Nifty was down 1.1% for the month of June 2019 underperforming global markets as we had credit downgrades and defaults by some mid-corporates which led to risk aversion. Further, hope of some resolution of US-China trade war in the G20 summit led to global markets rally. Infrastructure and metals sectors outperformed the index, Oil & Gas and media sectors underperformed in the month of June 2019.
We remain neutral as global liquidity is offset by weak domestic economic data. Domestic growth has remained muted. Credit downgrade in some mid-corporates have led to fresh NPA concerns for banking sector. Markets look expensive as slowing economic growth has led to continuous earnings cut. However, strong political mandate for 2019 general elections and expectations of GDP boost from budget to keep market sentiments strong. Dovish stance by global policymakers likely to lead to continued flows for equity markets.
CPI inflation for May 2019 inched slightly higher to 3.05% with core inflation softening to 4.15%. Credit and deposit growth slowed to 12.3% and 9.9% respectively for June 7, 2019. Trade deficit remained elevated at $15.4 billion in May. Manufacturing PMI for May was seen at 52.1. RBI infused rupee liquidity by conducting Open Market Operations for Rs. 27,500 crores. Indian Rupee appreciated against the dollar to close the month at 68.96.
We believe that RBI is likely to deliver an additional 25-50 bps rate cut in FY 2020. We also expect RBI to maintain surplus liquidity in the banking system to assist in better transmission of rate cuts. The primary drivers for the bond markets going forward will be the Final Budget for FY20 and the Jalan Committee Report on RBI Reserves. However, total borrowing by central and state government will continue to weigh on bond yields.