Debt Indices PTP Returns (%)
1 Month 3 Months
CRISIL Hybrid 35+65 - Aggressive Index -2.37 6.25
Crisil Composite Bond Fund Index 0.01 1.43
CRISIL Dynamic Gilt Index -0.11 1.33
CRISIL Liquid Fund Index 0.64 1.91
CRISIL Hybrid 85+15 - Conservative Index 0.55 2.54
Crisil Short Term Bond Fund Index 0.53 1.98
Returns are as of May 31, 2018 and are annualised for above one year

Debt Indicators 31-Aug-18 31-Jul-18 29-Jun-18
Call Rate 6.45% 6.00% 6.30%
NSE Mibor 6.45% 6.25% 9.25%
3 M CP 7.78% 8.05% 7.60%
5 Yr Corp Bond 8.66% 8.59% 8.69%
10 Yr Gsec 7.95% 7.77% 7.90%
Reverse Repo 6.25% 6.00% 6.00%
Repo 6.50% 6.25% 6.25%
Bank Rate 6.75% 6.50% 6.50%
CRR 4.00% 4.00% 4.00%
 

Interbank call money rates remained below the repo rate for most of the month owing to comfortable liquidity in the system. However, some stress was seen in the rates owing to outflows related to indirect tax payments.

Gilts ended lower in the month with yield on the 10-year benchmark 7.17% 2028 paper ending at 7.95% on August 31, 2018 compared with 7.77% on July 31, 2018. Prices fell sharply owing to persistent weakness in the rupee and an uptick in crude oil prices. The sharp fall in the rupee led to a panic about massive outflows of overseas funds from the Indian sovereign debt market. Bonds were also negatively impacted as rise in global crude oil prices stoked inflation worries and possibility of further interest rate tightening. Investors also remained cautious ahead of the release of the RBI policy meeting minutes. According to the minutes, Monetary Policy Committee (MPC) members cited possible risks of inflation in the second half of the year as one of the key drivers for raising interest rates in August. Gilts fell further on the back of supply pressure amid some weekly bond auctions.

However, losses were trimmed after the RBI's commentary, in its monetary policy review, was not as hawkish as expected, leading market players to believe that the next rate hike would be some time away. Further, the apex bank retained its monetary policy stance at 'neutral'. Gilts were buoyed further after the RBI announced its decision to transfer Rs 50,000 crore as surplus to the government, thereby soothing concerns over the government's strained fiscal situation. Bonds also rose on hopes of the RBI carrying out a fresh round of open market bond purchases.

Key developments in the month: The RBI paid Rs 50,000 crore dividend to the government for the fiscal year ended June 2018. Securities and Exchange Board of India has cut the timeline for listing of debt securities to six days from 12 to make the existing process of issuance of such securities simpler and cost effective. It has also allowed investors to place multiple bids in a private placement issue on a debt basis and allowed depositories to act as facilitators to ease the process of issuance of securities on the electronic book platform. Further, it plans to prepare the framework for 'on tap public issue of bonds'.

Banking-related developments:

  • The RBI has announced steps to strengthen the internal ombudsman mechanism in Indian banks.
  • The RBI said banks will witness a further deterioration in their non-performing assets owing to the economic situation prevailing in the current fiscal.
  • It has allowed urban co-operative banks to invest in non-SLR securities in the secondary market with non-bank participants

Macro Forecast

CRISIL Centre for Economic Research (CCER) expects 10-year G-sec yields to settle in the range of 7.6-7.7% by fiscal 2019 end, compared with 7.6% at fiscal 2018 end. The upside to yields is on account of fiscal slippage concerns, tightening liquidity, risk emanating from rising oil prices and higher inflation, rising international yields and higher supply of State development loan (SDL) bonds.

Source: IMF - World Economic Outlook Update, July 2018

Indicators Latest Previous
US GDP 4.2% (Q2, 2018) 2.2% (Q1, 2018)
US monthly jobs 157,000 (July 2018) 248,000 (June 2018)
US unemployment rate

3.9% (July 2018) 4% (June 2018)
US private sector jobs data

219,000 (July 2018) 181,000 (June 2018)
US new home sales 627,000 (July 2018) 638,000 (June 2018)
US existing home sales 5.34 million units (July 2018) 5.38 million units (June 2018)
US pending home sales 106.2 (July 2018) 107 (June 2018)
US Housing starts

1.17 mn (July 2018) 1.16 mn (June 2018)
US Personal Income 0.3% (July 2018) 0.4% (June 2018)
US S&P Case-Shiller national home price index 6.3% (June 2018) 6.5% (May 2018)
US retail sales 0.5% (July 2018) 0.2% (June 2018)
US industrial production 0.1% (July 2018) 1% (June 2018)
US durable goods 1.7% (July 2018) 0.7% (June 2018)
US Consumer Price Index (CPI) inflation 0.2% (July 2018) 0.1% (June 2018)
US Producer Price Index (PPI) inflation

0.3% (July 2018) 0.3% (June 2018)
Markit US Manufacturing PMI (Purchasing Managers' Index) 54.5 (August 2018) 55.3 (July 2018)
US ISM non-manufacturing index 55.7 (July 2018) 59.1 (June 2018)
US NAHB/Wells Fargo Housing Market Index 67 (August 2018)

68 (July 2018)
University of Michigan Consumer Sentiment 96.2 (August 2018) 97.9 (July 2018)
US leading economic index 0.6% (July 2018) 0.5% (June 2018)
US Philadelphia Fed's index 11.9 (August 2018) 25.7 (July 2018)
US consumer confidence 133.4 (August 2018) 127.9 (July 2018)
US factory order

0.7% (June 2018) 0.4% (May 2018)
US construction spending

-1.1% (June 2018)

1.3% (May 2018)
Euro zone GDP 2.2% (Q2, 2018) 2.5% (Q1, 2018)
Euro zone consumer confidence -1.9 (August 2018) -0.5 (July 2018)
Euro zone economic confidence 111.6 (August 2018) 112.1 (July 2018)
Euro zone Sentix Investor confidence index

14.7 (August 2018) 12.1 (July 2018)
Euro zone annual inflation 

2% (August 2018) 2.1% (July 2018)
Euro zone producer price 3.6% (June 2018) 3% (May 2018)
Euro zone retail sales 0.3% (June 2018) 0.3% (May 2018)
Euro zone industrial production

-0.7% (June 2018) 1.4% (May 2018)
Markit Euro Zone Manufacturing PMI 54.6 (August 2018) 55.1 (July 2018)
Eurozone unemployment rate 8.2% (July 2018) 8.2% (June 2018)
Eurozone ZEW economic sentiment -11.1 (August 2018) -18.7 (July 2018)
UK GDP 1.3% (Q2, 2018) 1.2% (Q1, 2018)
UK Manufacturing PMI

52.8 (August 2018) 53.8 (July 2018)
UK industrial production 0.4% (June 2018) -0.2% (May 2018)
UK GfK consumer confidence index -7 (August 2018) -10 (July 2018)
UK retail sales 0.7% (July 2018) -0.5% (June 2018)
UK CPI inflation

2.5% (July 2018) 2.4% (June 2018)
UK ILO unemployment 4% (April-June 2018) 4.2% (March-May 2018)
Japan's GDP 1.9% (Q2, 2018) -0.9% (Q1, 2018)

Japan's leading index

104.7 (June 2018) 106.9 (May 2018)
Japan's core consumer prices

0.8% (July 2018) 0.8% (June 2018)
Japan's Markit/Nikkei final manufacturing PMI 52.5 (August 2018) 52.3 (July 2018)
Japan's capital spending (year-on-year) 12.8% (June 2018 quarter) 3.4% (March 2018 quarter)
Japan's Nikkei Services PMI 51.3 (July 2018) 51.4 (June 2018)
Japan's all industry activity index -0.8% (June 2018) 0.1% (May 2018)
Japan's retail sales 1.5% (July 2018) 1.7% (June 2018)
Japan's tertiary activity index -0.5% (June 2018) 0.2% (May 2018)
Japan's industrial production -0.1% (July 2018) -1.8% (June 2018)
Japan's unemployment rate 2.5% (July 2018) 2.4% (June 2018)
Japan's consumer confidence 43.3 (August 2018) 43.5 (July 2018)
Japan's current index of Economy Watchers' survey 46.6 (July 2018) 48.1 (June 2018)
China's industrial production

6% (July 2018) 6% (June 2018)
China's retail sales

8.8% (July 2018) 9% (June 2018)
China's fixed asset investment 

6% (Jan-July 2018)

6% (Jan-June 2018)
China's new home prices (m-o-m) 1.1% (July 2018) 1% (June 2018)
China's industrial profits 16.2% (July 2018) 20% (June 2018)
China's CPI

2.1% (July 2018) 1.9% (June 2018)
China's PPI

4.6% (July 2018) 4.7% (June 2018)
China official manufacturing PMI 51.3 (August 2018) 51.2 (July 2018)
China's official non-manufacturing PMI 54.2 (August 2018) 54 (July 2018)
China's Caixin manufacturing PMI 50.6 (August 2018) 50.8 (July 2018)
China's Caixin services PMI 52.9 (July 2018) 53.9 (June 2018)

  • GDP growth for the US revised to 4.2% for Q2 2018
  • Eurozone's GDP growth rate revised upward for Q2 2018
  • The UK's economic growth accelerated in Q2 2018
  • Japan's GDP rebounded in Q2 2018
  • China announces measures to support its economy

US - Gross domestic product (GDP) growth for the US was revised to 4.2% annual rate for Q2 2018, the biggest gain in four years, from the initial estimate of 4.1% and sharp improvement from 2.2% growth in Q1 2018. The revision reflected stronger business investment than earlier forecast and a slight downward revision to consumer spending. The minutes of the US Federal Reserve's (Fed) latest meeting showed that the members remain fairly confident that strong economic growth of late will continue at least over the near term and indicated that a rate hike is likely soon.

Eurozone - Eurozone's GDP growth for Q2 2018 was revised upward to 0.4% on-quarter from a flash estimate of 0.3%. Growth was 0.4% in Q1 2018. On an annual basis, the region's GDP expanded 2.2% in Q2 compared with 2.5% in the previous quarter. The European Central Bank's July meeting minutes showed that protectionism and the threat of a global trade war are the biggest risks to the Eurozone economy but, for now, growth is firmly on the path seen earlier.

UK - The UK's economy expanded 0.4% on-quarter in Q2 2018, faster than the 0.2% expansion in Q1 2018. On an annual basis, the economy advanced 1.3% in Q2 2018 compared with 1.2% in Q1 2018. The Bank of England raised the interest rate to 0.75% from 0.50% in its August meeting.

Japan - Japan's economy rebounded at an annualised rate of 1.9% in Q2 2018 compared with a revised 0.9% contraction in Q1 supported by private consumption. Bank of Japan Governor Haruhiko Kuroda said the central bank is unlikely to raise interest rates for quite some time and recent steps to make the policy more flexible are not preparation for policy normalisation.

China - In a move to support the economy, China's State Council announced tax cuts to reduce firms' costs by more than 45 billion yuan this year. Meanwhile, the People's Bank of China said it was adjusting its methodology for fixing the yuan's daily midpoint in order to keep the currency market stable.

 

 

Disclaimer: Any information contained in this article is only for informational purpose and does not constitute advice or offer to sell/purchase units of the schemes of SBI Mutual Fund. Information and content herein has been provided by CRISIL Research, a Division of CRISIL Limited, and is to be read from an investment awareness and education perspective only. The views / content expressed herein do not constitute the opinions of SBI Mutual Fund or recommendation of any course of action to be followed by the reader.
Investors should consult their financial advisers before taking any investment decision.

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