October 2018 Issue:II Vol: 83

Stock Picks

INR Fund Picks

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Company Name

Performance as on 03/10/18

3Yr Returns (CAGR)

5Yr

(Dec 2018 future contract) (Nov 2018 future contract)

CPM (Rs) Target (Rs)

UAE Round Up

34,376.99 10,316.45 26447.05 7788.45 74.10 $1205.60 $74.34

Source: Geojit Financial Services Ltd.

Tata Equity PE - Growth Thematic 15.76 23.21

HDFC Mid-Cap Opp Midcap 11.31 24.72

Mirae Asset India Equity Flexicap 13.66 21.09

ICICI Pru Equity & Debt Balance 12.23 17.78

ICICI Pru Bluechip Largecap 12.64 16.49

Greenply Industries Ltd 143 176

Company Name

For private circulation only

KNOWLEDGE POWER . WEALTH ENHANCER

REAL ESTATE

India:

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BEL 83 97

Mahindra Holidays & Resorts Ltd 213 237

https://www.facebook.com/barjeelgeojitae/ https://twitter.com/BarjeelGeojithttps://goo.gl/7T5qRA

https://youtu.be/ZtyDdEKOxLI

Invest Right

BARJEEL MARKET WATCH

Total volumes on the Dubai Gold & Commodities Exchange (DGCX) this year hit 17,255,556 contracts at the end of Septem-ber, with yearly average daily volumes (ADV) at their highest ever, reaching 89,873 contracts per day.

Emirates will cancel some �ights, reduce the number of �ights to certain destinations and reschedule others during the upgrade work in 2019.

Dubai's new goals include attracting 21-23 million tourists by 2022, and 23-25 million by 2025

Crude oil prices hitting 4-year high and weakening Indian currency heading towards the 75/US$ continue to play spoil sport weighing heavily on sentiments. If these factors were not enough, the IL&FS saga too heavily dampened the sentiments across the street.

For the week, Energy index plunged over 15%, FMCG index lost 6%, Infra index was down by 4%, Auto index lost 7%, Nifty Bank index was down by 2.7%, IT index was down 1.5%, Metal index was down by 1.1%, Midcap index was down by 5%, Pharma index declined by 4%, Realty index declined by 5%. NSE Nifty index fell by 5.6% and Bank Nifty index fell by 3.3% during the week.

S�����: N����: D�� J����: N�����: USD/INR: G���: O��:

https://youtu.be/ox6GrfGZRrM

MARKET UPDATE

The S&P 500 fell 1.0% this week, weighed down by a surge in bond yields, which rose to multi-year highs in front of Friday's release of the Employment Situation report for September. The tech-heavy Nasdaq and the small-cap Russell 2000 underperformed, losing 3.2% and 3.7%, respectively, but the blue-chip Dow �nished �at.Stocks began the week on a positive note, boosted by Canada joining Mexico and the United States in a trade agreement. On Sunday night, Canada agreed to allow greater dairy market access to the U.S., while also capping its automobile exports to the States. The deal, also known as the United States-Mexico-Canada Agreement (USMCA) replaces the 24-year-old NAFTA deal between the countries. However, Congress still has to approve the deal, which likely won't be easy.Investors awoke to continued Italian drama on Tuesday, when Italy's anti-establishment government defended its plan to increase the country's budget-de�cit target despite pushback from the EU. In addition, Claudio Borghi, who leads the economic policy of the ruling Lega party, claimed that most of Italy's problems could be solved if the country had its own currency -- although that idea was dismissed by Italy Deputy Prime Minister Di Maio.However, on Wednesday, Italy's government decided to cede to some of the EU's budget demands. Italy's budget-de�cit target will be reduced from 2.4% of GDP in 2019 to 2.2% in 2020 and then to 2.0% in 2021.In corporate news, General Electric (GE) replaced CEO John Flannery with former Danaher CEO Larry Culp; Tesla's (TSLA) CEO, Elon Musk, agreed to settle charges with the SEC, in which Mr. Musk and Tesla are to pay $20 million each, and Mr. Musk is to step down as chairman for three years; Amazon (AMZN) announced that it will be raising its minimum wage to $15 an hour for all U.S. employees, pressuring other retailers to do the same; and General Motors (GM) announced that it will be partnering with Honda Motor (HMC) to build autonomous vehicles.

Global:

Index Started Week Ended Week Change Change% YTD %

DJIA 26458.31 26447.05 -11.26 -0.0 7.0

Nasdaq 8046.35 7788.45 -257.90 -3.2 12.8

S&P 500 2913.98 2885.57 -28.41 -1.0 7.9

Geojit Financial Services Ltd.

By: Ms. Laxmi Priya & Ms. Sheen G

Till 2014, Indian equity market was largely dependent on foreign institutional (FIIs/FPIs) in�ows, which contributed to a major part of the liquidity. From 2015 onwards, the quantum of foreign investments reduced signi�cantly by around Rs80,000 cr in CY15 compared to previous year on account of U.S Fed rate hikes and reversal in Quantitative Easing. Repercussions were witnessed in the Indian market which led Nifty to fall by -22% from a high of 8,891 in March 2015 to a low of 6,961 in February 2016. However curtailing the fall, a new liquidity trend was seen in the Indian market: a considerable rush of funds from local institutions/ the DIIs (comprising Banks, Insurance companies, New Pension Scheme and Mutual Funds) started �ooding the domestic markets.This was led by substantial increase in in�ows via the mutual fund route (a major component of DII investment) leading to surging AUM (Assets under management) growth.

Lacklustre returns in traditional avenues like gold, real estate and bank deposits persuaded the risk averse middle class investors to consider other options. Reduction in interest rates from 2013 onwards led the bank deposit yield to gradually drop to single digit over the last few years, driving retail investors to �ock towards equities largely via professionally managed Mutual funds (MFs). This marked the start of matured equity participation by retail investors with a change in their invest-ment strategies from physical assets to �nancial assets. Even after the double whammy of demonetisation and GST, markets saw higher retail participation via the SIP (Systematic invest-ment plans) route in equity linked mutual funds. Interestingly, direct retail participation (mainly clients) saw continued o�oad-ing in Indian equities since 2009. However, retail participation via SIP rose signi�cantly with in�ows totalling of Rs7,658cr in the month of August 2018, a surge of 47% compared to Rs5,206cr in August 17. The steady, solid participation by mutual funds have considerably helped to negate the impact of FII out�ows, balancing liquidity conditions, and pushing benchmark indices above their historic averages.

Liquidity of Indian market:

A behavioural analysis

The graphic representation of major participants driving liquidity and market performance is shown below:

Nifty 50 trading historic averages

Major participants driving liquidity and market performance is shown below:

FIIs shift focus into Primary markets via IPOs, driving AUC (Assets under Custody) growth…

Increased FII participation in Indian primary markets… Though FII investment fell largely during 2015-18 in Indian secondary market, they were still strong participants in the primary markets. FIIs pumped in Rs 20,319cr in primary markets in 2018 compared with net out�ow of Rs22,710cr in the secondary markets. This led to 6.7% rise in FIIs AUC in equities (Secondary and Primary markets) to Rs30,13,041cr in 2018 (till Aug 2018) vs. Rs28,24,386cr in 2017. However, in debt funds, holdings reduced substantially by around Rs37,073cr in 2018 to Rs 4,16,194cr vs. Rs4,53,267cr in 2017 led by reduced �ow of FII debt funds from Mauritius and Singapore during Jan –Aug 2018 period.

Top Country-wise AUC into Indian Equities:

Among FII investments from top countries into Indian Equities, holdings from USA (36%) tops total holdings, followed by Mauritius (16%) and Luxembourg (9%) as on Aug 2018.

Heavy selling by FIIs in Indian Debt markets…

The yield on 10- year U.S govt. bond surpassed the 3% mark this year propelling FII out�ow. Moreover, rising crude prices pushed up India’s current account de�cit (CAD) to $15.8bn or nearly 2.4% of GDP in Q1 2018-19 and is further expected to rise to 2.6% of GDP (source: IMF) in current year. Widening de�cit resulted 10% fall in rupee on YTD basis a�ecting FIIs return.

Nifty 50 EMAVG(200) EMAVG(100)

01/01/2013 01/01/2014 01/01/2015 01/01/2016 01/01/2016 01/01/2017 01/01/2018

14000

12000

10000

8000

6000

4000

2000

0

Source: Bloomberg, EMAVG: Exponential Moving averages (100days, 200days)

Source: NSDL, BSE, *2018: till Aug 2018, #Retail participation in BSE

Source: SEBI, Primary market includes: Initial public o�ers (IPO), O�ers for sale (OFS) and Quali�ed

Source: NSDL,* till Aug 2018. FPIs includes FIIs, Sub Accounts & QFIs

Institutional Placements (QIPs),* till Aug 2018

Source: NSDL, Bloomberg, RBI,*2018: till Aug 2018, #U.S Bond yield - High value

Clients NRI

2018* -1,415 295 606 69,653 -2,392 66,747 11%

2017 -18,734 -463 2,866 90,835 51,253 125,755 29%

2016 -329 -710 474 37,125 20,566 57,128 3%

2015 -9,795 -317 1,191 66,815 17,806 75,702 -4%

2014 -23,878 -181 1,881 -30,329 97,056 44,547 31%

Category wise Net investment into Indian Equities (in Rs Cr) - Yearly

YearlyRetail#

Proprietary DII FII Total Net Inflow Nifty 50

Yearly Primary Market (IPOs, OFS, QIPs) Secondary Market Total Equity

Investments

2018* 20,319 -22,710 -2,392

2017 41,485 9,768 51,253

2016 8,472 12,095 20,566

2015 22,168 -4,363 17,806

2014 12,615 84,441 97,056

FII Net Investment into Primary and Secondary Market (in Rs Cr)

Year Equity Debt

2018* 3,013,041 416,194

2017 2,824,386 453,267

2016 2,039,773 308,234

2015 1,975,329 345,210

2014 1,955,074 290,202

FII/FPI AUC in India (Last 5 years) in Rs Cr

Years Debt U.S Bond Yield (%) #

2018-19* -34,819 3.13

2017-18 148,808 2.62

2016-17 -43,647 2.64

2015-16 45,857 2.49

FII Investments in Indian Debt markets (Rs Cr)

• India has emerged as the preferred choice for FIIs compared to other Emerging markets. However, FIIs in�ows in India were minis-cule compared to the out�ows seen during the rest of the year.

• Among major Asian emerging markets, Taiwan, Thailand and Indonesia witnessed the largest foreign fund out�ow in 2018 (so far) followed by South Korea and Philippines. Indonesia and Thailand continued to be under FII selling scanner for the second consecutive year.

• Among EMs, rising crude prices, higher US bond yields, trade war tensions between US-China and other economies escalated out�ow of foreign funds, increasing demand for the US dollars which resulted in depreciation of many EM currencies against US dollar, adding to volatility in the emerging equity markets.

Will FII in�ows gather steam again? Despite recent turmoil in emerging markets, Indian equities have largely been una�ected led by robust domestic �ows (especially Mutual funds). Benchmark index (Nifty50) rose 12% YTD in rupee terms supported by better earnings in the �rst half of this �scal. However, in US dollar terms, the index growth was merely -0.1%. Performance of most of the Asian emerging market equity indices were on the negative side with Philippines (-14%) and Indonesia (-12%) at the worst end (in USD terms). FIIs are likely to take a cautious approach in emerging markets on account of rising crude prices, weakness in currencies and higher bond yields in US. Also, higher volatility is anticipated in Indian markets due to upcoming general elections and concerns regarding Fed tightening.

Consumer oriented sectors like Food & Beverages, Consumer Dura-bles, Household, and Pharma on an YTD basis witnessed sharp selling by FIIs. However on a monthly basis, mixed investment behaviour was seen with FIIs turning positive in Pharma, House-hold, and Consumer Durables. Commodity-linked sectors mean-while continued to be under selling scanner due to sharp surge in oil price.

Source: NSDL FPI, ** YTD as of Aug 2018, #Utilities comprise Electric Utilities and Other Utilitie

Source: Bloomberg. *2018: As of Aug 2018

FII Sectoral play: Monthly Net investments at a glance…

• Utilities sector continued to enjoy robust buying fervour for the fourth consecutive month. However, YTD basis, net out�ows amounted to Rs-789cr.

• Auto sector witnessed severe selling pressure by FIIs for the seventh consecutive months in 2018 due to price war and high valuation.

• Metals continued to register net out�ows for �ve straight months.

• Bank & Financial Services witnessed sharp selling since April, despite in�ows totalling to Rs5, 468cr on a YTD basis. • IT sector inflows totalled a robust Rs 5,761CR on an YTD basis, however, the sector remained under scanner since May 18.

FII Investment among Emerging Markets (EMs)…

Major Sectors Aug-18 Jul-18 Jun-18 May-18 Apr-18 Mar-18 Feb-18 Jan-18 YTD**

Utilities# 2,257 332 1,089 553 -510 -588 -2,894 -1,028 -789

Capital Goods 1,264 247 -1,935 -293 -343 776 -1,213 1,020 -477

Pharmaceuticals 1,215 -795 -233 -259 -688 463 -1,692 884 -1,105

Household Products 390 -75 -1,090 -954 -389 -771 -1,224 263 -3,850

Consumer Durables 341 -154 -800 -1,016 -365 -401 -74 43 -2,426

Food, Beverages & Tobacco 69 -822 -1,018 -213 -166 621 -300 -419 -2,248

Chemicals & Petrochemicals -122 115 -148 331 127 184 -542 283 228

Metals & Mining -321 -1,503 -525 -1,046 -1,325 839 189 1,897 -1,795

Construction Materials -336 -131 -874 -1,504 -782 -280 -456 385 -3,978

Auto -624 -1,269 -905 -3,886 -1,597 -1,136 -2,324 81 -11,660

Software & Services -675 -131 -3,157 -210 2,387 5,082 -450 2,915 5,761

Oil & Gas -1,041 1,498 -1,595 -1,731 -820 -1,233 -1,732 568 -6,086

Bank & Financial Services -1,399 -17 -211 -1,041 -1,541 2,813 4,005 2,859 5,468

FII Net Equity Investments in to major sectors (in Rs Cr )

Countries Index performance (in US$ terms) 2018* 2017 2016 2015 2014

India -0.10% -598 8,014 2,948 3,274 16,162

Philippines -14.40% -1,357 1,021 83 -1,183 1,256

South Korea -10% -1,936 8,268 10,480 -3,626 5,684

Indonesia -11.50% -3,751 -2,960 1,319 -1,580 3,766

Thailand -2.50% -6,282 -796 2,240 -4,372 -1,091

Taiwan 0.40% -7,815 5,736 5,720 8,581 15,288

FII's inflows/outflows into Asian Emerging markets (in USD mn)

Till 2014, Indian equity market was largely dependent on foreign institutional (FIIs/FPIs) in�ows, which contributed to a major part of the liquidity. From 2015 onwards, the quantum of foreign investments reduced signi�cantly by around Rs80,000 cr in CY15 compared to previous year on account of U.S Fed rate hikes and reversal in Quantitative Easing. Repercussions were witnessed in the Indian market which led Nifty to fall by -22% from a high of 8,891 in March 2015 to a low of 6,961 in February 2016. However curtailing the fall, a new liquidity trend was seen in the Indian market: a considerable rush of funds from local institutions/ the DIIs (comprising Banks, Insurance companies, New Pension Scheme and Mutual Funds) started �ooding the domestic markets.This was led by substantial increase in in�ows via the mutual fund route (a major component of DII investment) leading to surging AUM (Assets under management) growth.

Mutual fund-led DIIs: propelling markets to new highs…

*Sep 18: MTD, **Total 2018: till Aug 2018 Source: SEBI, AMFI

*2018: till Aug 2018

Source: SEBI, * Total AUM includes sectors not listed in above table, **AUM – excludes MF exposure in derivatives.

Irrespective of FII selling seen in Indian market this year, domestic institutional investors (DIIs), dominated by Mutual funds have continued to extend their buying in Indian equities.

Mutual funds have bought funds worth Rs 76,435cr in equities (till Aug 2018) and a robust investment of Rs1,73,230cr in

debt.

However, monthly investments have tapered to Rs4, 095cr in Aug 18 compared to investments in the start of the year.

July and Aug 18 marked the lowest MF investment in Indian equities in 2018.

Sectoral deployment of equity funds by Mutual Funds (AUM)…

Amount (Rs Cr) % of AUM# Amount (Rs Cr) % of AUM#

Banking & Finance 305,748 31.35% 195,655 20.95%

Software 79,893 8.19% 29,937 3.21%

Consumer Non -Durables 72,776 7.46% 57344 6.14%

Pharma 55,979 5.74% 9,068 0.97%

Auto 53,880 5.52% 52,486 5.62%

Petroleum Products 44,144 4.53% 723 0.08%

Metals & Mining 35,189 3.61% 15,248 1.63%

Cement 25,705 2.64% 26,312 2.82%

Gas 18,054 1.85% 88,561 9.48%

Transportation 11,781 1.21% 6,799 0.73%

Telecom Services 13,621 1.40% 61,251 6.56%

Construction Projects 39,466 3.96% 44,216 4.73%

Media 9,021 0.92% 26,350 2.82%

Fertilisers 2,339 0.24% 14,483 1.55%

AUM ** 975,272 100% 933,730 100%

Total AUM 996,323 100% 933,889 100%

Jan-18Jul-18

MF AUM in major sectors & % mix

Sectors

Equity Debt Nifty 50

Aug-18 4,095 35,744 3%

Jul-18 3,995 -3,635 6%

Jun-18 8,907 39,192 -0.20%

May-18 13,691 -12,113 -0.03%

Apr-18 11,287 20,165 6%

Mar-18 9,256 37,978 -4%

Feb-18 16,181 33,659 -5%

Jan-18 9,023 22,240 5%

Total 2018** 76,719 177,964 10%

MF Activity in Equity and Debt Markets (Monthly)

MonthlyNet Investment (in Rs Cr)

Yearly

Equity Debt Nifty 50

2018* 76,435 173,230 11%

2017 118,775 381,668 29%

2016 46,983 329,629 3%

2015 71,095 435,416 -4%

2014 23,843 619,903 31%

2013 -15,087 404,129 7%

MF Activity in Equity and Debt Markets (Yearly)

Net Investment (in Rs Cr)

The table gives snapshot of Mutual fund allocation of equity into major sectors:

As per AMFI (Association of Mutual Funds in India) sector classi�ca-tion, Mutual funds equity holdings are split across 39 sectors. As of July 2018, of the total 39 sectors, �ve sectors enjoyed highest increase in deployment of funds by MFs: Banking & Financial (31.35%), Software (8.19%), Consumer Non-durables (7.46%), Pharma (5.74%) and Auto (5.52%).

Direct equity retail participation at low levels…Rising share in MF equity schemes…

Direct retail participation in Indian equities saw continued o�oad-ing since 2009. Year 2017 and 2014 marked the highest out�ows of Rs -18,734cr and Rs-23,878cr while Nifty climbed 29% and 31%, unperturbed by the retail out�ows. Nifty’s substantial growth was on the account of rising participation by retail investors through professionally managed mutual funds via SIP (Systematic Investment Plans) and lump sum.

Retail participation in MFs drove DII’s share in liquidity…

Source: AMFI (Association of Mutual Funds), MF �ows in�ow/out�ow includes �ows into Equity, ELSS-Equity and Balanced funds.

Source: AMFI (Association of Mutual Funds)

In Banking & Finance, MFs deployed 31.35% of AUM in July18, a surge of 56% compared to AUM in Jan 18. Of the total AUM holding of Rs 3,05, 748cr in July 18, 20.67% of AUM were from Banks while Finance accounted for 10.68%. MF exposure to software, Metals & mining jumped 167% and 131% during Jan-July 18. Meanwhile Petroleum products saw substantial jump with holdings growing from Rs723cr in Jan 18 to Rs44,144cr in July 18.

Auto and cement sectors witnessed marginal decrease in MF exposure (5.52%/2.64% in July vs. 5.62%/2.82% in Jan 18).

Sectors which witnessed biggest decline in MF AUM between Jan-July18: Gas by -80%, Telecom services by -78%, Transportation by -73%, Media by -66%, Power by -20%, Construction projects by -11%, and Fertilisers by -84%.

AUM (excluding derivative exposure) across all sectors witnessed 4.5% jump between Jan-July periods.

The Total AUM growth across all sectors (including derivatives) jumped by 6.6% between Jan-July period to Rs9.96lakh cr.

Increased retail participation via equity related MF plans (Equi-ty + ELSS equity+ Balanced funds) resulted in substantial increase from an average 5 year total in�ow of Rs 1,20,222cr compared to in�ow of Rs55,204cr registered in 2014.

As per the latest AMFI data, total net �ows in MF equity related plans decreased by 50% to Rs1,17,928cr in 2018 vs. Rs2,36,405cr in 2017. This was on account of higher jump in in�ows in 2017 post demonetisation.

Year 2017 had witnessed 197% jump in total in�ows of MF’s equity related plans following shift of household savings from physical assets like gold and property to regulated market products, a process which was bolstered following demoneti-sation.

In�ows into ELSS- equity rose to Rs11,074cr in 2018 vs. Rs470cr in 2014 and above 5 year average of Rs 7,521cr. In�ows in Equity schemes jumped by 58% to Rs77,249cr in 2018 vs. Rs48,988cr in 2014, below 5 year average in�ow of Rs79,586cr. In Balanced funds, in�ows rose substantially to Rs29,605cr in 2018 vs. Rs5,746cr in 2014. However, the in�ows were margin-ally lower than 5 year average of Rs33,115cr.

Indian mutual funds have currently about 2.38cr SIP accounts through which retail investors regularly invest in Mutual fund schemes.

AMFI data shows that the MF industry had added about 10.07 lakhs SIP accounts each month on an average during the FY18-19.

Retail investment in MF through SIP (Systematic investment plans) rose 14.5% to Rs 7,658cr in Aug 2018 vs. Rs6,690cr in Apr 18.

SIP In�ows grew 47% in Aug 18 vs. Rs 5,206cr in corresponding period of previous year.

Total Inflow/Outflow(Equity + ELSS +

Balanced)

2018 77,249 11,074 29,605 117,928

2017 140,201 12,075 84,129 236,405

2016 46,337 8,538 24,692 79,567

2015 85,154 5,449 21,405 112,008

2014 48,988 470 5,746 55,204

Net inflow/outflow into Equity Related Schemes (Rs Cr)

Yearly

Net Inflow/Outflow

Equity ELSS - Equity Balanced Funds

Monthly FY 2018-19 FY 2017-18 FY 2016-17

Total during FY 36,760 67,190 43,921

Aug-18 7,658 5,206 3,497

Jul-18 7,554 4,947 3,334

Jun-18 7,554 4,744 3,310

May-18 7,304 4,584 3,189

Apr-18 6,690 4,269 3,122

MF SIPs Contribution (in Rs Cr)

-

The Indian rupee has weakened to record lows, shedding more than 12 percent during the year, making it the worst performing Asian currency in 2018. Since the start of January, INR has weakened sharply from a two-and-half year high of Rs 63.28 versus dollar to its all-time low of Rs 72.91 due to various fundamental reasons.

Widening Current Account De�cit (CAD) and net capital out�ows increased the demand for dollar resulting in rupee depreciation. A strong dollar coupled with the collapse in emerging market currencies and the escalation of global trade war a�ected the sentiments. CAD of the country widened to $15.8 billion or 2.4 percent of our GDP in the quarter ended June, the highest in four quarters.

Lately, many of the Emerging Market (EM) currencies have dropped sharply in the wake of Turkish and Argentinian currency crisis. Turkish Lira witnessed massive sell-o� since the start of the year due to investor fears over the central bank’s independence and a diplo-matic �ght between the U.S and Turkish President Erdogan. Owing to political upheaval, a similar trend was seen in Argentinian peso as well. All these concerns took the MSCI’s emerging market currency index - the index measuring a basket of 26 currencies from emerging economies against the U.S dollar- to its lowest level since April 2017 recently.

Weak currency and its impact on economy and commodities

Geojit Financial Services Ltd.By: Mr. Hareesh V

Indian mutual funds have currently about 2.38cr SIP accounts through which retail investors regularly invest in Mutual fund schemes.

AMFI data shows that the MF industry had added about 10.07 lakhs SIP accounts each month on an average during the FY18-19.

Retail investment in MF through SIP (Systematic investment plans) rose 14.5% to Rs 7,658cr in Aug 2018 vs. Rs6,690cr in Apr 18.

SIP In�ows grew 47% in Aug 18 vs. Rs 5,206cr in corresponding period of previous year.

MSCI Emerging market currency index

Performance of U.S dollar too a�ected the emerging market currencies. The U.S greenback has risen more than seven percent since the U.S Administration’s decision to impose tari�s on imports. Investors sought safety in dollar and pulled out of emerging market currencies on expectations of imposition of another round of tari�s on imports from China. Monetary tight-ening by the U.S Federal Reserve boosted the dollar as well. A bunch of recent upbeat economic releases from the U.S raised expectations of possibilities of further rate hike, which in�uenced the investor sentiment as well.

Rupee performance

The present decline in INR is not the worst considering its previ-ous performances. Earlier, during the period of global �nancial crisis of 2008 Indian rupee had depreciated more than 24 percent. The �nancial crisis of 2008 is regarded as the worst �nancial crisis the world faced since the Great Depression of 1930s. The crisis initially originated in the U.S housing sector and eventually spread to all regions of the world. If we examine the last 10-year performance of INR, it has declined more than 80 percent so far.

INR Performance

Exchange rate �uctuations have considerable bearing on the economic health of a country and a deprecating currency will create ripple e�ects across various sectors of the economy. Exchange rate movements typically depend on demand and supply of the currency. Imports lead to out�ows of foreign currency and exports bring in foreign currency. When imports are higher than exports, the dollar appreciates and INR depreci-ates. The weak currency will adversely a�ect the prices of commodities which are largely imported to the country.. A weak local currency causes higher landed cost for imported goods and services in the country. A weak local currency causes higher landed cost for imported goods and services in the country.

Consequently, gold is traded �rm domestically despite weak-ness in the international market.

Oil gained substantially due to higher import cost. On NYMEX, oil prices gained about 11 percent since the start of the �nancial year, while Indian rates surged to a four year high, gaining about 30 percent during the similar period, thanks to the weak curren-cy. As against its international counterpart, extra gains were recorded in Indian natural gas prices as well.

Domestic gold prices held �rm backed by weak Indian rupee. Though the benchmark London gold prices slid more than 12 percent since April, Indian prices were more or less steady due to weak local currency. This was due to a higher landed cost in rupee terms. During this period Indian rupee weakened from Rs 65 a dollar to Rs 72 a dollar. A similar trend has been seen in silver prices as well. Impact of weak currency was seen in the prices of internationally traded agriculture commodities like soybean, cotton, palm oil and rubber as well.

Impact of weak rupee on economy

Falling rupee increases the cost of imports and increases export revenues in rupee terms. Foreign capital in�ows help in bridg-ing the CAD. Despite strong economic growth, the weakness of INR is attributed to widening current account de�cit due to higher crude oil prices. Our oil import bill increased more than �fty percent in the �rst four months of this �nancial year against the same period last year. Since the country imports more than 80% of its crude requirements, it is causing a huge out�ow of foreign exchange.

Weak currency may result in in�ationary pressure as well. High import cost of oil could translate into increased fuel cost and perhaps add to the overall cost of all economic activity. This may force the central bank to tweak monetary policy to tackle in�ation.

Daily .MIEM00000CUS 20.01.2016 - 31.12.2018 (GMT)

Line, .MIEM00000CUS, Trade Price(Last), 13.09.2018, 1,586.75, +5.55, (+0.35%) PriceUSD

Auto1,480

1,500

1,520

1,540

1,560

1,580

1,600

1,620

1,640

1,660

1,680

1,700

1,720

1,740

1,586.75

F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N DQ1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Daily INR=S 30.11.2016 - 19.10.2018 (BOM)

58.2441

Line, INR=S, Bid(Last)14.09.2018, 71.6500

Price/USD

Auto61

62

63

64

65

66

67

68

69

70

71

72

73

74

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep OctQ1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018

Source RBI / USD Million

Recently, RBI raised interest rates by 50 basis points in two consecutive meetings, aiming to contain in�ation. Higher in�ation is likely to hit the short-term growth rate of the economy as well.

Weaker currency is likely to impact the pro�t margin of compa-nies due to increased input cost. High import prices and increased local prices will add pressure to margins. Similarly, corporates may face higher interest costs if the central bank lifts rates. Additionally, this could impact the sentiments of foreign

investors in the stock market. However, a weak rupee helps exporters. Indians working abroad may also gain substantially while remitting money to the country.

Anyhow, continued depreciation of currency will not bene�t the country because it will have to pay more in local currency, keep-ing import bills high. Meanwhile, the RBI is likely to take steps for cooling down the currency volatility by appropriate market actions.

Answer to the last quiz, Q: The stock market takes a sudden dive. What should you do?a) Make sure you are well diversified and then stand pat.

Thank you for the quick responses. The right answer of the quiz was given by:

Mr. Rajkumar MVMr.Sydney Dias

Share the answer at reply@barjeel.ae

Q: In general, if interest rates go down, then bond prices… a) Go down b) Go up c) Are not affected

Winners Name will be published in the next issue of Market Digest. All the best!

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