Key Market Events:

• The Gross Domestic Product continued its downward spiral for the seventh consecutive quarter, falling to 4.5 per cent in the second quarter (July-September) of the year 2019-20
• CPI inflation jumps to 4.62% in October 2019. Core CPI inflation dips to 3.44% in October 2019
• Wholesale prices in India rose by 0.16 percent year-on-year in October of 2019, slowing from a 0.33 percent gain in the previous month and compared with market expectations of a flat reading.
• The fiscal deficit for the period April-October was recorded at 102.4% crossing the full year target underlining the fiscal concerns for the government
• India’s trade deficit narrowed to $11.01 billion in October from $18.0 billion a year ago, the trade ministry said on Friday, helped by lower oil imports.
• Industrial growth shrunk for the second straight month in September, contracting by 4.3%, the most in nearly 8 years. The slide was mainly due to poor performance in the manufacturing sector, according to official data released on Monday.
• India’s Manufacturing PMI rose to 51.2 in November from 50.6 in October, indicating little improvement in health of the sector.
• The Union Cabinet approved the sale of the government's stake in BPCL, SCI, and Concor, as well as decided to cut shareholding in select public sector firms below 51%.

Debt Outlook:

• The head line spiked as expected however the core data plunged to 3.44 which is a clear indication of a demand slowdown. As per the RBI outlook this is likely to stay in the range for coming year which is very positive for the rates cycle.
• Brent crude oil fell back to ~US$60-62 per barrel despite all global news which took higher how ever its has cooled down faster than expected reflecting underlying weak demand i.e. slow world economy
• The GDP growth was pegged at 4.5% which was marginally lower than consensus despite heavy lifting form the government spending. This will give RBI enough reason to go for the cut again. The only question arises is whether the cut is of 15bps or 25 bps.
• India is probably preparing for inclusion in JP Morgan EM bond index. This will be a huge positive for long bonds
• Liquidity is in huge surplus mode but market is yet to price this new phase. Positive liquidity is a more important tool than repo rate cut.
• Global bond yields of developed economies continue to remain low or in the negative zone. This may lead to a chase for sovereign assets which are still offering high real rates sooner than later probably the index inclusion may act as a trigger
• We expect at least 50-75 bps cut in the policy rates in FY 20. Market may still be in denial mode which gives a window of opportunity for the long term investors
• In a nut shell key driver for returns will be corporate spread compression or flattening of the yield curve. It will start with AAA/PSU followed by NBFC/HFC like Bajaj/HDFC and then it may percolate to lower grade NBFC and other corporate bonds.
• We believe that the investment opportunity in short duration bond funds, banking and PSU funds, credit funds and dynamically managed duration funds is still present and become more attractive. Investors may look to invest in the funds depending on the scale of risk appetite and the investment horizon.

Key Market Events of October 2019

• India moved from 77th to 63rd position in the World Bank's Ease of Doing Business rankings this year.
• In line with expectations, RBI MPC delivered a 25bps rate cut (taking cumulative cut to 135bps in 2019) and provided a strong forward guidance for further rate cuts to support growth
• US Fed cuts policy rate by 25 bps, but signals pause in easing cycle
• GST collection declined 5.29 per cent to Rs 95,380 crore in October 2019, in comparison to the same month last year.
• Headline CPI rose to 4% yoy in September primarily led by vegetable price inflation
• Aug IIP declined 1.1% yoy (capital goods -21%, consumer durables -9.1%), sharpest fall in industrial output growth since Feb’13 reinforcing fears of a structural slowdown and deteriorating consumer sentiment.
• India Manufacturing PMI came in at 51.4 in September 2019, unchanged from the previous month's 15-month low.
• Sep Trade Deficit narrowed to $10.9bn as deterioration in import growth outweighed exports. Import growth fell to a 3-yr low on lower oil, gold and capital goods whereas exports weakness was more broad-based.
• The Union Cabinet raised Dearness Allowance of ~5mn government employees and ~6.5mn pensioners by 5% costing the exchequer approximately ~Rs160bn.
• The International Monetary Fund (IMF) downgraded growth of the global economy. In the October World Economic Outlook, IMF forecast a 3 % growth in 2019, the slowest pace since the global financial crisis. It also estimated that the U.S.-China trade tensions will cumulatively reduce the level of global GDP by 0.8 % by 2020.