Investment Quotient

Markets may remain volatile for some time

• The volatility in the equity market seen in April may remain for some time, due to rising concerns over the second wave of Covid-19 across the country and re-imposition of lockdown-like measures. The extension of the vaccination drive to cover more people is definitely a positive measure on part of the government.
• This caution coupled with the fact that going ahead, economic indicators may see a slowdown, is leading to a gradual shift towards in the near term.
• The restrictions due to Covid-19 and rising crude price may have an impact on bond yields, though there is support from the RBI by way of purchasing of G-Secs.
• The US economy seems set for a recovery in the second half, on the back of fiscal spending which is driving personal consumption, relaxation of containment measures and a faster pace of vaccination. However, with the FOMC meeting indicating that a 2021 taper is not the base case, any likely upside in the US dollar and treasury yields may be capped.

Know about last month's market performance

Key Indices: Here’s a look at how the key indices, treasury yields and commodities performed for the month ended April 2021.

YTD is year to date (calendar year).

Equity Market Update

Concerns over second Covid wave kept markets volatile

Overall, April 2021 has been a volatile month. The market got support during the first week of April after the RBI kept the repo rate unchanged and kept its ‘accommodative’ stance. However, in the second half investors sentiments got dampened due to rising concerns over the second wave across the country and re-imposition of lockdown-like measures and strict restrictions across states. However, government has proactively started undertaking measures to open up vaccination drive to cover broader age group from 18-45 years from 1st May. Nifty 50 was down by -0.41% during the month of April 2021 and has underperformed the other global markets. Midcaps (Nifty Midcap 150) was up by 1.56% and small caps (Nifty Small cap 250) was also up by 4.58%.During the month ending April 2021, FIIs were net sellers to the tune of Rs. 12,039 crore while DIIs were net buyers to the tune of Rs.11,359 crore and the domestic MFs bought Rs. 5933 crore worth of equity.

Debt Market Update

Bond yields moved lower due to delay in rate hike by RBI

G-sec yields drifted lower early in the month in line with the heavy receiving in the OIS segment as markets repriced a delay in a potential rate hike by the MPC following an unprecedented rise in COVID infections and accompanying stringent regional lockdowns. This downside in yields was bolstered by the RBI’s explicit guidance. RBI to purchase G-secs of Rs 1 trillion in Q1FY22 under the G-SAP programme. However, this down move did not sustain on the back of a continued rise in crude oil prices and weaker than expected cut-offs seen during the first G-SAP auction. During the second half of the month, yields traded with a downward bias following pullback in the treasury yields and also helped by RBI intervention in the month. The stance of the RBI will be watched closely, with the rapid unfolding of second wave of COVID-19 in focus, alongside mobility related restrictions.The yield of the 10 year benchmark 5.85% 2030 paper settled at 6.06% on 31st March 2021.

What to watch out for in the coming months

• Market positioning is slowly shifting towards defensive and selective cyclical plays. Concerns due to lockdown led restrictions are clearly visible in interest rate sensitive sectors. This time restrictions are not as strict as in the last year hence, a certain pocket of economy will continue to do well. At the current juncture, sector rotation theme is likely to play out in the near term.
• The second COVID-19 wave intensified in April, and spread to states in North, East and South India. Except for South India, the growth in daily fresh cases appears to be slowing, with mobility restrictions contributing to slowing transmission. However, in Kerala, Karnataka and Tamil Nadu case growth is still sharp. Fresh official COVID-19 infections in India continue to show indications of slowing momentum, though with recoveries still at a slower pace, active cases continue to increase.
• Multiple high frequency indicators going into April show a slowing of activity. Though the second wave is expected to postpone the recovery, the global experience shows that second waves are better managed, and lead to a less severe activity interruption. In line with this, Axis Business and Economic Research downgraded India’s GDP growth expectation to 11% from 11.8% earlier. This is at downside risk from the tenor, intensity and geographical spread of lockdown measures.
• Numbers suggest that the US economy is well positioned for a sustained recovery in the second half this year, with no setback in vaccinations seen yet. The strong growth numbers are supported by sizeable fiscal spending driving personal consumption higher amid relaxation of containment measures. Besides this, slowdown in active infections and a faster pace of vaccination supports the case of a strong start to Q2. However, commentary from the FOMC meeting last week indicated that a 2021 taper is not the base case, despite these brighter recovery prospects. This will likely cap any upside in the USD and treasury yields.
• Slower than expected contraction for Eurozone GDP suggests better adaptability of COVID-19 related protocols and lower elasticity of restrictions imposed. A faster pace of vaccination and resilience to the containment measures seen so far, setting the stage for a strong start to Q2. The data indicates resilience to the impact of the third wave of COVID infections and accompanying lockdowns. If momentum sustains, as indicated by sentiment readings, hawkish members in the ECB governing council will likely become more vocal, slimming chances of PEPP QE extending beyond Mar 2022

Asset Class Returns

Know your gains and losses across asset classes

The table below shows asset class returns for various time periods.

* Benchmark for Debt –CRISIL Short Term Bond Fund Index, Equity- S&P BSE Sensex, Liquid- CRISIL Liquid Fund Index and Gold- Nippon India ETF Gold BeES. The returns computed are as on 30th April 2021. Returns less than one year is absolute and more than one year is compounded annualised.