We look at returns of various asset classes such as equity, debt, gold, crude oil and the Indian rupee in our latest monthly market summary.
Equities continue to outperform across the globe. India and the broader emerging markets have given over 5 per cent returns in the last month. As can be seen in the chart above, all the indices have given double digit returns in the last year as well. Both the Sensex as well S&P 500 also continue to outperform their peers on a long term basis. While these returns are great, it is difficult to tell how much longer this rally will continue, given the expensive valuations of Indian stocks as well as for the US stock market.
The 10 year G-sec yield has been steadily loving lower from almost 7 per cent in April to roughly 6.5 per cent at the end of July. The CPI and WPI are at very low levels and the RBI has subsequently cut rates in its August policy with a neutral stance. With the trajectory of inflation likely to rise over the next few months, the Reserve bank will have limited room to cut rates further and we may even be in for a long pause.
Gold continues to trade in the 1200-1400 dollars per ounce range. A strong move of gold outside of this range would give a better indication of its long term trend.
Oil has traded roughly in the 50-55 dollars per barrel range since the beginning of the year. The commodity fell below 50 in April, and has stayed around that level since then. Though we have seen a bounce back in July, oil prices would rise much more for there to be a significant change in trend. Because of our large dependance on oil imports, it is hugely beneficial if oil continues to remain in this range or even corrects to lower levels. It must be noted also that the strongly appreciating rupee is certainly helping our fiscal deficits.
In all the four charts above we can see the effects of a globally weak dollar. The Dollar Index has fallen from highs of 103 at the end of December 2016 to 93 levels in July and is already trading at crucial support levels. All the other currencies are showing an appreciating bias against the rupee precisely because of this global coupling.
Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.