Feb
-06
Sep
-06
Ap
r-0
7
No
v-07
Jun
-08
Jan
-09
Au
g-0
9
Mar
-10
Oct
-10
May
-11
Dec
-11
Jul-
12
Feb
-13
Sep
-13
Ap
r-1
4
No
v-14
Jun
-15
Jan
-16
Au
g-1
6
Mar
-17
Oct
-17
May
-18
Dec
-18
Jul-
19
Feb
-20
Repo Rate (in %) Brent (US$ per barrel)- RHS
Almost every time, Brent rise and fall has been accompanied with rate hikes and cut respectively
Movement in Rupee
Source : Bloomberg, SBIMF Research.
-23 -22 -21 -20 -19-15
-10 -10 -9 -8 -6 -5 -5-2 -1 0
1 27
15
-30
-20
-10
0
10
20
Bra
zil R
eal
Afr
ican
Ran
d
Ru
ssia
n R
ou
ble
Mex
ican
Pes
o
Co
lom
bia
n P
eso
Ind
on
esia
n R
up
iah
Turk
ey L
ira
Hu
nga
rian
Fo
rin
t
Thai
Bah
t
Po
lish
Zlo
ty
Ind
ian
Ru
pee
Mal
aysi
an R
ingi
tt
Ko
rean
Wo
n
Ch
ines
e re
nm
inb
i
Taiw
anes
e D
olla
r
Ph
ilip
pin
e P
eso
Jap
anes
e Ye
n
Euro
Bri
tish
Po
un
d
Au
stra
lian
Do
llar
(% change YTD)
Most EM currencies depreciated YTD as investors rush to safe haven assets
68.8
71.4
71.4
75.6
65
67
69
71
73
75
77
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Rupee/USD (month-end)
Rupee depreciated by 4.5% in March 2020 and stood at
Rs 75.6/$ on 31st March 2020
80
85
90
95
100
105
110
115
De
c-1
0
Oct
-11
Au
g-1
2
Jun
-13
Ap
r-1
4
Feb
-15
De
c-1
5
Oct
-16
Au
g-1
7
Jun
-18
Ap
r-1
9
Feb
-20
Trade weights : 6 currency REER Trade weights : 36 currency
2010-11=100
REER indicates marginally appreciated rupee- will come to
more equilibrium levels with depreciation in March
Outlook on Rupee
Source : RBI , CMIE economic outlook, SBIMF Research; *uptil 20th March 2020
Favourable factors
Risk
• Crude oil price crash and
strong Forex reserves to work
in favour of rupee
• The coordinated global
policy easing may stem the
portfolio outflows but may
take a while for risk appetite to
fully recover.
• US $ and other safe haven
currencies to maintain its
appreciation bias , that can
weigh on Indian currency
• Rupee likely to come under
pressure if number of new
virus cases sharply rise in India
or policymakers undelivered and
growth is impacted
Rupee is likely to maintain a depreciation bias in the near-term. Global and local policy action, number of COVID-
19 cases in India and its impact on growth will determine the near-term trajectory
Foreign Exchange reserves at an all time high
277
303 294 293304
341356
370
424412
470
200
250
300
350
400
450
500
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20*
Total FX Reserves (US $ billion)
Central fiscal situation witnessing pressure
Source : CMIE economicc outlook, SBIMF Research ; Uptil March’2020.
• Centre’s fiscal deficit uptil Feb’2020 stands at Rs 10.36 trillion against RE of Rs. 7.67 trillion i.e. Rs. 2.7 trillion or 34%
higher than the target.
• Receipts stand at Rs. 14.3 trillion till Feb end, i.e. Rs. 5 trillion lower than revised collection target of RS. 19.3 trillion.
• Cumulative Gross tax and net tax revenue has shown -0.8% and 2% growth respectively during Apr-Feb against the revised
growth targets of 4% (for gross tax) and 14.2% for net tax.
• As per the data available on disinvestments, nearly Rs. 500 billion has been materialised in this fiscal year, thus creating a
shortfall of Rs 150 billion.
• The recent data on GST collections also point towards shortfall. The collection contracted by (-)8.4% y-o-y in March 2020
(Rs. 976 billion). There is a high likelihood that the fiscal deficit target for FY20 (i.e. 3.8% of GDP) will be breached.
7.7
18
.5
15
.0 3.5
0.7
23
.5 3.5
10
.4
13
.8
11
.1 2.6
0.5
21
.6 3.0
0
5
10
15
20
25
Fiscal Deficit Revenue receipts Tax revenues Non-tax revenues Disinvestments* Revenueexpenditure
Capitalexpenditure
FY20 (RE)Rs billion
April-Feb'2020Rs billion
Fiscal deficit targets may be breached
Source : CMIE economic outlook, SBIMF Research.
• Central government has failed to achieve its FY20 tax revenue targets making the FY21 asking growth rate highly ambitious. As
per our calculations, tax revenues will have to grow by ~23% in FY21 to meet the budgeted target. Tax collections in FY21 may
be missed by a wide margin.
• The weakness in equity market make the disinvestment targets appear too tall, while the spectrum auctions planned for FY21
may have to be shifted forward by another year. Some weakness in revenue may be tide over by the excise duty hike and
reduced subsidy outgo due to crude price fall.
• Central government has announced fiscal stimulus measures in the wake of COVID-19 and may have to deliver some more
stimulus going ahead.
• Anticipated fiscal stimulus measures along with weakness in receipts will likely lead to fiscal slippage of 2% of GDP in FY21.
2.6
6.16.6
4.9
5.9
4.94.5
4.1 3.93.5 3.5 3.4
3.8
5.5%
0
1
2
3
4
5
6
7
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20 R
E
FY
21 E
Fiscal deficit (as a % of GDP)
Likely fiscal slippage of nearly 2% of GDP in FY21 ...
Crude and government finances
Source : SBIMF Research.
• States charge VAT on petroleum products. VAT on petroleum products is an ad-valorem tax. Ideally, with fall in crude prices,
pre-VAT price of petrol and diesel should fall and should translate in lower VAT collection.
• However, VAT is a tax on tax, implying that it is calculated after adding up the excise duty. Hence, with rise in excise duty, the
fall in VAT may not be that much.
• Further, states may also hike VAT on petrol and diesel
Impact of crude oil decline on Central government finances
Impact on state government finances
Centre hiked excise duty by Rs 3/litre on petrol and
diesel – which will provide additional revenues of Rs 450
billion in FY21
If govt exercise the provision to hike excise duty by
another Rs.8/litre, it will entail additional benefit of Rs 1
trillion annually
Crude prices below US$ 50/bbl entails no additional
subsidy cost to government on LPG and Kerosene.
Therefore, govt see a subsidy savings of Rs. 260 billion
in FY21 (BE of Rs.400 bn – 140 bn of last year dues)
Lower collections from upstream oil companies as levies
like royalties (on offshore output) and cesses are ad-
valorem
There is also a likelihood of reduced income tax
payments and dividend by the oil companies
Materializing the BPCL investment will be difficult amid
crude oil price decline
Benefits Adversaries
Centre plans to raise 62.5% of its budgeted borrowings in 1HFY21
Source : SBIMF Research.
Higher than budgeted borrowings for FY21 may be inevitable amid increased likelihood of fiscal stimulus
Inclusion in global bond
indices
Small savings
schemes
OMOs purchases
by the RBI
In case of fiscal slippages, higher borrowings will be
funded by a mix of following operations :
➢ OMO Purchases by the RBI
➢ Small Savings Scheme
➢ Inclusion in Global Bond Indices (As a precursor to
it, RBI has announced special securities in which
there will be no foreign investment limit, which are
now termed as ‘fully accessible route’.
1H Borrowing calendar
Rs bn 1H Borrowing
Total Budgeted
borrowing
1H Borrowing
(% of Budget)
FY15 3,680 6,000 61
FY16 3,600 6,000 60
FY17 3,550 6,000 59
FY18 3,720 5,800 64
FY19 2,880 6,055 48
FY20 4,420 7,100 62
FY21 4,880 7,800 63
Low credit growth despite surplus banking system liquidity
Source : RBI, BIMF Research.
• Banking system liquidity remained in surplus for
the 10th consecutive month.
• Currency in circulation for the financial year so
far (Apr-March 20,2020) grew by 12.8%, lower
than the 17.4% growth witnessed in the
corresponding period a year ago.
• Looking ahead, we expect the inter-bank
liquidity to continue to remain in the surplus in
the coming quarter aided by tepid credit –offtake
vis-à-vis deposit growth.
77.69
99.61
26.89
5.4
76.02
48.19
28.45
54.09
0
20
40
60
80
100
120
Credit/Deposit Incrementalcredit/deposit
Investment/Deposit Incrementalinvestment/deposit
As of 29th March 2019 As of 13th March 2020
Ratios (%)
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
May
-17
Sep
-17
Jan
-18
May
-18
Sep
-18
Jan
-19
May
-19
Sep
-19
Jan
-20
Average monthly banking system liquidity - Rs billion (+ve is…
Net Borrowing of Banks from the RBI adjusted for surplus cash reserve
0
4
8
12
16
20
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-16
Jan
-17
Mar
-17
May
-17
Jul-
17Se
p-1
7N
ov-
17Ja
n-1
8M
ar-1
8M
ay-1
8Ju
l-18
Sep
-18
No
v-18
Jan
-19
Mar
-19
May
-19
Jul-
19
Sep
-19
No
v-19
Jan
-20
Mar
-20
Bank deposit Bank credit
(% y-o-y)
Summary of Economic Parameters
Source : SBIMF Research.
Growth GDP growth could be materially lower in FY21 vs. expected growth of 4.6% in FY20
Inflation CPI inflation is likely to average around 4.8% in FY20 and ~4.5% in FY21. All the current forces such as crash
in global crude oil prices and likelihood of further weakness in demand growth amidst coronavirus scare are
deflationary in nature. Inflation may remain benign till they persist.
External account
Current account deficit is likely to narrow to 0.5% of GDP in FY21 owing to lower crude oil prices and subdued
capital goods imports. BOP is likely to remain in surplus in FY21 as lower current account deficit (due to fall in
oil price) will offset the expectation of reduced FDI and ECB inflows.
Rupee We expect Rupee to maintain a depreciation bias in FY21. Global and domestic policy actions, number of
COVID-19 cases in India and expectation of domestic growth will shape the near-term rupee trajectory.
Expectation of favourable current account balance in FY21 and strong FX reserves with RBI is likely to provide
some support to Rupee.
Fiscal Anticipated fiscal stimulus measures along with weakness in receipts will likely lead to a fiscal slippage of 2%
of GDP in FY21. The fiscal deficit may reach 5.5%-6% of GDP in FY21.
Valuations: India vs. US 10-year G-sec
Source: Bloomberg, SBIFM Research
3.0
4.0
5.0
6.0
7.0
8.0
Sep
-09
Ap
r-1
0
No
v-1
0
Jun
-11
Jan
-12
Au
g-1
2
Mar
-13
Oct
-13
May
-14
De
c-1
4
Jul-
15
Feb
-16
Sep
-16
Ap
r-1
7
No
v-1
7
Jun
-18
Jan
-19
Au
g-1
9
Mar
-20
India minus US 10 year G-sec (in %) LTA since 2001
10 year Avg (in %) 5 year average (in %)
-3.0
-1.0
1.0
3.0
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
Mar
-16
Sep
-16
Mar
-17
Sep
-17
Mar
-18
Sep
-18
Mar
-19
Sep
-19
Mar
-20
India minus US 10 year G-sec adjusted for 1 yr rupee fwd premium(in %)LTA since 200110 year Avg (in %)5 year average (in %)
Spread of 10-year G-sec (India-US) broadly in line with
historical averages Spread of 10-year G-sec (India-US) adjusted for 1-year
currency premium: unattractive (investors look for 2% plus)
Valuations: AAA Corporate Bonds vs. GSec
Source: Bloomberg, SBIFM Research
Spread of 10-year AAA Corporate Bonds vs. G-sec: 137bps in March 2020, higher than recent trend but
lower than the average of 236 bps during 2008 crisis)
20
100
180
260
340
420
Sep
-07
Feb
-08
Jul-
08
Dec
-08
May
-09
Oct
-09
Mar
-10
Au
g-1
0
Jan
-11
Jun
-11
No
v-1
1
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
Dec
-13
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
Jun
-16
No
v-1
6
Ap
r-1
7
Sep
-17
Feb
-18
Jul-
18
Dec
-18
May
-19
Oct
-19
Mar
-20
10 year Corp Bond minus G-sec (in bps) LTA since 2002 10 year avg. 5 year avg.
Spread here
touched ~400
Policy rate Outlook
Source : CMIE Economic outlook ; SBIMF Research.
6.50
6.00
6.50
5.15
4.40
3
5
7
9
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
RBI reduced the repo rate by 75 bps to 4.4% in March
2020
• The RBI brought forward its MPC meeting (earlier scheduled in 1st week
of April) and concluded their meeting with a 75bps Repo rate cut (to
4.40%). The LAF window has been widened from 50bps to 65bps as
Reverse repo rate has been lowered by 90bps to 4% and MSF rate has
been brought down by 75bps to 4.65%.
• The CRR (cash reserve ratio) has also been tinkered for the first time in
last seven years (since Feb 2013) and brought down by 100bps to 3% for
one-year period starting March 28, 2020. The move will release Rs 1.37
trillion of primary liquidity into the system right from the day of its
implementation. CRR cut is the most direct and immediate form of
monetary easing measure that any central bank can use.
• Apart from the rate actions, the central bank took host of measures to
a) inject liquidity into the system b) defreeze the corporate bond
market and unwind the higher spreads being witnessed over last
few weeks, c) provide relief to the all the segments of borrowers
(both retail and businesses) who may find it difficult to honour their
term/working capital loans, and d) incentivize the banks to lend by
deferring their statutory obligations, aiding liquidity and reducing
rates.
• Few other key issues which will need addressing by RBI in our view is a)
guidance on the OMO and b) continued support to the banking system in
case the financial stresses amongst the corporates come to the fore
amidst the COVID-19 led growth slowdown.
• Looking ahead, stresses in economic activity and hence growth suggests
that rates will have a softening bias for long.
Debt Market Outlook
Source: Bloomberg, SBIFM Research
-100
0
100
200
300
400
Sep-0
9
Apr-
10
No
v-1
0
Jun-1
1
Jan-1
2
Aug-1
2
Ma
r-1
3
Oct-
13
Ma
y-1
4
De
c-1
4
Jul-1
5
Feb
-16
Sep-1
6
Apr-
17
No
v-1
7
Jun-1
8
Jan-1
9
Aug-1
9
Ma
r-2
0
10 year G-sec minus Repo rate (in bps)10 year average
Spread when CD ratio>74%: 70bs
Spread when CD ratio<74%: 58bps
LTA since 2001: 88bps
8.0
6.4
6.7
6.1
4.404.0
5.0
6.0
7.0
8.0
9.0
10.0
Jan-1
4
Ma
y-1
4
Sep-1
4
Jan-1
5
Ma
y-1
5
Sep-1
5
Jan-1
6
Ma
y-1
6
Sep-1
6
Jan-1
7
Ma
y-1
7
Sep-1
7
Jan-1
8
Ma
y-1
8
Sep-1
8
Jan-1
9
Ma
y-1
9
Sep-1
9
Jan-2
0
10 year G-sec (in %) Repo Rate (in %)
• Indian G-sec market has been extremely volatile. 10-year G-Sec yield
declined by 23 bps during the month to 6.14% but traced back to ~6.30% in
first week of April.
• Benign crude oil prices, risk of lower growth and expectation of continued
monetary easing support the fall in yields. However, concerns surrounding
the likely fiscal slippages to combat the impact of COVID-19 and FPI
outflows limit the fall.
• Growth is expected to weaken as the COVID-19 leads to risk of global
growth recession, supply chain disruption both globally and locally, and
weakening prospects for domestic demand. Inflation has likely peaked in
February 2020 and should moderate through 2020. As such growth inflation
dynamics are supportive of continued monetary policy easing.
• Rupee depreciated to ~76/US$ in March and should continue to see a
depreciation bias, at lease in Q1 FY21 as FPI flows chases safe haven
assets and invest out of India. That said, a favourable external account
dynamics (emanating primarily from low crude prices) and strong FX
reserves balance should keep the rupee supported.
• Government balance-sheet is stressed and pose significant risks of slipping
the stated deficit target and hence translating into higher than budgeted
borrowings. Policy makers are working on creating enabling framework so
that a part of higher fiscal deficit can be financed via external sources. RBI
may also have to come forward and monetize the fiscal deficit via OMO
purchase.
• In the other fixed income assets, challenge is of massive liquidity on one
hand and deteriorating credit conditions on the other.
• We stay long duration as we think that ultimately the central bank will
continue to take alternate policy actions so as to keep the rates across the
asset class low.
GSec is trading at 174 bps spread to Repo rate
Thank you
Disclaimer
This presentation is for information purposes only and is not an offer to sell or a solicitation to buy anymutual fund units/securities. These views alone are not sufficient and should not be used for thedevelopment or implementation of an investment strategy. It should not be construed as investmentadvice to any party. All opinions and estimates included here constitute our view as of this date and aresubject to change without notice. Neither SBI Funds Management Private Limited, nor any personconnected with it, accepts any liability arising from the use of this information. The recipient of thismaterial should rely on their investigations and take their own professional advice.
Mutual Funds investments are subject to market risks, read all scheme related documentscarefully.
Asset Management Company: SBI Funds Management Private Limited (A joint venture with SBI andAMUNDI). Trustee Company: SBI Mutual Fund Trustee Company Private Limited.
Contact Details
SBI Funds Management Private Limited
(A joint venture between SBI and AMUNDI)
Corporate Office:
9th Floor, Crescenzo, C-38 & 39, G Block,Bandra Kurla Complex,Bandra (East), Mumbai - 400 051Tel: +91 22 6179 3000Fax: +91 22 6742 5687/88/89/90/91
Website: www.sbimf.com
Call: 1800 425 5425
Visit us @ www.youtube.com/user/sbimutualfund
SMS: “SBIMF” to 56161
Email: [email protected]
Visit us @ www.facebook.com/SBIMF