Year End Market & Macro Review for 2017 & Outlook for 2018 by Bajaj Allianz Life Insurance
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The document provides a market review of 2017 and outlook for 2018 for India. It summarizes that the Indian market outperformed global markets in 2017. Key domestic indices like Nifty returned 28.6% led by outperformance in realty, telecom and metal sectors, while pharma and IT underperformed. Equity raising through IPOs reached record levels. Inflation increased in the second half of 2017. The outlook expects corporate earnings to drive the equity market while bond yields may remain range-bound.
Year End Market & Macro Review for 2017 & Outlook for 2018 by Bajaj Allianz Life Insurance
- 1. Bajaj Allianz Life Corporate Template FY 2017-18 Bajaj Allianz Life Insurance – Market & Macro Review for 2017 & Outlook for 2018 1
- 2. Bajaj Allianz Life Corporate Template FY 2017-18 Global Markets Major International Indices Returns – CY 2017 Source: Bloomberg. Returns in base currency of index. India Among The Top Performing Major Global Markets In CY2017 2
- 3. Bajaj Allianz Life Corporate Template FY 2017-18 Domestic Index Returns Nifty returns stood at 28.6% in CY2017 Small/Mid-cap indices outperformed All sectors except Pharma have given positive returns in CY2017 Defensives have underperformed the Cyclicals Out-Performing Sectors Realty, Telecom, Metals, Banks and Capital Goods were the outperformers. Under-Performing Sectors Sectors like Pharma, IT, and Power, were underperformers Domestic Indices Returns – CY 2017 Source: Bloomberg Realty, Small/Mid-caps, Metals were the Winners & Pharma, IT were the Losers in CY 2017 3
- 4. Bajaj Allianz Life Corporate Template FY 2017-18 Nifty Index Stocks Top & Bottom Five Nifty Performers (in % terms) – CY2017 Source: Bloomberg 109% 87% 84% 83% 76% -9% -12% -18% -21% -40% -80% -30% 20% 70% 120% Bajaj Finance Ltd Tata Steel Ltd Indiabulls Housing Finance Ltd Maruti Suzuki India Ltd Hindalco Industries Ltd Sun Pharmaceutical Industries Coal India Ltd Tata Motors Ltd Dr Reddy's Laboratories Ltd Lupin Ltd 4
- 5. Bajaj Allianz Life Corporate Template FY 2017-18 Nifty Midcap 50 Index Top & Bottom Five Nifty Midcap 50 Index Performers (in % terms) – CY2017 Source: Bloomberg 196% 159% 137% 131% 117% -3% -10% -14% -16% -23% -60% -10% 40% 90% 140% 190% 240% Jindal Steel & Power Ltd Tata Global Beverages Ltd Dalmia Bharat Ltd PC Jeweller Ltd Adani Enterprises Ltd Amara Raja Batteries Ltd IDFC Bank Ltd IDBI Bank Ltd Ajanta Pharma Ltd Strides Shasun Ltd 5
- 6. Bajaj Allianz Life Corporate Template FY 2017-18 Equity issuances through IPOs at a record high this year Equity Raising through IPOs & FPOs (INR in bln) Equity IPOs raised a record sum of around Rs. 700 bln FYTD in 2018—surpassing the earlier high recorded in FY08. Contribution of new listings to India’s Market Cap was at a 7-year high of 3% in FYTD 18. IPOs were dominated by the Insurance and NBFC sectors in FYTD18 Source: Capitaline, Motilal Oswal Research 6
- 7. Bajaj Allianz Life Corporate Template FY 2017-18 Some of the biggest IPOs of 2017 & % gain over offer price Source: Motilal Oswal, Bloomberg IPO Performance: 2017 7
- 8. Bajaj Allianz Life Corporate Template FY 2017-18 Mutual Funds were the big buyers in equities in 2017 FIIs bought a net Rs.7,210 crore in YTD FY18 (till Dec) and DIIs bought a net Rs.88,352 Cr in YTD FY18, mainly helped by strong inflows from mutual funds. 8
- 9. Bajaj Allianz Life Corporate Template FY 2017-18 62 64 66 68 70 72 74 76 78 80 61 62 63 64 65 66 67 68 69 USD/INR EUR/INR (RHS) USD/INR & EUR/INR movement during CY2017 Rupee appreciated 6% Vs USD in CY2017, due to global weakness in Dollar, (Rupee depreciated 6% Vs Euro in CY2017) Source: Bloomberg USD/INR & EUR/INR movement during CY2017 9
- 10. Bajaj Allianz Life Corporate Template FY 2017-18 CPI Inflation was benign for first half of the year, but picked up recently India CPI Inflation Trend & its Components (% YoY) Source: Bloomberg 10 CPI inflation rose above expectations to 5.2%YoY in Dec 2017, from low of 1.5%YoY in Jun 2017. Core inflation (ex food & fuel) rose to ~5%YoY in Dec 2017 from a low of 3.8%YoY in Jun 2017. Inflation is expected to be in the range of about 4-6%, hence we expect RBI to remain on prolonged pause.
- 11. Bajaj Allianz Life Corporate Template FY 2017-18 Crude on the boil, in the second half of the year Brent & Nymex Crude Price ($/bbl) Brent crude closed the year up ~18%, near the $67/bbl mark. Nymex crude closed the year up 12.5%, near the $61/bbl mark. OPEC’s decision to extend production cuts from an earlier deadline of March 2018 to December 2018, and geo-political tensions lead the crude price higher. Crude rising further from current levels to have an impact on inflation and current account deficit. Source: Bloomberg 40 45 50 55 60 65 70 Brent crude ($/bbl) Nymex crude ($/bbl) 11
- 12. Bajaj Allianz Life Corporate Template FY 2017-18 Bond yields hardened due to rising inflation, crude prices & concern of fiscal slippage. We believe that most of the negatives are priced in. • Bond yields have hardened primarily due to rising inflation and crude oil prices, and some concerns of fiscal slippage. The benchmark 10 year bond yield has hardened by 82 bps in CY2017. • The Crisil Composite Bond index and Long Term Gilt index returned 4.7% and 1.4% respectively in CY2017 as yields moved up. Source: Bloomberg India 10 Yr Bond Yield Vs Repo Rate Movement (%) 12
- 13. Bajaj Allianz Life Corporate Template FY 2017-18 Fiscal Deficit Target in FY18 Fiscal Deficit (as % of GDP) Source: Ministry of Finance. RE=Revised Estimate, BE = Budgeted Estimate Additional borrowings in Jan – March 2018, may lead to overshooting of fiscal deficit target in FY18 13 Fiscal deficit for FYTD 18 (April – Nov) came in at 112% of BE, compared to ~86% in the year ago period. With additional borrowing, the fiscal deficit is likely to overshoot to ~3.4% in FY18 from BE of 3.2%.
- 14. Bajaj Allianz Life Corporate Template FY 2017-18 Global Factors to watch for in 2018 • Fall out of Brexit • US Policies / Tax Reforms • Commodity Prices (Esp. Crude) • US Rate Hike Cycle • Monetary tightening by other central banks • Global & EM Economic Recovery • Currency Movement & Dollar Index • Geopolitical Risks • ECB Taper & BOE Rate hikes 14
- 15. Bajaj Allianz Life Corporate Template FY 2017-18 India Equity Market Outlook Globally, easy monetary policy on its way out Corporate earnings to drive markets Economic growth in on recovery path Liquidity & Flows to guide markets With corporate earnings being muted over the past few years, equity markets have been driven by PE expansion. We expect earnings growth to pick up over the next couple of years, and that will drive markets, rather than PE expansion Major central banks (like US Fed, European Central Bank and Bank of England) have started to tighten monetary policy or withdraw stimulus, as global growth and inflation pick up. Any pick-up in pace in monetary tightening or hawkish signals by the central banks may pose some risk to flows into emerging markets, thereby causing some headwinds to the Indian markets as well. We expect growth to recover in the coming year, led by pick-up in consumption and a gradual recovery in investment. We expect the PSU bank recapitalization initiative to contribute to a pick-up in credit growth, which could trigger a gradual capex recovery over the coming yr Flows in India have been dominated by domestic mutual funds in 2017, and picked up pace post demonetization. FPI flows also picked up pace in CY2017, compared to the earlier year. Typically, over the long term, FPIs have been net buyers of Indian equities. 15
- 16. Bajaj Allianz Life Corporate Template FY 2017-18 India Fixed Income Market Outlook Interest rate easing cycle seems to have ended Bond yields are expected to remain range-bound Factors to watch out for RBI Monetary Policy Committee (MPC) is expected to be on long pause, with a “neutral” stance. However, you could see a more hawkish RBI, if the upward trajectory in global crude prices and inflation continues. Future policy stance of RBI MPC would continue to be data dependent. We think that most of the risks like rising inflation, crude prices and fiscal slippage have broadly been priced in by the market. Therefore, we expect yields to remain range-bound, provided there are no more negative macro surprises. We are presently more positive on the shorter to medium term segment of the yield curve. Fiscal situation, impact of crude oil on inflation and growth, RBI policy, Union Budget, tax collections, liquidity Geo-political issues, monetary tightening by global central banks and their impact on INR as well as FPI flows 16
- 17. Bajaj Allianz Life Corporate Template FY 2017-18 17 CONFIDENTIALITY INFORMATION AND DISCLAIMER: The contents of this presentation is confidential, may contain proprietary or privileged information and is intended for reserved recipient(s) for information Purpose only. Unintended recipients are prohibited from taking action on the basis of information in this presentation and must delete all copies. The information provided is on “as is” basis and Bajaj Allianz disclaims any warranty, responsibility or liability for the accuracy or completeness of, or the presence of any virus or disabling code in, this presentation and assumes no responsibility or liability for errors or omissions in the contents of the presentation. Bajaj Allianz reserves the right to make additions, deletions, or modification to the contents of the presentation at any time without prior notice. In no event shall Bajaj Allianz be liable to any entity or individual for any direct, indirect, special, consequential, or incidental claims or damages or any claims/damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of this Presentation or the contents of this Presentation. Any reference to the terms of executed transactions should be treated as preliminary only and subject to formal written confirmation by Bajaj Allianz. Bajaj Allianz reserves the right to monitor its communications through its networks (in accordance with applicable laws). No confidentiality or privilege is waived or lost by Bajaj Allianz by any mis-transmission of this presentation. Any reference to "Bajaj Allianz" is a reference to Bajaj Allianz Life Insurance Company Limited. The Logo of Bajaj Allianz Life Insurance Co. Ltd. is provided on the basis of license given by Bajaj Finserv Ltd. to use its “Bajaj” Logo and Allianz SE to use its “Allianz” logo. The Presentation is not intended to be construed as any advisory from Bajaj Allianz for any investment or any other purpose. Any reliance of the same by the individual for any purpose, is on the sole independent understanding and requirement of the individual. The Public is advised to consult their advisor in regards to their investment. © Bajaj Allianz Life Insurance Co. Ltd. 2018.