Newsletter Date: 04-08-2018

Newsletter Date: 04-08-2018

 

 

International Snapshot:

 

              In major development last fortnight, Federal Reserve in USA left the benchmark rate unchanged, however hinting on continuation of rate hikes in future. Street is expecting 2 more rate hikes this calendar year one being next September 25-26. This pause was more or less anticipated as Trump had gone on record to state that he was not happy with the rate hikes as it would result in slowing the growth. Their economy has been firing on all cylinders, be it stock markets, job markets, consumption, inflation. European Central Bank, realising the negative impact on growth which the trade wars might have had delayed their rate hike plan till October 2019.

          America continues to blackmail China, now by proposing to increase proposed tariff to 25% from 10% announced last month on 200 billion worth of imports from them. Investors fear is visible from this, both Hangseng and Shanghai Composite hitting new lows.

         One more significant development was an unconditional invitation by Trump to Iran for talks on sanctions. Though there is remote possibility of both coming to peace but if that were to happen it will be major positive for emerging oil consuming economies like India. A lot of money has gone out of EM’s in last 6 months and that can rationalise.

 

Domestic Snapshot:

    

       We thought there were lots of good news for our economy last fortnight:

  1. Government brought down GST rates for 100 odd items.
  2. Purchasing Manager’s Index (PMI) stood at 52.03% much ahead of 50% mark.
  3. GST collection moved as high as 96,483 Cr, for July, much ahead of Government’s comfort zone.
  4. RBI’s Monetary Policy Committee hiked benchmark rates by 25 bps to 6.5%, while maintaining neutral stance. However Bond Markets did not react negatively, since a lot was already factored in.

 

       If such GST collections continue Government will go ahead to bring rates down to 18% for majority of the products as per popular demand. This can bring inflation under check. If the monsoon continues to be good and crude remains at this level 70-75 $ per tonne, we will be mostly done with the rate hikes at least in the current calendar year. Also since the Government borrowing programme is steep in the second half, RBI may be reluctant to raise the rates. This can cheer the Banks, especially PSU Banks whose substantial money is parked in Government treasury. If PSU banks also start supporting the Index, maybe we may not see sharp connection.

       We are in thick of quarterly Corporate Results and our own assessment is that Companies are posting good results may it be large or small caps, at least top lines are giving positive surprise which are very essential from GST collection point of view.

Equity Mutual Fund Investors are also behaving maturely and there has been consistent 7000 to 8000 Cr in SIP inflows every month. Higher Market levels will ensure that there are no redemption fears for MF’s who have been the lone source of liquidity in last 6 months.

        While BlueChip and Large cap funds have been the flavour of last 6 months, Mid and Small caps may try to catch up, continuing to be volatile though.

 

                                                                                                                                                                                                                                                            - CA JAYESH GANDHI                                    

 

 

Disclaimer: This is an informative document and opinions expressed in it are our own and not any advice. We are not SEBI registered investment advisory or research analyst. We are AMFI registered MUTUAL FUNDS DISTRIBUTOR.

 

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