Indian Equities were in for a volatile ride in September before recording a minor fall for the month (Nifty -1.2%). The main casuses of volatility were fading hopes of proposed US Stimulus worth USD2.4 Trillion, rise in Covid cases and flaring up of Indo China conflicts along LAC. Gold which has been the best performing asset class for the year with its reputation as a heaven asset, recorded a steep fall in September (XAU/USD -4.2%) owing to dollar strengthening and fall in inflation expectations. NSE Small Cap 50 continued its streak of stellar returns after SEBI announced change in asset allocation norms of multi-cap funds.

10Y Government of India bond recorded a fall in yields by 10 bps for the month on back of Central Bank regulations tweaking Held to Maturity (HTM) portfolio norms for banks to stoke up demand in Statutory Liquidity Ratio(SLR) securities, re-financing of LTRO from a rate of 5.15% to 4% and conducting of weekly operation twists worth Rs. 10,000 crore. Also the borrowing calendar for H2 2020-21 released on September 30th allayed the fear of investors with the gross borrowing pegged at Rs. 4.34 tn as against expectations of Rs. 5-6 tn on the back of heightening fiscal deficit due to shortfall in revenue.
The US 10Y yields continued to be stable post US Fed outcome on September 16th providing guidance by resolving to keep shot term rates anchored near zero through 2023 as well as allowing inflation to run marginally beyond 2% before hiking rates to control inflation.
Brent oil price recorded a fall of 9.6%, closing at USD40.96/bbl on grounds of increased production by Iran and Libya; reduction in prices by Saudi Aramco and fall in aggregate demand by the troubled aviation industry.
INR traded in the range of Rs 73.01-73.90/$ for the month of September bolstered by dollar inflows into Reliance Retail, RBI’s building of forex reserves and IPOs.

IIP: Index for Industrial Production for Jun contracted 10.4% (vs. 16.6% contraction in June). Highest fall was recorded by consumer durables (-23.6%) followed by capital goods (-22.8%) with consumer non-durables the only category recording a modest growth of 6.7%. However, the growth is only half of what was recorded in the previous month reflecting a fall in restocking of inventory levels.
CPI: Headline CPI for August came in at 6.7% vs expectations of 6.9%. The headline CPI for the month of July was also revised downwards from 6.9% to 6.76%. The biggest drivers of inflation can be seen as vegetables recording +11.41% y-o-y, and protein basket recording an increase of +15.30% on the food side; and transport & communication recording y-o-y +11.05% and personal care and effects +14.45%.
Trade Deficit : India’s trade balance turned to a deficit of ~USD 6.77 bn in August 2020 vs USD 13.4 bn in August 2019. The fall in trade deficit was outcome of contraction in exports by 12.66% and contraction of imports by 26%. Oil imports declined by 41.62% to USD 6.42 bn y-o-y, whereas gold imports jumped to USD 3.7 bn in August as against USD 1.36 bn in the same month last year.
Fiscal Deficit: : India’s fiscal deficit stood at Rs8.7 tn at the end of August, at 107% of the budgeted target for the current fiscal year vs 79% last fiscal year. This can be attributed to fall in total receipts to 17% of the budgeted revenue vs 30% last fiscal, while total expenditure continues to be at 42% of budgeted which is similar to last year’s digits.