ADVICE FOR THE WISE

July 2016

CONTENTS • From The CEO’s Desk

• Did You Know?

• Domestic Equity Outlook

• Domestic Debt Outlook

• Domestic Debt Strategy

• Global Equity Outlook

• Global Economy Update

• Global Debt Outlook

• Sector Outlook

• Real Estate Outlook

• Commodities

• Foreign Exchange

• What’s Trending.

• Disclaimer

FROM THE CEO’s DESK

Dear Investors,

Billionaire investor Wilbur Ross said "Ultimately, I think it will be the world's most expensive divorce. But like most divorces, it's probably going to take

a lot longer than it should." The Brexit vote to leave the European Union sent shock waves across the globe. Though the pre-poll surveys had

indicated a close call, it was largely expected that sanity would prevail on referendum day and the British populace would vote to Remain. The

ramifications of an eventual Brexit are likely to be long-drawn and far-reaching. Apart from the impact it has had on the currency markets, there is an

imminent danger of other countries wanting to follow suit. This may lead to the ultimate breakdown of the EU, causing geo-political chaos with the

danger of recession.

The equity markets seemed to have temporarily shrugged off the event. While the Sensex tanked by over 1000 points when the Brexit result was

declared, it has since recovered all its losses and closed the month of June at a YTD high of almost 27,000. Though there may be individual stocks

and sectors where revenues are likely to be directly impacted, the market as a whole has shown significant resilience, waiting as it were for Britain to

formally initiate the process of exit before assessing its overall impact.

Back home, the other important event which rattled the markets was Dr. Raghuram Rajan’s decision not to seek a second term as RBI

Governor. Dr. Rajan took charge at the helm of the RBI at a time when India had the dubious distinction of being one of the Fragile Five. From

the brink of a major financial crisis in September 2013, he has steered the economy ably and is regarded today as one of the best Central

Bankers in the world. If India today has a favourable macro environment, with parameters like a stable currency, low Current Account Deficit,

reasonable inflation and an overall sense of well-being with the confidence of global and domestic investors, it is due largely to the policy

measures adopted by Dr. Rajan and his team.

The silver lining during the month has of course been the onset of the monsoon. Making up for a late start, the monsoon has had a fair

distribution and has covered almost the entire country. This, along with the passing of the 7th Pay Commission by the Union Cabinet, is likely to

boost rural and urban consumption. Corporate results for the first quarter will soon start coming in and it will be interesting to see if they keep

the same momentum as the previous quarter. Going ahead, we might have to brace ourselves for some volatility on account of various global

headwinds. The time-tested technique of systematic investments should see us through this period of volatility and additionally help investors

with a 2-3 year horizon make handsome gains.

DID YOU KNOW

Kuwaiti Dinar (KWD) is

the most expensive currency in the

world, one Kuwaiti dinar buys

US$3.31

Hong Kong is the world’s freest

economy and its global ranking is

1, because of its transparent legal

environment and

fiscal discipline.

.

Industrial and Commercial Bank of

China Ltd. is a Chinese

multinational banking company,

and the largest bank in the world

by total assets and by market

capitalization.

DOMESTIC EQUITY OUTLOOK

Market View

For the month, equity markets continued with its positive run. Contrary to

expectations, mid and small caps out-performed large cap indices.

Economic green shoots, better corporate numbers and expectations of

good rainfall gave strength to the overall markets. Domestic macros had

begun on a mixed note with latest monthly CPI moving up to 5.76%

while April Industrial growth came above expectations at just 4.76%.

Higher food inflation pushed up the WPI as well as retail inflation

numbers. Early indicators suggest corporate performance to improve

further in the coming year.

As on 24th

June 2016 1 Month Change

1 Year

Change

Equity Markets

BSE Sensex 26,397 2.00% -5.37%

CNX Nifty 8,088 1.94% -3.68%

BSE Mid Cap 11,313 2.11% 5.83%

BSE Small Cap 11,278 2.97% 1.52%

80

85

90

95

100

105

110

115

120 S & P BSE Sensex CNX Nifty BSE Midcap BSE Smallcap

DOMESTIC EQUITY OUTLOOK

GOVERNMENT POLICY

Administrative reforms such as FDI in 6 sectors, changes in Shops and Establishment Act, and Mining have been the icing on the

cake.

WHOLESALE PRICE INDEX

• India's wholesale prices index continued in positive territory at

0.79% for May, 2016 as compared to 0.34% for the month of

April.

• Food inflation increased in the month of May by 7.88%.

Vegetables declined by 12.94%. Inflation in the fuel and

power segment was -10.86%%, while that of manufactured

products it was 0.91% in May.

CONSUMER PRICE INDEX

• CPI for the month of May spiked at 5.76% as compared to

5.47% in April.

• Year-on-year, cost of food and beverages rose 7.2 percent

(6.21 percent in March).

• The food prices rose by 7.55% compared to 6.32% in the

previous month.

Source – Tradingeconomics

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

WPI CPI

IIP

• Industrial output in India fell to -0.8% percent year-on-year in April

of 2016, against 0.3% in March 2016.

• Manufacturing contracted 3.2%, as against -1.2% in March.

Meanwhile, the mining sector output increased by 1.6% in April

2016

GDP

• India's Gross Domestic Product (GDP) growth for the fourth

quarter of the current financial year grew at 7.9% versus a

downwardly revised 7.2% for the previous quarter.

• Manufacturing sector continued to show a robust growth of 9.3%,

whereas agricultural growth rebounded and grew at 2.3%. Mining

sector witnessed a growth coming at 2.2% Y-o-Y.

4.0

5.0

6.0

7.0

8.0

9.0

GDP

Source – Tradingeconomics

-5.0%

0.0%

5.0%

10.0%

15.0%

Apr 15

May 15

Jun 15

Jul 15

Aug 15

Sep 15

Oct 15

Nov 15

Dec 15

Jan 16

Feb 16

Mar 16

Apr 16

IIP

DOMESTIC DEBT OUTLOOK

The yields on 10 Yr G sec closed at 7.43% which is 3 bps lower

than the last months close of 7.46%

Mutual fund managers pumped in nearly Rs 43,000 crore into

the debt market since the beginning of June, taking the total to

around Rs 76,000 crore so far in the current fiscal.

The Securities and Exchange Board of India (Sebi) has

mandated the electronic book mechanism for issuance of

debt securities on a private placement basis..

As on 24th June

2016

1 Month

Change 1 Year Change

Debt Markets

10-Yr G-Sec-

Yield 7.43 (3bps) (33bps)

Fixed Deposit 7.25 0bps (75bps)

Source – Reuters

7.20 7.40 7.60 7.80 8.00 8.20 8.40 8.60 8.80 9.00 G-Sec

10 YR Gsec Yield 5 YR Gsec Yield

0

100

200

300

400

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

Corporate Bond Spreads

5 Years 10 Years 15 Years

DOMESTIC DEBT STRATEGY

SHORT TERM DEBT Investors who have a low appetite for interest rate volatility and seeking accrual returns with moderate duration can look

at short term debt funds with the time horizon of 1 year to 2 years. Even though, most of the short term fund’s YTMs have

fallen to sub-9%, our recommended short term debt funds still have high YTMs (8.5%-11%) providing interesting

investment opportunities.

CORPORATE BOND FUNDS The macro economic outlook along with corporate profitability seems to be improving. We remain positive on the credit

outlook and we look for opportunities in the credit space. The corporate bond market segment continues to be attractive

over the medium to long term. The yields are at elevated levels and interest rate outlook seems favorable. The current

scenario offers the potential opportunity to lock in higher accruals, with the expectation that these levels of yields may not

sustain over the short to medium term. With credit easing, there are chances that the companies’ rating will be upgraded

that would further cause a rally in bonds, which in turn will benefit corporate bond funds.

DYNAMIC BOND FUNDS As RBI has reduced the key policy rates, dynamic bond funds have benefited a lot as most of them have a mix of gilt and

long term bonds in their portfolio. Going ahead, we expect RBI to further reduce key policy rates only after studying the

macro-economic data such as inflation, movement in crude oil prices and so on. Investors who don’t want to time the

market and who can depend on fund managers to take view on interest rates can look at dynamic bond funds.

LONG TERM DEBT FUNDS With the likelihood of another rate cut being minimal and the uncertainty with regard to the monsoon and global

commodity prices, particularly crude oil, a rally in G-Sec yields is unlikely. Investors should start exiting their investments in

Gilt Funds and Long Term Income Funds and go for accrual based short term funds.

GLOBAL EQUITY OUTLOOK

As on 24th

June 2016

1 Month

Change

1 Year

Change

Equity Markets

MSCI World 1608 -3.60% -9.69%

Hang Seng 20259 -0.53% -25.37%

S&P 500 2037 -2.55% -3.09%

Nikkei 14952 -10.77% -28.02%

GLOBAL INDICES

70

80

90

100

110

120

130

140 MSCI World Hang Seng S&P 500 Nikkei

GLOBAL EQUITY OUTLOOK

UK voted to exit the Euro zone. It will have longer term implications and sporadic events of currency volatility. It is a long term concern that will

simmer leading to a wide spectrum of possibilities such as break up of Euro, trade uncertainties for UK, global slowdown/recession, and currency

volatility.

GLOBAL ECONOMY UPDATE

UNITED STATES U.S. economic growth slowed in the first quarter but not as sharply as previously estimated, and while

there are signs of a pickup in the second quarter, analysts worry Britain's vote to leave the European

Union could hurt activity later this year.

U.S. consumer spending rose for a second straight month in May on increased demand for automobiles

and other goods, but there are fears Britain's vote to leave the European Union could hurt confidence and

prompt households to cut back on consumption.

JAPAN

A weak economy, deflation, massive public debt, negative interest rates and an ageing citizenry don't

seem like good reasons for a country’s currency to surge, but that’s exactly what happened to Japan’s yen

after Britain's vote to leave the European Union.

Japanese Prime Minister Shinzo Abe urged the central bank to provide ample funds to the market to

ensure liquidity and keep the wheels of economy turning in the wake of Britain's shock vote to exit the

European Union.

Source – Reuters

GLOBAL ECONOMY UPDATE

EUROPE Britain's decision to leave the European Union may have a knock-on effect for the rest of the EU and long-

term uncertainty over Brexit poses a threat to the entire region's economy according to German Finance

Minister Wolfgang Schaeuble.

European Union leaders met for the first time without Britain less than a week after it voted to leave,

delivering a tough message that London can access the bloc's lucrative single market only if it agrees to

allow free movement for EU workers.

EMERGING

ECONOMIES

India approved an increase of at least 14.29 percent in salaries and pensions for about 10 million

government employees and pensioners, a move that is expected to boost consumer demand and

underpin economic growth.

China could file suit at the World Trade Organization in order to protect its steel industry, according to the

Commerce Ministry said, as United States stated that some steel imports from China were hitting U.S.

producers.

Source – Reuters

GLOBAL DEBT OUTLOOK

Government bonds worldwide have gained 2.3 percent in June, the

most since December 2008, according to Bank of America Corp.

index data. The effective index yield is down to 0.5 percent, from

0.74 percent at the end of May

The New Zealand benchmark 10-year government bond fell to all-

time low on Tuesday, following cues from global debt market. Also,

investors were cautious ahead of potentially seismic events this

month including Britain’s referendum on European Union

membership, Bank of Japan and the Federal Reserve meeting.

The Canadian bonds gained on Monday, following global debt

prices as investors remain uncertain about the global economic

outlook and the near-term path of BoE and US interest rates. Also,

weak crude oil prices drove investors towards safe-haven buying.

Ratings Country 10 Yr G-Sec Yield 1 Month

Change

AAA

Germany -0.13% (27 bps)

Hong Kong 1.00% (33 bps)

Sweden 0.30% (51 bps)

Switzerland -0.58% (26 bps)

AA+ USA 1.41% (43 bps)

AA-

China 2.88% (7 bps)

Japan -0.25% (14 bps)

Source – Reuters

SECTOR OUTLOOK

SECTOR OUTLOOK

SECTOR STANCE REMARKS

Automobiles

Passenger vehicles and CVs will continue to outperform two-wheeler segment. Tractors to benefit on account of base

effect and expected normal monsoons.

Auto-ancillaries expected to do well due to revival of demand and stable global markets.

BFSI Private sector banks continue to deliver earnings in line with expectations. However, PSBs delivering poor numbers on

higher slippages and lower credit growth. We expect this trend to continue for next few quarters.

FMCG

We prefer “discretionary consumption” theme within FMCG. Key beneficiaries such as durables and branded garments,

as the growth in this segment will be disproportionately higher vis-à-vis the increase in disposable incomes. A bounce in

raw materials could put pressure on margins. Expect uptick in volumes post monsoons.

E&C Order inflows expected to improve as spending and capital expenditure likely to move up on economic recovery.

Moreover, sluggish execution and weak macros create a challenging environment.

SECTOR OUTLOOK

SECTOR STANCE REMARKS

IT/ITES Positive impact would be due to currency volatility which would be offset by the Negative impact from the slower volume

growth in the EU regions

Power Utilities Lack of fuel linkages , poor SEB health, adverse CERC guidelines have compromised the ROE’s leading to de-rating in

near term. Reform initiatives through UDAY can improve sector prospects in long run.

Cement Cement volumes and realizations saw uptick in South region. Early signs of recovery, specifically hopes of bounce back

in North and West region due to pick up in infrastructure. Cost benefits would continue to drive earnings.

Healthcare Regulatory risks have become more evident and frequent with FDA inspections for Pharma companies. US growth

continues to be muted for large caps due to lower approvals and regulatory issues.

SECTOR OUTLOOK

SECTOR STANCE REMARKS

Energy Crude prices at 6 month high though at substantially lower on annual basis. Nil subsidy in FY16 for OMC’s is a positive.

Trend expected to continue.

Telecom Regulatory uncertainties have come down. However, aggressive bids for spectrum has revived fears of sub-optimal

returns on capital. Further, expected launch of R-Jio at competitive prices in Q2FY17 will have negative implications.

Metals Lower global growth and Chinese slowdown has kept the growth subdued. Some recovery seen over past few months

with Chinese economy stabilizing. Long term prospects continue to remain weak.

REAL ESTATE OUTLOOK

REAL ESTATE OUTLOOK

The Central Government has eased FDI norms and lifted

restrictions on ticket size, Project size and stage of entry

of capital thus, paving way for virtually any project to

receive Foreign equity funds. Residential Prices have

remained stagnant across Tier I markets. All Tier I

markets have continued to witness moderate decrease in

demand with sluggish market sentiments.

With improvements in infrastructure across cities like

Chandigarh, Jaipur, Lucknow, Ahmedabad, Bhopal,

Nagpur, Patna and Cochin and quality products being

offered the end users /investors are being spoilt for

choice. The Demand drivers have increased

nuclearization, rising disposable incomes and easier

availability of credit.

RESIDENTIAL Tier I Tier II

REAL ESTATE OUTLOOK

Bangalore NCR and Hyderabad have seen strong

demand in the commercial segment and even Mumbai

has picked up in the later half of the year. The capital

values have also been on rise in major markets except in

NCR where values have remained stable. Absorption

volumes have been surpassing new completions

consistently, since H1 2014, as a result of which, the

vacancy levels in India have been dwindling.

Low unit sizes have played an important role in

maintaining the absorption levels in these markets. Lease

rentals as well as capital values continue to be stable at

their current levels in the commercial asset class.

COMMERCIAL Tier I Tier II

REAL ESTATE OUTLOOK

In Mumbai demand for space in successful malls

continued to be on the rise and categories such as F&B,

premium apparel and entertainment dominated leasing

activity. International brands were seen increasing their

footprints . Hyderabad has seen a steady growth in

demand while markets like NCR, Bangalore and Chennai

remained stagnant.

The Mall concept is new to Tier II cities and High Street

retail is still popular. Anecdotal evidence suggests that

rentals have remained stagnant in this space.

RETAIL Tier I Tier II

REAL ESTATE OUTLOOK

Fringe areas with improving connectivity to Metro cities

and other top 8 to 10 cities in India have seen interest in

purchase of Plotted / Villa developments due to lower

ticket size and better marketing by developers

/aggregators. There is an uptick in demand for

warehousing with the growth of E commerce.

Land in Tier II and III cities along upcoming / established

growth corridors have seen good percentage appreciation

due to low investment base in such areas.

LAND Tier I Tier II

COMMODITIES

GOLD

Gold has strong prospects for appreciation in the medium term due to the long term uncertainty of Brexit from Euro. As global currencies fluctuate and turn volatile, Gold will be the safe haven for the next few months.

• As on 24th June, 2016 : 30,091 per 10gm

• 1 month change : 6.87%

• 1 year change : 17.66%

24000

26000

28000

30000

32000 Gold

COMMODITIES

CRUDE OIL

Crude oil prices have been hovering around $50 mark. Both

Nymex and Brent crude, from decade lows, are at a six month

high mainly on account of signs that global surplus is easing

amid declining output. However the outlook looks grim on

account of renewed concerns on global growth due to Brexit.

• As on 24th June, 2016 : $46.69 per bbl

• 1 month change : -5.70%

• 1 year change : -22.50%

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Crude

Currency As on 24th

June 2015 1 Month Change 1 Year Change

USD/INR 68.01 0.84% -6.47%

GBP/INR 92.96 -5.69% 7.36%

Euro/INR 75.10 -0.14% -5.24%

Yen/INR 66.45 8.37% -22.65%

USD/Euro 0.89 0.06% 0.43%

FOREIGN EXCHANGE

• A body of global standards-setters Thursday laid out new

principles for the safer and more transparent functioning of

the world’s foreign-exchange markets, aiming to restore

trust in currency trading following incidents of misconduct

in recent years.

• The Bank of Jamaica (BOJ) will be maintaining a presence

in the foreign exchange market until it settles.

• India's foreign exchange reserves went down to $360.90

billion as on May 20, the Reserve Bank of India (RBI) said.

• Nigeria's central bank is adopting a flexible foreign

exchange rate regime, Governor Godwin Emefiele said, in

a policy U-turn designed to boost exports and stave off a

recession in Africa's biggest economy.

0.84%

-5.69%

-0.14%

8.37%

-10.00%

-5.00%

0.00%

5.00%

10.00%

USD GBP EURO YEN

WHAT’S TRENDING

BREXIT AFTERMATH

What is it?

• The people of Britain voted for a British exit, or Brexit, from the EU in a historic referendum on Thursday June 23.

• The outcome has prompted jubilant celebrations among Eurosceptics around Europe and sent shockwaves through the global economy.

Impact

• The ratings agencies Fitch and S&P have downgraded the UK's credit rating, meaning they think that lending money to the UK government is less safe

than it was before 23rd June. On top of that are the consequences of a drought, which has shrivelled the country’s hydropower generation, a critical source

of electricity.

• Britain's decision to leave the European Union has created "significant uncertainty" that will have repercussions not only for UK and Europe, but the global

economy, the International Monetary Fund has warned.

• The Brexit vote will undoubtedly embolden other EU skeptic parties, particularly in the Eurozone heart of the EU. Other exit referendums may arise in the

coming months to years. The U.K. itself may face an additional exit referendum from Scotland.

• The flight to safety away from the epicenter of this British-EU divorce will push capital away from the region and toward key safe-haven markets including

the U.S.—especially Treasuries—and to Japan. This will further lower market interest rates and raise relative currency values.

• A higher U.S. dollar and Japanese yen are negative to both economies’ export sectors. In the case of Japan, this is particularly unhelpful to its efforts to

reinflate and reinvigorate the economy after decades of deflation.

• The European Central Bank will be compelled to raise its level of intervention yet again, as risk premiums across the region rise. Among the larger

Eurozone members, Italy is in a particularly vulnerable position—now made more vulnerable. Each blow to members of the Eurozone periphery also further

make Germany’s outperformance in the Eurozone even more unsustainable.

Source – www.forbes.com, www.wikipedia.com, www.economist.com

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