Debt Indices PTP Returns (%)
1 Month 3 Months
CRISIL Short Term Bond Fund Index -0.74 -2.32
CRISIL Balanced Fund Index - Aggresive Index -1.28 2.54
CRISIL Composite Bond Fund Index -1.72 3.13
CRISIL Gilt Index 0.48 1.62
CRISIL Liquid Fund Index -1.15 1.42
CRISIL MIP Blended Fund Index -0.11 2.14
Returns are absolute and are as of December 30, 2016

Debt Indicators 30-December-16 30-November-16 28-October-16
Call Rate 6.25% 5.90% 6.20%
NSE Mibor 6.25% 6.51% 6.24%
3 M CP 6.70% 6.40% 7.12%
5 Yr Corp Bond 7.20% 6.74% 7.31%
10 Yr Gsec 6.51% 6.24% 6.89%
Reverse Repo 5.75% 5.75% 5.75%
Repo 6.25% 6.25% 6.25%
Bank Rate 6.75% 6.75% 6.75%
CRR 4.00% 4.00% 4.00%

Interbank call money rates remained below the repo rate of 6.25% for most of the month, owing to the comfortable liquidity in the system amid the reversal of previously held reverse repos and after the Reserve Bank of India (RBI) conducted periodic repo auctions. Inflows from the government's month-end spending aided liquidity, keeping demand for funds low. Call rates were pulled down further, following the withdrawal of the incremental cash reserve ratio (CRR) requirement. However, some spike was seen in the rates on account of outflows related to indirect-tax payments and after the banking regulator conducted auctions of cash-management bills and also held reverse repo auctions.

Government bond prices fell during the month, with the yield on the 10-year benchmark - the 6.97%, 2026 paper - advancing to 6.51% on December 30, 2016, compared with 6.24% on November 30, 2016. Gilts were primarily affected by the RBI's decision to keep interest rates unchanged and as the minutes of the Monetary Policy Committee (MPC's) meeting dampened expectations of interest rates being lowered in the near term. Gilts were dented further, after the United States (US) Federal Reserve hiked its key rates and suggested that it could tighten its monetary policy at a more aggressive pace than was previously expected. The dot plot of interest rate estimates from the committee members suggest that a cumulative increase of 75 basis points (bps) could be in store for 2017, as against 50 bps implied earlier. Subdued appetite for debt ahead of the year-end also weighed on prices.

However, a further decline in gilts was halted on the back of intermittent value buying, favourable domestic consumer inflation figures, comfortable liquidity situation and expectation of firm demand for dated securities at a weekly debt sale. Bonds were also supported after the RBI announced that the incremental CRR requirement would be withdrawn from December 10, 2016.

Among major developments in the month,the RBI revised the ceiling on the issuance of securities under the market stabilisation scheme (MSS) to Rs 6 lakh crore, from the previous limit of Rs 30,000 crore for 2016-17. It allowed foreign portfolio investors (FPIs) to transact in non-convertible debentures/bonds issued by Indian companies either directly or in any manner as per the prevalent market practice. Further, it introduced interest-rate option contracts with effect from January 31, 2017. The central bank also announced the procedural guidelines for servicing sovereign gold bonds. The National Stock Exchange and Bombay Stock Exchange have decided to introduce new interest rate future contracts from December 30 on six-year government bonds maturing in 2022. The Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurers to invest in additional tier-1 bonds issued by banks.

Among banking related developments, the RBI said the stress on the banking sector, particularly the public sector, remains significant, and banks may continue to be risk-averse in the near future, as they focus on cleaning up their balance sheets. It also said India's financial system remains stable overall. It added that the income disclosure schemes are likely to help the government in meeting its fiscal deficit target, as additional collections will compensate for lower revenue through disinvestment and telecom spectrum auctions. The RBI further relaxed the NPA recognition norms for loans up to Rs 1 crore and provided an additional 30 days to banks, non-banking finance companies (NBFCs) and microfinance companies for payments due between November 1 and December 31. The central bank capped the banks' exposure to a single entity to 20% of a lender's capital base and to a 25% limit to a group of connected entities. It amended the customer authentication rules to allow banks to open new accounts using one-time PINs (personal identification numbers) on mobile phones. Further, it directed all banks to upload the Know Your Customer (KYC) data pertaining to new individual accounts, opened after January 1, 2017, with the Central KYC Records Registry. It also instructed banks and other prepaid instrument service providers not to charge any fee until March 31, 2017, for transaction charges up to Rs 1,000 using Immediate Payment Service (IMPS), USSD-based and Unified Payment Interface (UPI) systems. The RBI has allowed banks to facilitate the issuance of prepaid payment instruments (PPIs) to unlisted corporates, municipal corporations and urban local bodies to deepen the digital transaction system. Further, it asked banks to provide additional working capital limits to micro and small enterprises (MSEs) to help them overcome the difficulties from cash flow mismatches following demonetisation. The central bank has proposed setting up of an ombudsman, specifically for NBFCs.

Macro Forecast

CRISIL Centre for Economic Research (CCER) expects 10-year g-sec yield to settle around 6.5% by March-end 2017 (with a downward bias) versus 7.5% by March-end 2016. Reduction in the policy rate by RBI, comfortable liquidity in the banking system and lower inflation to support lower g-sec yields.


*IMF World Economic Outlook, October 2016

Indicators Latest Previous
US GDP 3.5% (Q3, 2016) 1.4% (Q2, 2016)
US monthly jobs 178,000 (November 2016) 180,000 (October 2016)
US new home sales 5,92,000 units (November 2016) 5,63,000 units (October 2016)
US existing home sales 5.61 mn units (November 2016) 5.57 mn units (October 2016)
US consumer confidence 113.7 (December 2016) 109.40 (November 2016)
US retail sales 0.1% (November 2016) 0.8% (October 2016)
US industrial production -0.4% (November 2016) 0.1% (October 2016)
US durable goods -4.6% (November 2016) 4.8% (October 2016)
US Consumer Price Index (CPI) 0.2% (November 2016) 0.4% (October 2016)
Euro zone GDP 1.7% (Q3, 2016) 1.6% (Q2, 2016)
Euro zone retail sales 1.1% (October 2016) -0.4% (September 2016)
Euro zone industrial production 0.1% (October 2016) -0.8% (September 2016)
Euro zone annual CPI 0.6% (November 2016) 0.5% (October 2016)
Euro zone ZEW index of business expectations 18.1 (December 2016) 15.8 (November 2016)
Markit Euro zone Manufacturing PMI 54.9 (December 2016) 53.7 (November 2016)
UK Growth rate 2.2% (Q3, 2016) 2% (Q2, 2016)
UK Markit/CIPS construction Purchasing Managers' Index (PMI) 52.8 (November 2016) 52.6 (October 2016)
UK NIESR's GDP 0.4% (Sept-Nov 2016) 0.4% (Aug-Oct 2016)
UK GfK consumer confidence index -7 (December 2016) -8 (November 2016)
UK industrial production -1.3% (October 2016) -0.4% (September 2016)
UK retail sales (annually) 5.9% (November 2016) 7.2% (October 2016)
UK CPI 1.2% (November 2016) 0.9% (October 2016)
UK ILO unemployment rate 4.8% (Aug-Oct 2016) 4.8% (Jul-Sept 2016)
Japan's GDP 1.3% (Jul-Sept 2016) 0.7% (Apr-Jun 2016)
Japan's industrial production 1.5% (November 2016) 0.6% (October 2016)
Japan's CPI -0.4% (November 2016) -0.4% (October 2016)
Japan's unemployment rate 3.1% (November 2016) 3% October 2016)
Japan's Markit/Nikkei final manufacturing PMI 51.9 (December 2016) 51.3 (November 2016)
China's industrial output 6.2% (November 2016) 0.9% (October 2016)
China's CPI 2.3% (November 2016) 2.1% (October 2016)
China's retail sales 10.8% (November 2016) 10% (October 2016)
China official manufacturing PMI 51.4 (December 2016) 51.7 (November 2016)
China's offical non-manufacturing PMI 54.5 (December 2016) 54.7 (November 2016)
China's Caixin manufacturing PMI 51.9 (December 2016) 50.9 (November 2016)

  • US Fed raises interest rate by 25 bps
  • US economy expected to get a boost from increased infrastructure spending
  • ECB extends stimulus program until December 2017
  • China plans prudent and neutral monetary policy for 2017
  • Japan optimistic on growth

US - The much awaited event of 2016 finally occurred - the US Federal Reserve (Fed) hiked the interest rate by 25 basis points (bps) to 0.50-0.75%. The central bank said inflation expectations have increased considerably and a steeper path for borrowing costs is likely in 2017. The Fed's median outlook for rates was raised to three quarter-point increases in 2017 from two as of September 2016. The bank added that it would be followed by three more increases in 2018 and 2019, before the rate levels off at a long-run normal of 3.0%. On the growth front, the Fed forecast GDP growth of 2.1% in 2017, 2% in 2018 and 1.9% in 2019. Latest data show that US GDP grew an annualised 3.5% in Q3 2016, compared with previously estimated 3.2% and 1.4% in Q2 2016.

Eurozone - The European Central Bank (ECB), in its latest monetary policy, kept interest rate unchanged at 0% and extended the stimulus programme until December 2017, but said it will taper its monthly bond purchases to EUR 60 billion from EUR 80 billion w.e.f April 2017. In its economic bulletin, the central bank indicated that a strong global economic recovery is underway and that the property sector will likely infuse inflationary pressures over the next few months.

UK - The Bank of England (BoE) unanimously voted to keep the interest rate unchanged at 0.25%, the size of its asset-purchase programme unchanged at 435 billion pounds and the size of its corporate bond purchase programme at 10 billion pounds. However, the central bank warned that higher inflation and slower wage growth risk would squeeze household budgets and spending next year. It added that monetary policy could respond in either direction to changes in the economic outlook, and would ensure a sustainable return of inflation to the central bank's 2% target. The final reading of the country's Q3 2016 GDP growth was revised to 0.6% on-quarter (previous estimate 0.5%) and 2.2% on-year (2.3%).

Japan - The Bank of Japan kept interest rates unchanged and raised its assessment of the economy for the first time since May 2015, as Donald Trump's unexpected win in the US elections weakened the yen and lifted sentiment. The government also raised the overall assessment of the economy by upgrading its view on household spending, exports and business sentiment. Japan's cabinet approved a record $830 billion spending budget for financial year 2017 that counts on low interest rates and a weak yen to limit borrowing. The country's economy grew at 1.3% annualised rate in July-September, a revision from 2.2% annualised growth first estimated.

China - China's top policy makers said they have planned a prudent and neutral monetary policy, and a proactive fiscal policy for next year, as they seek to sustain a steady expansion with room for reforms. The statement of the Central Economic Work Conference said that preventing and controlling financial risk to avoid asset bubbles will be a priority, along with deepening supply-side structural reform. China's President Xi Jinping said the nation's approach to regulating its red-hot property market will include financial, fiscal, tax, land, and regulatory measures as Beijing looks to develop a long-term mechanism for an industry prone to speculation.



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