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The month gone by – A snapshot
Global equity markets witnessed a risk-on rally in November on the back of easing macro-economic and trade concerns. This was helped by a sharp fall in crude oil prices and an unexpected change in Federal Reserve’s stance regarding interest rate trajectory. Indian equity markets outperformed developed markets as well as broader emerging markets. MSCI India was up 10.3%, while MSCI EM was up 4.1% and MSCI Developed Market index was up 1%.

While Nifty 50 was up 4.7% during the month, BSE Midcap index was up 2.9%. The INR appreciated nearly 6% during the month aided by easing crude oil prices and FII inflows. Fixed income markets rallied, supported by improving macro-economics scenario and calibrated liquidity injection by RBI. The 10 year G-Sec yield ended at 7.6%, down by 25bps over last month. 

Macro-economic scenario improves
CPI (retail inflation) came in lower than estimates at 3.3% in October 2018, driven by benign food prices. Core CPI, however, strengthened from 5.8% in the previous month to 6.2% reflecting the impact of INR depreciation during the year and increase in custom duties. GDP growth for Q2FY19 moderated to 7.1%, due to an unfavourable base and marginal slowdown in private consumption. The governments spend on infrastructure and rural sector remains strong and continues to be the key driver of GDP growth.

Fixed income markets witnessed a rally
Fixed income markets witnessed a rally with 10 year G-sec yields down by 25bps ending the month at 7.6%. Easing crude oil prices and continued liquidity injection by RBI through Open Market Operations (OMOs) provided support to G-Secs. The RBI conducted OMOs of Rs 420bn in November. Foreign Institutional Investors (FIIs) turned marginal buyers and invested US$0.8bn in the fixed income market (YTD US$ -7.6bn).

Outlook: After a strong rally, we expect bond yields to consolidate as investors await the outcome of local as well as global developments. RBI’s views on inflation and interest rates, government’s fiscal condition, movement in crude oil prices and INR will be  key determinants of bond yield’s trajectory, going forward. Commentary by global central banks and movement in global bond yields are also important parameters to monitor. 

Equity markets moved higher 
Nifty 50 index was up 4.7% while BSE midcap index was up 2.9%. Amongst major sectors, the banking sector outperformed with 6.8% gains supported by declining bond yields and increase in credit growth. Consumer staples as well as durables, automobiles and capital goods moved up during the month.  The technology sector witnessed profit booking (down 2%) due to appreciation in the rupee. Foreign investors purchased US$0.8bn of Indian equities in November 2018. (YTD US$ -4.9bn).

Outlook: Global economic growth projections are being revised downwards led by liquidity tightening in developed economies and below par growth in emerging economies.  While macro-economic conditions are stabilizing for India, equity valuations are still above the long term average. The uncertainty arising from state and general elections may see markets consolidate. The upcoming RBI policy, state election results and movement in commodity prices remain key monitorables in the near term.