markets & macro july 2019 - hdfc securities

Markets & MacroJULY 2019

PCG Research

AGENDA

• Markets in Q1 FY20

• Indian Macros

• What’s Happening?

• What’s Worrying?

• What’s Next ?

Markets in Q1 FY20

Markets in Q1 FY20

• Trade War Dragged China & Korea Lower

• Pound and Yuan Weaken the most

• Precious Metal Shines - Base Metals Melt

• Sector Wise Performance: Consumer Durable in Limelight

• Nifty 50 Index Gainers – Losers

• Relative Rotation : Sectors vs. Index

• Relative Rotation : Sensex Stocks

Trade War Dragged China & Korea Lower

Source: Bloomberg, HSL PCG Research

World Indices Performance ( June Qtr. )

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

Ru

ssia

n R

TS

DA

X

Bra

zil I

bo

vesp

a

S&P

50

0

Nas

daq

CA

C 4

0

MSC

I Wo

rld

Ind

ex

Do

w J

on

es In

d. A

vg.

MSC

I EM

Ind

ex

FTSE

10

0

BSE

Sen

sex

Nif

ty 5

0

Taiw

an T

aiex

Nik

kie

225

Ko

spi

Han

g Se

ng

Shan

ghai

Co

mp

osi

te

Pound and Yuan Weaken the Most


Currency Performance against $ ( June Qtr.)

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

Thai

lan

d B

aht

Sou

th A

fric

a R

and

Ph

ilip

pin

es P

eso

Jap

anes

e Ye

n

Can

ada

Do

llar

Bra

zil R

ead

Euro

Mex

ico

Pe

so

Ind

on

esia

Ru

pia

h

Ind

ian

Ru

pee

Ho

ngk

on

g D

olla

r

Sin

gap

ore

Do

llar

Taiw

an D

olla

r

Au

stra

lia D

olla

r

Mal

aysi

a R

ingg

it

Ko

rean

Wo

n

Ch

ines

e R

enm

inb

i

Bri

tish

Po

un

d

Precious Metals Shine - Base Metals Melt


EnergyPrecious

Metal Base Metal Agriculture

Commodity Performance ( June Qtr.)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Bre

nt

Cru

de

Oil

($/b

bl)

Nat

ura

l Gas

($

/mm

Btu

)

Go

ld (

$/o

z.)

Silv

er

($/o

z.)

LME

Nic

kel (

$/M

T)

LME

Lead

($

/MT)

LME

Alu

min

ium

($

/MT)

LME

Co

pp

er (

$/M

T)

LME

Zin

c ($

/MT)

CB

OT

Co

rn (

$/b

u.)

CB

OT

Wh

eat

($/b

u)

ICE

Co

ffe

e (

$/l

b.)

CB

OT

Soyb

ean

($

/bu

.)

ICE

Suga

r ($

/lb

.0

ICE

Co

tto

n (

$/l

b.)


Sector Wise Performance: Consumer Durable In Limelight

Sectoral Performance (June Qtr.)

-10.5%

-5.2%

-4.9%

-4.3%

-3.2%

-3.1%

-2.2%

1.4%

1.9%

2.4%

2.4%

2.9%

6.0%

7.5%

9.5%

-15% -10% -5% 0% 5% 10% 15%

Healthcare

Small Cap

Auto

Mid Cap

FMCG

Oil

Metal

Nifty

Sensex

Bank

IT

Power

RealEstate

Capital Goods

Consumer Durable


Nifty 50 Index Gainers - Losers

Nifty 50 Index Top 10 Gainers & Losers ( June Qtr.)

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

BA

JFIN

AN

CE

BA

JAJF

INSV

TITA

N

ULT

RA

CEM

CO

BH

AR

TIA

RTL

SBIN

TCS LT

HD

FC

KO

TAK

BA

NK

DR

RED

DY

ASI

AN

PA

INT

TEC

HM

GA

IL

INFR

ATE

L

SUN

PH

AR

MA

IND

USI

ND

BK

ZEEL

IBU

LHSG

FIN

YESB

AN

K

Relative Rotation : Sectors vs. Index

Source: HSL PCG Research

50 - 200 DMA Cross Over After

April 2018

• Weakening• Lagging

• Leading• Improving

Auto, Metals, Infra, PSE

Realty,

Financial Services,

Bank

EnergyPharma,

MNC, Media, India

Consumption

For The Month of June



April 2018

Relative Rotation : Sensex Stocks

• Weakening• Lagging

• Leading• Improving

Tata Motors

Maruti

Power Grid

Hero Motor

Bajaj Finance

Kotak Bank

SBI

NTPC

Reliance,

HCL Tech, Axis Bank, ICICI

Bank

VEDL,

IndusInd,

Yes Bank,

ITC, TechM

Sun Pharma

For The Month Of June

Indian Macros

Indian Macros

• Inflation Under Control

• Industrial Activities : Gaining Traction

• Indian Forex Reserves Are at All-Time High

• RBI’s Excess Capital Reserves: Help Govt. in Reining

Deficits

Inflation Under Control

Source: Gov. of India, HSL PCG Research

0

1

2

3

4

5

6

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

CPI

CPI 3 Month Average

-6

-3

0

3

6

9

No

v-1

5

Feb

-16

May

-16

Au

g-1

6

No

v-1

6

Feb

-17

May

-17

Au

g-1

7

No

v-1

7

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

WPI

WPI 3 Month Average

Industrial Activities : Gaining Traction

Source: Gov. of India, HSL PCG Research

-1

0

1

2

3

4

5

6

7

8

9

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

Dec

-17

Feb

-18

Ap

r-1

8

Jun

-18

Au

g-1

8

Oct

-18

Dec

-18

Feb

-19

Ap

r-1

9

IIP

IIP 3 Month Average

0

1

2

3

4

5

6

7

8

9

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

8 Core Infra

8 Core Infra 3 Month Average

Industrial Activities : Gaining Traction

Source: Gov of India, HSL PCG Research

0

2

4

6

8

10

12

14

16

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Coal YoY%

0

2

4

6

8

10

12

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Electricity YoY%

-5

0

5

10

15

20

25

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Steel & Cement YoY%

Steel Cement

-10

-5

0

5

10

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Crude Oil & Natural Gas YoY%

Crude Oil Natural Gas

Indian Forex Reserves Are at All-Time High

Source: RBI, HSL PCG Research

250

270

290

310

330

350

370

390

410

430

450

25

-Dec

-09

25

-Ju

n-1

0

25

-Dec

-10

25

-Ju

n-1

1

25

-Dec

-11

25

-Ju

n-1

2

25

-Dec

-12

25

-Ju

n-1

3

25

-Dec

-13

25

-Ju

n-1

4

25

-Dec

-14

25

-Ju

n-1

5

25

-Dec

-15

25

-Ju

n-1

6

25

-Dec

-16

25

-Ju

n-1

7

25

-Dec

-17

25

-Ju

n-1

8

25

-Dec

-18

25

-Ju

n-1

9

India Weekly Forex Reserve ($ Billion)

India’s Forex Reserve Touches $426 billion

RBI’s Excess Capital Reserves: Help Govt. in Reining Deficits

Source: RBI, HSL PCG Research

73.0% Rs.7t

23.9%; Rs.2.3t

2.4%Rs.0.2t

0.7%

Capital & ReservesContingency FundAsset Development FundCurrency & Gold Revaluation Account

RBI’s Assets(as of FY18)

72.8%

17.4%

4.0%4.5%

1.2%

Foreign Currency Assets Domestic assets

Gold Loans & Advances

Other Assets

Classifying RBI’s Capital Reserves (as of FY18)

What’s Happening?

What’s Happening?

• Indian Investors Club Rising Steadily

• SIP Culture Sipping In The Retail Mind-set

• Road Infrastructure : Quality and Quantity

• NPS : Registered Four-fold Increase in 5 years

• Overall FDI inflows Steady

• India Inc.’s Balance Sheets Are Improving

Indian Investors Club Rising Steadily

Source: BSE, HSL PCG ResearchData as of March 19

10.4

7.4

3.6

3.5

3.1

3

2.7

2.6

2.1

1.7

1.6

8.3

50

0 10 20 30 40 50 60

Maharashtra

Gujarat

Tamil Nadu

UP

Karnataka

West Bengal

Rajasthan

Delhi

Telangana

Andhra Pradesh

MP

Others

Total Addition

50 Lakh Investors Added In FY19

SIP Culture Sipping In The Retail Mind-set

Source: SEBI, HSL PCG Research

6.3

3

2.8

5

1.2

9

1.8

9

66 6.4

3

1.3

2

2.1

9.0

2

9.0

2

8.4

7

2.7

3

3.1

3

11

.63

11

.63

8.8

3

4.4

1.7

3

14

.33

14

.33

13

.36

3.8

1

1.8

9

21

.98

21

.98

11

.43

3.3

1

3.6

3

26

.47

Existing at thebeginning of the

period

Registered during thepreiod

Matured during theperiod

Terminatedprematurely during

the period

Closing no. of SIPs atthe end of the period

No. of SIPs in mn.

FY-14 FY-15 FY-16 FY-17 FY-18 FY-19

Road Infrastructure : Quality and Quantity both Improving

Source: Govt., HSL PCG Research

50135732

4260 4410

6029

8230

9829

10800

0

2000

4000

6000

8000

10000

12000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Construction of Road (km) during BJP regime

211287 287

723

1134 1101

1306

1470

-35

36

0

152

57

-3

1913

-60

-30

0

30

60

90

120

150

180

0

200

400

600

800

1000

1200

1400

1600

FY13 FY14 FY15 FY16 FY17 FY18 FY19REFY20BE

Road Budget

Rs bn yoy (%)

Rs bn

NPS : Registered Four-fold Increase in 5 years

Source: NPS, PFRDA, HSL PCG Research

0

50000

100000

150000

200000

250000

300000

350000

FY14-15 FY15-16 FY16-17 FY17-18 FY18-19 May-19

Assets Under Management (NPS) Rs. Crore

Govt. Sector (CG & SG) Corporate Sector & all-citizen NPS Swavalamban Atal Pension Yojana

337882

80855

Overall FDI inflows Steady

Source: DIPP, HSL PCG Research

0

5

10

15

20

25

Serv

ice

s

Co

mp

ute

r

Tele

com

Co

nst

ruct

ion

Trad

ing

Ch

emic

als

Au

tom

ob

ile

Ph

arm

a

Po

we

r

Infr

a

Sectoral FDI Equity Inflows (% Share)

2018 2019

21.4

34.8

21.824.3

30.9

4043.5 44.9 44.434.8

46.6

34.3 36

45.1

55.660.2 61

64.4

FY-11 FY-12 FY-13 FY-14 FY-15 FY-16 FY-17 FY-18 FY-19

FDI Inflows (in $bn)

Equity Total

India Inc.’s Balance Sheets Are Improving

Source: CRISIL, HSL PCG Research

64.8%56.0% 56.3% 60.4%

68.3%

14.0%

11.0% 13.3%

16.0%8.1%

5.6%

6.1%

12.3%7.8% 8.4%

1.9%

13.9%9.1% 5.2% 6.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY15 FY16 FY17 FY18 FY19

AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Others

What’s Worrying?

What’s Worrying?

• India Off-Balance Sheet Financing Hides True Picture

• RBI Projects Worsening Macro for Fiscal 20

• Trade War: Slowdown fears Resurface

• Weakening Global Oil Demand Growth

• Global Manufacturing Growth Contracts

• Negative Debt Yields Pushes Investors Towards Gold

• Bitcoin: Rising Like A Phoenix – Worry For Paper

Currencies

India Off-balance Sheet Financing Hides True Picture

*Fiscal deficit adjusted for special bond issuance and NSSF loans undertaken by

public sector entities.

3.3

4.7

2

3

4

5

6

7

8

FY-0

2

FY-0

3

FY-0

4

FY-0

5

FY-0

6

FY-0

7

FY-0

8

FY-0

9

FY-1

0

FY-1

1

FY-1

2

FY-1

3

FY-1

4

FY-1

5

FY-1

6

FY-1

7

FY-1

8

FY-1

9

Fiscal Deficit (% GDP) Adjusted Fiscal Deficit* (% GDP)

Source: CMIE Economic outlook, HSL PCG Research

In a bid to keep its fiscal balances incheck amid expenditure overrunsand revenue shortfall, thegovernment, over the past coupleof years, has relied increasingly onthe pool of small savings.

Increasing reliance on small savingsfunds to meet usual budgetliabilities instead of long term assetcreation is a cause for concernbecause its cost is higher thanmarket borrowing and also theinterest rates are higher than bankdeposits of a comparable maturity,thereby hampering the effectivetransmission of monetary policy.

RBI Projects Worsening Macro for Fiscal 20

Source: RBI , HSL PCG Research

7

3.4

3.3

10

.4 11

.9

-2.2

5.9

4.2 5

.1

10

.9

10

.6

-3

4.3

5.4

8

11

.7

8.4

-5.1

-6

-4

-2

0

2

4

6

8

10

12

14

FY20 Real GDPGrowth

FY20 FiscalDeficit to GDP

FY20 CPI FY20 WeightedAvg Lending

Rate

FY20 Exports toGDP

FY20 CurrentAccount Balance

to GDP

Baseline Medium Stress Severe Stress

Trade War : Slowdown fears resurface

Global Growth to reduce by0.5ppt – 0.8pptLatest IMF projection for now at3.3% in 2019, down from 3.6% in2018

World trade toslowdown by

0.2ppt in 2019

Growth Impact greater in China than the US due to direct

trade effects

In the developed world,Europe could see growthslowdown by 0.8ppt due

to indirect trade andfinancial links

In Asia, global growth slowdown and trade compression could lead to

a slowdown. Also, slow Chinese growth could hurt economies like Singapore that have greater trade

linkages with China. Some countries like Vietnam and India could gain due to a shift in supply chains from China

to these countries.

Source: WTO, IMF, World Bank, HSL PCG Research

Weakening Global Oil Demand Growth

Source: EIA, HSL PCG Research

Global Manufacturing Growth Contracts


50.7

52.952.5

54.4

52.1

50.4

49.8

47

48

49

50

51

52

53

54

55

Global Manufacturing PMI

Negative Debt Yields Pushes Investors Towards Gold


1000

1050

1100

1150

1200

1250

1300

1350

1400

1450

0

2

4

6

8

10

12

14

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

Go

ld

Deb

t

Global Negative Yielding Debt ($ Tn) Gold ($/oz.)

Bitcoin: Rising Like A Phoenix – Worry For Paper Currencies

Source: Election Commission, HSL PCG Research

0

2000

4000

6000

8000

10000

12000

14000

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

IN $

Up 240% this Calendar Year

What’s Next?

What’s Next?

• First Budget of MODI 2.0 by First Woman FM

• Extreme Divergence in India: Time To Bet On Small

Stocks

• Technical Outlook :

– Currency & Debt Markets

– Gold & World Stock Markets

Modi 2.0 – First Budget on 5th July 2019


Country's first full-time women finance minister

Economy has slowed down, need stimulus

Steps to boost rural income and agriculturalproductivity expected

Expect Sops on income tax front to improve urban middle class sentiment

We also expect higher allocation on to improve infrastructure for power, water and urbantransport

Higher allocation to defence ministry – as she was defence minister in the last govt.

Union Budget 2019: Expectations from Nirmala Sitharaman

Extreme Divergence in India: Time To Bet On Small Stocks

Source: BSE, HSL PCG Research

0

5

10

15

20

25

0

20

40

60

80

100

120

140

160

FY-0

5

FY-0

6

FY-0

7

FY-0

8

FY-0

9

FY-1

0

FY-1

1

FY-1

2

FY-1

3

FY-1

4

FY-1

5

FY-1

6

FY-1

7

FY-1

8

FY-1

9

FY-2

0

Rs

Lk C

r

Rs

Lk C

r

Total Listed Companies A Group Stocks B Group Stocks (RHS)

Technical Outlook : Currency & Debt Markets



April 2018

ICE Dollar Index: Violation of Long term Support

200 DMA and Long Term

Support Violation below 96

USDINR : Near Long Term Support

Long Term Support at 68

Rupee Strengthening

U.S 10 Yr Bond Yield below 2% India 10 Yr Bond Yield at 6.87%

Indian Interest Rates headed lower

Technical Outlook : Gold & World Stock Markets


50 - 200 DMA Cross Over After April 2018

ICE Dollar Index: Violation of Long term SupportMCX GOLD at All Time High

Breakout From Long Consolidation27 Quarters Range taken out

US GOLD above 1400 Highest Since Apr 2013

6 Years Breakout

Breakout

MSCI Asian Ex Japan Index: Monthly Charts

Reversal from Long Term Trend Line

Support

MSCI World Market Index: CMP 2178

Likely to Breakout above 2188

Thank You!

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markets & macro july 2019 - hdfc securities

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