Equity markets in July 2019:
- Equity markets closed down sharply for the month, with the Nifty down 4.0% and the Nifty Midcap down 8.1% for the month.
- Equity market weakness has been driven by the continuing weakness in the economy, the ongoing NBFC crisis and market sentiment around the budget presented in early July.
- The S&P 500 (US Markets), on the other hand, finished on a positive note as the US markets recovered from its correction in May-2019.
Debt markets in June 2019:
- Median returns of the Top 10 liquid funds averaged at 6.8%, a bit down from the past year as interest rates have been coming off.
- Government bond yields have been coming off sharply, with the 10 year government bond yields trading close to 6.5%. This is good for the economy, as it reduces overall cost of borrowing for corporates and consumers. On the other hand, do expect overall debt market returns to come down in the coming months.
Factor affecting markets:
- The economy continues to the weak, with corporate growth continuing to be weak for the 3rd quarter in a row. The NBFC crisis seems to be having an impact on credit availability for smaller businesses, which in turn is affecting the economy. GDP growth has also been lower than long term growth forecast.
- The recent government budget had certain tax provisions on FPI (Foreign Portfolio Investors), which has led to the FPI selling of nearly $ 2.2 billion. Moreover, the increased taxation on high earners can impact private sector investment in the economy, which is essential to spur economic growth.
- On the positive side, interest rates are coming off sharply. The 10 year govt bond rates have come down to 6.5%, which down nearly 1% over the past 3 months. Such sharp reduction in interest rates should lead to lower borrowing cost for both the consumer and businesses, leading to increased consumption demand. This should help the economy to recover.
At this point in time, all the market participants are looking for early signs of economic recovery. The upcoming festive season is an important period to watch out for.