The Month That Was – Sqrrl Analysis of Markets in September 2018

Highlights from the markets during the month

“Look deep into nature, and then you will understand everything better.”
– Albert Einstein

This quote is apt for the Equity Markets Turmoil that we got to see in the month of September 2018. On one hand where the equity was down over 6% on a month on month basis but on the other if you extend this period from one month to nine months one sees a gain of nearly 10%. So we need to dive down deeper to separate the wheat from chaff.

September started with equity market brimming with confidence and continuing with the optimism of August.

But soon fell of the tracks and key developments which made this happen are as follows:

1. Rising Crude Oil Prices

The Crude has been rising consistently from first week of September 2018. India being net importer of Oil, Rising Crude Oil Prices results in widening of India’s Current Account Deficit.

2. Rupee Depreciation

Along with the Rising Crude Oil Prices the second most important factor for market turmoil is currency depreciation. With US marketing stabilising and the fed raising interest rates by 25 basis points, the capital outflow got accentuated.

3. IL&FS Saga

IL&FS-  AAA rated Financial Institution & key player in infrastructure sector with marquee shareholders like SBI, LIC, Orix Corporation (Japan), Abu Dhabi Investment Authority (ADIA) and HDFC, defaulted on its debt obligations of Rs 4.5 billion to SIDBI. The rating agencies reacted immediately and downgraded the IL&FS debt paper from AAA to D (Default) in less than two months. IL&FS has about Rs 900 billion worth of debt obligations.

4. Advance Tax Outflows

Besides these factors like Advance tax outflows added further uncertainty to the financial markets. This can be seen from the 3-Month CP rates which moved up from 7.20% to 8.05% on Sep 28.

Things to Watch out in October 2018

• RBI monetary policy on October 5, 2018 that could see a upward revision in policy rate
• Developments with respect to US, Iran, and OPEC countries pertaining to crude oil
• Developments with respect to bail out of the NBFC and regulations to safeguard credit in the economy
• Crude oil price trajectory and Rupee trajectory with respect to US Dollar