12/21/2018 Wealth Overview

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US Fed hiked policy rate by 25 bps

Speak of the Week 28.09.2018

US Fed hiked policy rate by 25 bps

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12/21/2018 Wealth Overview

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Indian Economic Update

The Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) was increased,
with effect from October 1, 2018, from the existing 11% to 13%. This will take the carve-
out from Statutory Liquidity Ratio (SLR) available to banks to 15% of their Net Demand
and Time Liabilities (NDTL).
The government of India hiked customs duties on as many as 19 items, including jet
fuel, ACs and refrigerators, as it aims to curb imports of non-essential goods. According
to the Finance Ministry, total import bill on account of shipment of these items into the
country last fiscal was Rs 86,000 crore.
India's fiscal deficit widened to INR 5.91 trillion in April-August 2018. The budget gap is
equivalent to 94.7% of the government’s target for the whole financial year, compared
with 96.1% a year ago. India's government expects to cut the deficit to 3.3 percent of
Gross Domestic Product (GDP) this fiscal year, after meeting its deficit target of 3.5
percent of GDP in 2017-2018.
The Reserve Bank of India (RBI) and Securities and Exchange Board of India have
conveyed that they are closely monitoring recent developments in financial markets and
are ready to take appropriate actions, if necessary.

Global Update

The Fed hiked its policy rate by 25 bps to 2-2.25%.

a. Removed the line from its statement that policy was accommodative.

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12/21/2018 b. Raised near-term GDP growth projections from 2.8% to 3.1% for 2018 and from
Wealth 2.4% to
Overview
2.5% for 2019. Fed has kept its long term growth unchanged at 1.8%.
c. Unemployment rate projections were raised slightly for 2018 from 3.6% to 3.7% and
kept unchanged at 3.5% for 2019-2020.
d. However, the main focus was the Fed’s message on inflation. Core Personal
Consumption Expenditure (PCE) inflation projections were left unchanged for the period
while PCE inflation was expected to dip from 2.1% in 2018 to 2% in 2019.
e. On balance, the Fed communicated that inflation pressures remain moderate justifying
a very gradual rate hiking path.

The Philippine Central Bank raised its policy rate by 50 bps to 4.5% in order to curb
inflation pressures and limit the high volatility in Peso.
Indonesia's central bank raised its benchmark interest rate by 25 bps to 5.75%.
US President Mr Donald Trump inked his administration's first trade deal with South
Korea, which he described as "a historic milestone". The new US-Korea agreement
includes significant improvements to reduce their trade deficit and expand opportunities
to export American products to South Korea.

Equity

Domestic stock markets ended lower on a weekly basis, owing majorly to banking and
finance stocks.
Outlook for exports is improving as demand commentary in IT remains encouraging and
there are signs of stabilisation in US businesses in pharma sector.
Earnings surprises, upturn in Foreign Portfolio Investment (FPI) flows, neutral sentiment
indicators and positive momentum may yield a little more upside in indices while rising
valuations continue to moderate out incremental value in Equities.

During the week Sensex lost 1.67% to close at 36227.1 and Nifty declined 1.91% to close at
10930.5.

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12/21/2018 Wealth Overview
Debt

Government bond prices improved marginally during the week, owing to cooling oil
pressure and RBI interventions.
RBI injected liquidity to the tune of INR 715.53 million (net) under Liquidity Adjustment
Facility (LAF) (including fixed and variable rate repos and reverse repos) as of
September 26. It injected Special Refinancing Facility of INR 18.45 billion.

The 10Y benchmark yield ended at 8.04% as compared to the previous week’s close of
8.08%.

Oil

Oil prices surged on the expectation of a tighter market as it appears unlikely that
Organisation of Petroleum Exporting Countries (OPEC) and Russia will respond
immediately to US President Trump’s demand to increase output further.
US Energy Secretary Mr Rick Perry ruled out using US strategic crude reserves to
lower oil prices.

Gold

Gold edged lower, trading at sub-USD 1200 per ounce level.

The yellow metal found little support as the Fed rate hike came on expected lines and
was internalised by investors beforehand.

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12/21/2018 Wealth Overview
Currency

Indian Rupee showed some improvement after weakening during the beginning of the
week.
Dollar index is trading higher in the European session at ~ 94.56 levels, after the Fed
raised rates for the third time in 2018 and still foresees another rate hike in December,
three more next years, and one increase in 2020.
Euro is trading lower at ~ 1.17, on reports that an Italian budget meeting was likely to be
delayed, triggering concerns that the ruling parties will push for a bigger deficit target.
The Pound is currently trading weaker at ~ 1.315 level, as investors waited for more
Brexit-related headlines ahead of an annual conference next week hosted by Britain's
ruling Conservative Party.
The Yen traded marginally higher against the greenback at ~ 112.9 level.

Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and
CRISIL.

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