Economic Update

US Economy: US‟ real GDP slipped 5% on-year in the first quarter of 2020. Also, unemployment is seen falling to 9.3% by the end of this year and 6.5% by the end of 2021. Because of the dire projection, the US Fed vowed to keep benchmark rates unchanged at near zero over the next two years, while continuing its bond-buying programme, at least at its current pace, to support credit markets.

Eurozone: The euro zone economy is likely to contract 10.2% in 2020, followed by a rebound of 6% in 2021. Meanwhile, the European Central Bank (ECB) has provided 1.31 trillion euros ($1.46 trillion) in long term, ultra-cheap credit to banks as part of its emergency support aimed at cushioning the impact of the pandemic on businesses and workers.

UK: According to the IMF, the pandemic will hit UK‟s economy much harder than much of the rest of the world, with the country’s GDP projected to spiral 10.2% this year. To addressee the woes cause by Covid-19, the Bank of England’s (BoE) policy panel voted 8-1 to increase its quantitative easing programme by 100 billion pounds ($125 billion), while holding the benchmark interest rate at a record-low 0.1%.

Japan: The Bank of Japan (BoJ) voted 8-1 to retain the interest rate at -0.1% on current accounts that financial institutions maintain at the central bank. The BoJ governor warned of protracted battle with pandemic, and also signalled the bank’s readiness to top up monetary support. Meanwhile, the country’s GDP was revised down to 2.2% contraction on-year in the first quarter of 2020.

China: China has abandoned setting a target for GDP growth for the first time in decades, citing „great uncertainty‟ caused by the pandemic. The People’s Bank of China injected 120 billion yuan ($16.80 billion) via seven-day reverse repos at 2.20% on May 27, 2020.

India:

Index Performance: Indian equity indices recorded impressive performances in June 2020, buoyed by upbeat domestic and global cues. The benchmarks S&P BSE Sensex and Nifty 50 index had surged ~8% in June 2020.

Inflation: Retail inflation, based on Consumer Price Index (CPI), for May 2020, was not released by the National Statistical Office owing to the lockdown restrictions announced by the government to prevent the spread of Covid-19. Consumer food inflation, though, rose 9.28% on-year in May.

Domestic Developments:

Headwinds:

Concerns about the relentless spike in the new Covid-19 cases back home and a second wave of the pandemic globally. Escalating geopolitical tensions between India and China, profit-booking post the rally, and selling by domestic institutional investors kept the market under pressure as well.

Tailwinds:

Market rose sharply owing to optimism following the gradual reopening of the domestic economy, and after the Drugs Controller General of India approved the manufacture of Covid-19 drugs. De-escalation of geopolitical tensions, gains in index heavyweights, and buying of domestic equities by foreign institutional investors also augured well for the indices.

Global Developments:

Headwinds: Selling exacerbated after the US Fed projected the US economy to contract 6.5% this year, and pegged the unemployment rate at 9.3%. Persistent worries about the global economic recovery and downbeat growth projections by the IMF, the OECD and the World Bank also impacted the local indices.

Tailwinds: Upbeat global cues, including the US Fed’s corporate bond buying programme, US President Donald Trump’s decision to keep the trade deal with China intact, encouraging US monthly jobs and Chinese economic data, and hopes of additional stimulus measures by various countries, also supported the local indices.

Sectoral Impact:

Nevertheless, all S&P BSE sectoral indices ended in the green in June. The S&P BSE Realty (top sectoral gainer), S&P Finance, and S&P Bankex indices jumped 12.04%, 11.92% and 10.23%, respectively. Buying interest was seen in the auto and consumer durable stocks; S&P BSE Auto and S&P BSE consumer durable indices climbed 8.38% and 7.23%. S&P Fast moving consumer goods, and S&P BSE Healthcare indices saw marginal gains of 3.31% and 3.94%, respectively.

Outlook & Triggers

Global equities rejoiced the re-opening of economies which was well reflected in positive returns posted by most of the countries in the month of June. Indian Equity Markets (Nifty 50 Index) too joined the bandwagon and delivered 7.7% returns. However, global and domestic markets remain watchful of the second wave of COVID-19 led infections.

Several economic data releases from the US among other factors buoyed global market sentiments. As per data released, US private payrolls rose by 2.37Mn in June while a gauge of manufacturing activity rebounded to its highest levels in 14 months. The US also confirmed that the phase 1 trade deal signed with China was still in effect. Liquidity support is likely to remain intact as Fed meeting minutes state that the monetary policy stance will continue to remain highly accommodative. (source: CRISIL)

Despite an increase in COVID-19 cases, Indian equities delivered positive returns. S&P Global affirmed India‟s rating at BBB- /A3 and maintained a stable outlook. Strong fundamentals like healthy forex reserves (USD 505.6 bn as of June 19), stellar currency, current account surplus, etc. help attract foreign investments. India also stands to benefit from the potential shift in base of companies from China resulting from the ongoing US-China and India-China tensions as India too has a demographic advantage. . (source: CRISIL)

High Frequency data points indicate improvement in mobility trends and essential services like groceries and pharmacies are now close to pre-lockdown levels. The May Composite PMI too improved marginally from April. Current Account Balance turned into surplus in Q4 FY20. May trade deficit numbers too declined significantly.

Sectors like Energy and Finance outperformed while Telecom and FMCG underperformed. (Source: NSE)

*The sector(s)/stock(s) mentioned in this communication do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s). PMI – Purchasing Manager’s Index

Disclaimer:

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. In preparation of the material contained in this document, ICICI Prudential Asset Management Company Limited (the AMC) has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC, however, does not warrant the accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not be liable for 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 material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on this material. All figures and other data given in this document are dated and the same may or may not be relevant in future. The information contained herein should not be construed as a forecast or promise nor should it be considered as an investment advice. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund. The sector(s)/stock(s) mentioned in this communication do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). Past performance may or may not be sustained in the future. The portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for more details. The information contained herein is only for the purpose of information and not for distribution and do not constitute an offer to buy or sell or solicitation of any offer to buy or sell any securities or financial instruments in the United States of America (“US”) and/or Canada or for the benefit of US persons (being persons falling within the definition of the term “US Person” under the US Securities Act, 1933, as amended) or persons residing in Canada
0.00 avg. rating (0% score) - 0 votes