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
Source: Bloomberg, HSL PCG Research
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
Source: Bloomberg, HSL PCG Research
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.)
Source: Bloomberg, HSL PCG Research
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
Source: Bloomberg, HSL PCG Research
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
Source: HSL PCG Research
50 - 200 DMA Cross Over After
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
Source: Bloomberg, HSL PCG Research
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
Source: Bloomberg, HSL PCG Research
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
Source: HSL PCG Research
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
Source: Bloomberg, HSL PCG Research
50 - 200 DMA Cross Over After
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
Source: Bloomberg, HSL PCG Research
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
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