India is at among the preferred value zone when it comes to options for an international investor – in terms of the sheer depth and the breadth of investable palette, the medium term attractiveness on relative valuations (at ~14.5xFY14E) and long term structural growth drivers. However, given the vulnerability of markets on external flows, any volatility in the global markets would impact India disproportionately.
We remain dedicated to bottom up stock picking focusing on the business quality (business model, earnings, management and cash-flows), remodeling (resources, operations, balance sheet) and valuations.
Bond yields declined further as macro economic data points released post the policy review printed much softer than market expectations. The WPI data for April 13 registered a y-o-y growth of 4.89% as compared to market estimates of 5.45% and previous month growth of 5.96%. The retail inflation index, the CPI which had been relatively sticky printed at 9.39% y-o-y for April 13 as against the estimates of 9.74% and the previous month reading of 10.39%. The inflation readings provided comfort in terms of fall in sequential growth as well as reduced pricing power as evidenced by declining core inflation. Soft data points on inflation and continuing moderation in gold and international crude prices kept market sentiments upbeat, with anticipation of additional easing in policy rates in spite of a rather circumspect RBI policy guidance. The benchmark bond yield based on old 10-year paper moved lower by around 30bps during the month and closed at 7.44%, with an intra month low close to 7.30%. The RBI issued the new 10-year benchmark bond during the month at a cut off yield of 7.16%. AAA corporate bond yields moved lower in line with the sovereign curve movements with the 5-10 year yields moving lower by 30-35 bps.
Largely positive trends on the evolution of inflation have guided market sentiments in the recent past with the market largely ignoring the trade deficit data for the month of April 13. The Q4 GDP data, which was in line with estimates, cautionary comments from the RBI governor regarding the risks to retail inflation and external sector and INR weakness led to markets retracing some of the gains over the last week of the month. The new benchmark 10-year yield closed at 7.24% and the old benchmark at 7.44%, with the AAA PSU corporate yield curve being largely flat in the 3-10 yr space at around 8.15%-8.18%.
The RBI monetary policy response to address the moderation in growth has been constrained by the multiple challenges emanating from the risks on inflation, fiscal deficit and the current account deficit. The moderation in inflation and fiscal adjustments especially on the pricing of diesel has opened up the scope for monetary policy to support growth revival in a limited way, even as the external sector challenges continue. We anticipate a gradual improvement in the external sector accounts driven by incremental slowdown in both oil and gold imports and improving export competitiveness even as the near term dependence on capital flows is likely to continue. Soft macro data, reduced pricing power and negative output gap provide leeway for additional policy rate cuts. The extent and sequencing of the same would be largely guided by incoming data, providing near term market volatility.
We have been maintaining higher duration, with periodic profit taking as market positioning and momentum driven by soft data, has favored such a strategy.
We remain dedicated to bottom up stock picking focusing on the business quality (business model, earnings, management and cash-flows), remodeling (resources, operations, balance sheet) and valuations.
Bond yields declined further as macro economic data points released post the policy review printed much softer than market expectations. The WPI data for April 13 registered a y-o-y growth of 4.89% as compared to market estimates of 5.45% and previous month growth of 5.96%. The retail inflation index, the CPI which had been relatively sticky printed at 9.39% y-o-y for April 13 as against the estimates of 9.74% and the previous month reading of 10.39%. The inflation readings provided comfort in terms of fall in sequential growth as well as reduced pricing power as evidenced by declining core inflation. Soft data points on inflation and continuing moderation in gold and international crude prices kept market sentiments upbeat, with anticipation of additional easing in policy rates in spite of a rather circumspect RBI policy guidance. The benchmark bond yield based on old 10-year paper moved lower by around 30bps during the month and closed at 7.44%, with an intra month low close to 7.30%. The RBI issued the new 10-year benchmark bond during the month at a cut off yield of 7.16%. AAA corporate bond yields moved lower in line with the sovereign curve movements with the 5-10 year yields moving lower by 30-35 bps.
Largely positive trends on the evolution of inflation have guided market sentiments in the recent past with the market largely ignoring the trade deficit data for the month of April 13. The Q4 GDP data, which was in line with estimates, cautionary comments from the RBI governor regarding the risks to retail inflation and external sector and INR weakness led to markets retracing some of the gains over the last week of the month. The new benchmark 10-year yield closed at 7.24% and the old benchmark at 7.44%, with the AAA PSU corporate yield curve being largely flat in the 3-10 yr space at around 8.15%-8.18%.
The RBI monetary policy response to address the moderation in growth has been constrained by the multiple challenges emanating from the risks on inflation, fiscal deficit and the current account deficit. The moderation in inflation and fiscal adjustments especially on the pricing of diesel has opened up the scope for monetary policy to support growth revival in a limited way, even as the external sector challenges continue. We anticipate a gradual improvement in the external sector accounts driven by incremental slowdown in both oil and gold imports and improving export competitiveness even as the near term dependence on capital flows is likely to continue. Soft macro data, reduced pricing power and negative output gap provide leeway for additional policy rate cuts. The extent and sequencing of the same would be largely guided by incoming data, providing near term market volatility.
We have been maintaining higher duration, with periodic profit taking as market positioning and momentum driven by soft data, has favored such a strategy.
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