We take a look at various asset classes and their performance in the month of April. In particular, we examine returns of equities, debt, gold, oil and the Indian rupee.
In the month of April, global equities showed marginally positive returns, with India giving slightly better returns than most indices. What is interesting to note in the chart above is the one-year returns of all the indices. Even though all markets showed negative returns, India outperformed both its emerging market peers as well as most of the developed markets. This outperformance can be attributed to the confidence that investors have in the economy and also speaks to the fact that the Indian economy is, as governor Rajan put it, “like a one-eyed king in the land of the blind”.
The 10-year bond yield on government securities showed a marginal increase in the month of April. It should be noted that this is in contrast to the expectations of yields falling further post the RBI policy due to both, a rate cut and expectations of increased liquidity in the bond markets. It is worth noting however, that the 10 year G-sec peaked in February at approximately 7.87% and has come down since then.
After falling for two years, oil moved back up strongly in the month of April. In fact, oil has been moving up since the start of the year since it hit its lows of approximately $26 per barrel. At the end of April, it had moved up to roughly $45 per barrel. This has a huge macro-economic impact on the global economy. India in particular, which benefited from the steep fall in prices, may now see the reverse effects if oil continues its up-move.
Gold also has started to move up in the month of April, in part due to dollar weakness. Similar to oil, gold has been moving up in recent months from its lows of approximately $1050 per ounce in December to approximately $1290 per ounce at the end of April. What remains to be seen is if this uptrend is structural in nature or a dead-cat bounce.
The Indian rupee has shown a weakening trend in the month of April, particularly against the British pound and the Japanese yen. While the rupee has been stable against the dollar in the last month, this could be attributed more to global dollar weakness viz-a-viz other currencies rather than strength of the rupee versus the dollar.
This has been a pretty uneventful month for equities. Bond yields are expected to come down further with the infusion of additional liquidity, however additional bond issuance by state governments to finance deficits or RBI interventions in the forex markets could put a spanner in the downtrend. The Indian rupee has weakened marginally in the last month, but that is probably more due to global factors rather than domestic ones. And finally, there have been strong trends in gold and oil markets in the last few months. It is important to keep an eye on these commodities because they form a large part of our import bill. Any large moves in either could affect India’s macro stability and hence stall any nascent recovery in our economy.
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.