Monthly Report - Alpha Capital

March 2018

Monthly Report

Executive Summary

Indian Economy

Indian Equity Market

Indian Fixed Income

Global Equity Market

Global Fixed Income

Currency

Commodity

Mutual Fund Corner

What’s Inside

Executive Summary

All the major global markets came under pressure in the month of Feb 2018 because of speculations over U.S. Federal

Reserve (Fed) hiking interest rate in its upcoming policy meeting in Mar 2018.

U.S. investors remained on their toes over what stance Fed would take in the meeting. The new Fed chairman’s

comment on rate hikes further hit sentiment as he raised speculation that rates could be increased more than three

times in the year.

Europe and Asia markets suffered as chances of U.S. Fed increasing interest rates led to foreign fund outflow concerns,

especially in the emerging markets. Political developments in Germany and second phase of Brexit talks added to the

European region’s woes. Upbeat economic data lifted the markets but U.K.’s lower than estimated growth in the fourth

quarter wiped the gains.

Domestic equity markets went down after the Union Budget 2018-19 as investors closely followed developments on the

implementation of budget proposals. The raising of fiscal deficit target and certain tax-related measures dented

sentiment. A big state-owned bank’s scam emerged as a major setback on top of worries over fund outflows if the U.S.

Fed raised interest rates. Also, inflation concerns muted buying interest as retail inflation grew in Jan 2018.

Bond yields surged for the seventh consecutive month after the government widened its fiscal deficit target for FY19.

Yields further rose following rise in the U.S. Treasury yields and international crude oil prices. However, losses were

trimmed, as the Monetary Policy Committee’s (MPC) meeting was less hawkish than feared by investors. Value buying

restricted yields to some extent.

What Happened Last Month

4

Investors will keep an eye on the magnitude of foreign fund outflows if the U.S. Fed decides to hikerates in its Mar 2018 meeting. Meanwhile, rising domestic inflation level has raised the probability of ratehike at MPC’s upcoming policy meeting. Elevated crude oil prices, even though it fell during themonth, could also be a spoilsport and impact the policy stance of MPC, moving forward.

Bond yields are likely to remain elevated in Mar 2018 due to advance tax outflows although theReserve Bank of India (RBI) normally ensures proper flow of liquidity in the banking system throughterm repo and reverse repo auctions.

International crude oil prices and U.S. Treasury yields will also be tracked simultaneously, whichcan also be factored in by MPC in the near term. This apart, investors will wait for evidence offiscal improvement in the form of pick up in Goods and Services Tax (GST) revenue.

Outcome of the second-half of Parliament’s Budget session, movement of the rupee against thegreenback and stance adopted by foreign portfolio investors will likely have an impact on the risk-taking appetite of market participants.

Domestic Market Outlook

5

U.S. Fed’s rate-hikestance in its upcomingmeeting will be trackedclosely by investorsworldwide.

Market participants willkeep a close watch onthe outcome ofmonetary policies ofmajor central banksacross the globe.

Major global centralbanks have hinted atan exit from theirrespective ultra-easymonetary policies andany change in stancewill impact markets.

Political developmentsin Germany and Italywill also remain in sharpfocus. All these aspectsmay give way to somevolatility in global equitymarkets.

Global Market Outlook

6

Domestic Economy

• India's Gross Domestic Product (GDP) grew 7.2% YoY in the third quarter of FY18, better than upwardly revised growth

of 6.5% (6.3% originally reported) in the previous quarter driven by pick up in manufacturing and spending.

• The Monetary Policy Committee in its sixth bi-monthly policy review kept key policy repo rate unchanged at 6.0% and

also retained its “neutral” stance.

• India’s Index of Industrial Production (IIP) grew 7.1% in Dec 2017 as against upwardly revised growth of 8.8% in Nov

2017 (8.4% originally reported) and 2.4% in the same period of the previous year.

• The Consumer Price Index (CPI)-based inflation grew 5.07% in Jan 2018, down from 5.21% in the previous month and

up from 3.17% in the same month of the previous year.

• India’s Wholesale Price Index (WPI)-based inflation eased to a six-month low of 2.84% in Jan 2018 from 3.58% in Dec

2017 and 4.26% in Jan 2017.

Key Indicators Period Actual Previous

Consumer Price Index (CPI) Jan-2018 5.07% 5.21%

Wholesale Price Index (WPI) Jan-2018 2.84% 3.58%

Index of Industrial Production (IIP) Dec-2017 7.10% 8.80%

Gross Domestic Product (GDP) Dec-2017 7.20% 6.50%

Core Sector Output (%) Jan-2018 6.70% 4.02%

Export (Y-o-Y) Jan-2018 9.07% 12.36%

Import (Y-o-Y) Jan-2018 26.10% 21.12%

Source: MOSPI, Thomson Reuters Eikon

Monthly CPI & WPI Movement

Source: MOSPI

Indian Economy

8

0

2

4

6

Jan-17 May-17 Sep-17 Jan-18WPI CPI

Gro

wth

(I

n%

)

• Initially, Indian equity markets witnessed heavy fall as investors closely followed developments on the implementation

of Budget proposals, especially, fiscal deficit target.

• The finance minister raised the fiscal deficit target for FY18 to 3.5% of GDP as against 3.2% earlier. The target for FY19

has been fixed at 3.3% as against previous target of 3%.

• Also, government’s proposal of levying 10% Long Term Capital Gain (LTCG) tax on gains above Rs. 1 lakh from equity

weighed on market sentiment.

• Later, market sentiment dented after a major state-owned bank detected fraudulent and unauthorised transactions

at one of its branches in Mumbai. Investors became wary of the long-term impact of the bank’s fraudulent

transaction case as some of the other public-sector banks too had exposure to the banking scam.

DII, FII/FPI Investment and S&P BSE Sensex - During the Month Growth of Rs 10,000 over Last 3-Yrs

Domestic Equity Market (1/2)

9

6,400

10,400

14,400

18,400

Feb-15 Feb-16 Feb-17 Feb-18

S&P BSE Mid cap S&P BSE Sensex S&P BSE Small cap

Fig

ure

in IN

R

Source: BSE

33500

34400

35300

36200

-2600

-900

800

2500

1-Feb 10-Feb 19-Feb 28-Feb

S&

P B

SE S

en

sex

mo

ve

me

nt

FII

/ FP

I &

DII

Mo

ve

me

nt

(in

Rs.

Cr)

FII Net investment DII Net investment S&P BSE Sensex

Source: MFI Explorer

• Furthermore, inflation concerns muted buying interest as retail inflation

grew 5.07% in Jan 2018, down from 5.21% MoM and up from 3.17% YoY.

Retail inflation growth has surpassed the central bank's medium-term

target of 4% for the third consecutive month.

• Concerns over fiscal deficit also played a spoilsport after India's fiscal

deficit during Apr to Jan 2018 came in at 113.7% of the budgeted

target for FY18.

• However, some respite was seen following better than expected

economic data as IIP grew in Dec 2017 while WPI-based inflation

eased to a six-month low in Jan 2018. India’s GDP also posted better

than expected growth in the third quarter of FY18 and the index of

eight core industries also grew in Jan.

• On the BSE sectoral front, all the major indices closed in the red. S&P

BSE Bankex was the major loser followed by S&P BSE PSU and S&P BSE

Capital Goods sectors. The banking sector was impacted by

fraudulent transaction in a major PSU bank and on announcement by

the finance ministry of a 15-day deadline to state-run banks to take

pre-emptive action, identify and address operational and

technological risks.

Monthly returns as on February 28, 2018

Domestic Equity Market (2/2)

10

-8.6%

-8.6%

-6.3%

-5.7%

-5.4%

-5.3%

-5.0%

-4.9%

-4.9%

-4.6%

-4.3%

-4.2%

-3.1%

-3.1%

-1.9%

-1.6%

-1.3%

-0.4%

-15% -10% -5% 0%

S&P BSE Bankex

S&P BSE PSU

S&P BSE CG

S&P BSE CD

S&P BSE Realty

S&P BSE Oil & Gas

S&P BSE Sensex

S&P BSE-100

Nifty 50

S&P BSE Midcap

S&P BSE Auto

S&P BSE Power

S&P BSE Smallcap

S&P BSE HC

S&P BSE FMCG

S&P BSE Metal

S&P BSE Teck

S&P BSE IT

Source: MFI Explorer

• Bond yields surged for the seventh consecutive month after the government widened its fiscal deficit target for FY19.

Yields further rose following rise in the U.S. Treasury yields. However, losses were trimmed as the MPC meeting was less

hawkish than feared by investors. Value buying restricted yields to some extent.

• Yield on the 10-year benchmark bond (7.17% GS 2028) jumped 30 bps to close at 7.73% from the previous month’s

close of 7.43%. Bond yields moved within a wide range of 7.40% to 7.82%.

10-Yr Benchmark Bond 10 Year Corporate Bond Spread (for AAA & AA bonds)

Fixed Income (1/2)

11

6.3

6.8

7.3

7.8

Feb-17 Jun-17 Oct-17 Feb-18

Yie

ld (

%)

Source: CCIL

0

60

120

180


AAA Bond Spread (in bps) AA Bond Spread (in bps)

Sp

rea

d (

in b

ps)

Source: Thomson Reuters Eikon

• Bond yields soared on the first day of Feb 2018 after the government

in the Union Budget 2018-19 widened its fiscal deficit aim to 3.3% for

FY19 compared with the previous target of 3%. Investors were also

concerned that greater rural spending will increase inflation.

• Later, losses started recovering amid news that the central bank

may conduct open market as well as secondary market purchases

of debt. Yields fell further on reports that the government is in

discussion with RBI to raise foreign investment limit in government

debt.

• Most of the losses were recovered as MPC at its sixth policy meeting

was less hawkish than feared by investors. Also, no clarity on future

rate hike by MPC soothed investors’ nerves.

• Yields started rising again amid fresh supply of state government

debt and following rise in U.S. Treasury yields. Yields continued to

increase as minutes of the latest MPC meeting showed that

members were concerned about rising inflation, thereby increasing

the possibility of rate-hike in the near term.

• At the end, yields closed at higher levels amid sharp fall in rupee and

gains in U.S. Treasury yields due to U.S. Fed chairman’s indication of

rate hike.

Liquidity Monitor- M3 Supply and Net Borrowings

Fixed Income (2/2)

12

-40,000

20,000

80,000

140,000

4

7

10

13

Feb-16 Oct-16 Jun-17 Feb-18

Rs.

in

Cro

re

in (

%)

M3 Supply Net Borrowings


Feb-18 Jan-18 Feb-17

5.93% 5.92% 5.95%

7.73% 7.43% 6.87%

5.75% 5.75% 5.75%

6.00% 6.00% 6.25%

6.25% 6.25% 6.75%

4.00% 4.00% 4.00%

Key Indicators

Call Rate

10‐Yr benchmark bond

Reverse Repo

Repo

Bank Rate

CRR

Source: CCIL,RBI

Based on RBI Bi-monthly Monetary Policy Statement on 07-Feb-2018

•

•

•

•

•

•

Global Equity & Debt Market

14

United States• U.S. markets witnessed initial selling pressure amid concerns over

rising inflation and speculation over imminent rate hike by the

U.S. Fed in its Mar policy meeting. However, the downturn was

restricted as worries over political deadlock eased to some

extent after the U.S. President signed a stopgap funding

measure. Later, markets fell after the new U.S. Fed chief’s

comment raised speculation that the U.S. central bank may raise

rates more than market expectations.

Europe• Weakness in Wall Street and second phase of Brexit talks

weighed on European markets. Sentiment dampened further on

possibility that Fed may be more aggressive in hiking interest

rates. However, downside was limited as investors took positive

cues from GDP data of Germany and the eurozone.

Asia• Asian markets took cues from weak global peers and falling

crude oil prices. Speculation over imminent rate hike by the U.S.

Fed raised concerns over foreign fund outflow from emerging

markets. Positive economic data and expectations over easing

monetary policy in Japan also helped sentiment.

Global Equity Market

Country 1 MthNasdaq 100 U.S. -1.38

S&P 500 U.S. -3.89

DJ Industrial Avg U.S. -4.28

SET Composite Index Thailand 0.18

Jakarta Composite Indonesia -0.13

Straits Times Index Singapore -0.45

KOSPI Index South Korea -5.42

Nikkei Stock Average 225 Japan -4.46

Taiwan SE Weighted Index Taiwan -2.60

Shanghai Composite Index China -6.36

S&P BSE Sensex India -4.95

S&P/ASX 200 Australia -0.36

FTSE 100 U.K. -4.00

CAC 40 France -2.94

DAX Index Germany -5.71


Indices

Performance of Major International Markets

(as on February 28, 2018)

• Yield on the 10-year U.S. Treasury bond surged 15 bps during the month to close at 2.87% compared with the

previous month’s close of 2.72%. The paper moved in a range of 2.77% to 2.94%.

• U.S. Treasury prices fell as data showed better than expected non-farm payroll data along with the biggest annual

wage increase since 2009 in Jan 2018. Improving risk appetite diminished the safe-haven appeal of U.S. debt that

can be attributed to strong U.S. economic growth prospects.

• Also, statement by the new chief of the U.S. Fed that the central bank might raise key short-term borrowing costs

four times in 2018, higher than currently being anticipated, added to the losses.

U.S. Treasury Yield Curve Shift (Month-on-Month) U.S. 10 Year Treasury Yield

Global Debt Market

15

1.95

2.30

2.65

3.00


Yie

ld (

%)

Movement during the Month


4.50

19.40 19.10 17.30

11.70 12.9012.40

13.9014.80

18.70

0

8

16

24

0.60

1.60

2.60

3.60

1M

th

3M

th

6M

th

12

Mth

2Y

ea

r

3Y

ea

r

5Y

ea

r

7Y

ea

r

10

Ye

ar

30

Ye

ar

Ch

an

ge

in b

ps

Yie

ld (

%)

Change in bps 28-Feb-18 31-Jan-18


INR

• The rupee initially fell against the greenback following losses in the

domestic equity market after the government widened its fiscal deficit

aim for FY19. Indication of a rate hike by the Fed in the near term also

weighed on market sentiment.

• The rupee fell further amid reports that approval norms might be

tightened for firms borrowing funds offshore. Losses were extended

after minutes of the Fed’s monetary policy review in Jan 2018 showed

inclination towards faster rate hikes this year amid hopes of stronger

U.S. economic growth.

EURO

• The euro rose initially against the greenback after eurozone's

manufacturing Purchasing Managers' Index (PMI) rose to its highest

level in over 20 years in Jan 2018. However, the trend reversed

following upbeat U.S. services sector PMI data for the same month.

• Losses in the euro retreated to some extent as market participants

remained concerned over the rising U.S. fiscal deficit due to high

government spending and large corporate tax cuts, which weakened

the greenback.

Rupee Versus Dollar during the year

Currency Market

16

62

64

66

68


INR

V/S

USD

Source: RBI

Value 1 Mth

U.S. Dollar 65.10 63.69 66.74

Pound Sterling 90.45 90.35 83.05

Euro 79.59 79.21 70.72

100 Yen 60.80 58.60 59.35

Source: RBI

Movement of Major Currencies

Currency 1 Yr

Crude• Brent crude prices remained weak amid persisting worries over global

supply glut. Also, Organization of the Petroleum Exporting Countries

(OPEC) member Iran announced plans to raise its production within the

next four years by at least 700,000 barrels a day. Nonetheless, oil prices

continued to get underlying support from the growing endeavours of

OPEC and non-OPEC members towards curbing supply glut by means of

production cut.

• However, oil prices could not hold on to gains amid worries over rise in

U.S. crude oil production, which in turn may diminish OPEC’s efforts at

curbing global crude oil supply.

Gold

• Gold prices were initially hit as optimism over the health of the U.S. labour

market contributed to the speculation of a rate hike by the U.S. Fed in its

upcoming meeting in Mar 2018.

• Concerns over U.S. government shutdown, which initially supported the

safe haven appeal of the precious metal, was subsequently eased after

the U.S. Congress leaders reached a two-year budget deal to raise

government spending.

Commodity Market

17

Movement of Commodity Prices Over 1 Year

70

95

120

145


Gold Silver Brent CrudeCo

mm

od

ity

Price

s (

US

D)


Value 1 Mth

66.72 67.65 52.45

Gold ($/Oz) 1317.66 1344.70 1248.52

Gold (Rs/10 gm) 30398.00 30207.00 29591.00

Silver ($/Oz) 16.41 17.31 18.31

Silver (Rs/Kg) 38189.00 39065.00 43206.00

Source: Thomson Reuters Eikon,MCX

1 Yr

Crude Brent

($/Barrel)

Performance of Various Commodities

Commodities

• The month witnessed heavy buying of mutual funds in both debt

and equity segments. Within the equity segment, buying stood at

Rs. 16,180.88 crore against previous month’s buying of Rs. 9,023.16

crore while within debt segment, buying stood at Rs. 33,659.07

crore against purchase of Rs. 22,240.35 crore reported for Jan

2018.

• In the equity space, all the sectors declined heavily on the back

of huge sell-off in the domestic equity market. Banking sector

plunged on news of fraudulent transaction in a major PSU bank

and on announcement by the finance ministry of a 15-day

deadline to state-run banks to take pre-emptive action, identify

and address operational and technological risks. Auto sector also

moved down as rise in inflation level and higher crude oil prices

kept investors wary.

• In the debt space, long-term gilts posted subdued returns as bond

yields surged for the seventh consecutive month after the

government widened its fiscal deficit target for FY19. Yields further

rose following rise in the U.S. Treasury yields.

• Gold ETF fell over the month as investors remained cautious of

pace of rate hike by the Federal Reserve during the year.

Mutual Fund Corner

18

Equity 6 Mnth 1 Yr 3 Yr 5 Yr

Large Cap 4.07 16.15 7.26 15.40

Small/Mid Cap 9.95 24.81 15.03 26.42

Diversified 6.64 19.02 9.06 17.43

Balanced 4.69 14.95 8.66 16.00

Banking -0.57 18.29 11.21 16.67

FMCG 10.66 28.58 12.04 17.86

Pharma 7.94 -2.50 1.36 15.98

Technology 27.91 28.54 6.50 17.58

Infrastructure 9.13 24.53 11.03 18.83

Gold Funds 3.80 0.51 3.37 -0.45

Debt 6 Mnth 1 Yr 3 Yr SI

Liquid 6.21 6.41 7.13 7.31

Ultrashort Bond 5.21 6.37 7.46 7.59

Short-T Bond 2.56 5.54 7.34 7.85

Long-T Bond 0.26 4.78 6.99 7.91

Long T Govt Sec -6.84 1.78 6.16 7.83

Short T Govt Sec 0.41 4.31 7.25 6.81

Category wise performance of Mutual Funds

Source: MFI Explorer; * Returns less than 1 year are absolute, greater than 1 year are Com pounded

Annualized , # As on 28-Feb-2018

DisclaimerDisclaimer

All information contained herein is obtained by ICRA Online Limited (“ICRON”) from sources believed by it to be accurate and

reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained

herein is provided “AS IS” without warranty of any kind. ICRON adopts all necessary measures so that the information it uses is of

sufficient quality and from sources ICRON considers to be reliable including, when appropriate, independent third-party

sources. However, ICRON is not an auditor and cannot in every instance independently verify or validate information received

in preparing this document.

All information contained herein must be construed solely as statements of opinion, and ICRA Online Limited or its affiliates or

group companies and its respective and any of its officers, directors, personnel and employees, disclaim liability to any loss,

damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss

of profit in any way arising from the use of this document or its contents in any manner or for any contingency within or beyond

the control of, ICRON or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in

connection with the information contained herein or the use of or inability to use any such information. Opinions expressed in

the document are not the opinions of our holding company, ICRA Limited (ICRA), and should not be construed as any

indication of credit rating or grading of ICRA for any instruments that have been issued or are to be issued by any entity. The

recipient alone shall be fully responsible and/or are liable for any decision taken on the basis of this document and/or the

information contained herein.

Disclaimer

19

Documents

Monthly Report - Alpha Capital