Market Review WEEK ENDED APRIL 12, 2013InternationalAsset reflation remained the key theme helped by expectations of continued stimulus and better economic& corporate earnings data. Led by sharp gains in Japan and US equity indices, the MSCI AC World indexfirmed up 2.46%, even as EM indices, especially Asian, continued to underperform. Major benchmarktreasury bond yields rose as investors focused on riskier assets. In commodity markets, crude oil continuedto edge lower and gold lost ground. Overall, the Reuters Jefferies CRB Index closed the week 0.4% lower.The Japanese yen closed off record lows against the US dollar, and the euro was boosted by a successfulItalian debt auction. There appears to growing unease over currency exchange rates and these coulddominate discussions at upcoming multilateral forums.• Asia-Pacific: Japanese markets retained strong growth momentum on the back of yen depreciation and positive economic data. Japanese core machinery orders grew 7.5%mom, partially reversing the 13% drop recorded in January, and higher overseas income helped current account gap turn positive.Trends amongst other regional markets were mixed – Chinese equities edged lower as Fitch downgraded China’s local currency debt rating to A from AA-, citing concerns over the rapid credit expansion. China’s consumer inflation rate eased from 3.2% to 2.1% in March and strong imports growth signaled recovery in domestic demand. In Australia, unemployment rate ticked up to 5.6%, as the economy partially reversed last month’s sharp employment gains. Central banks in South Korea, Singapore and Indonesia maintained status quo on monetary policy.• Europe: European equity markets also benefited from investor optimism in other developed markets and recorded strong gains this week. EU finance ministers agreed to give Portugal and Ireland up to seven more years to return bailout monies. Netherlands softened its stance on austerity and is delaying implementation of some of the changes in spending to revive economy. On the economic front, Eurozone industrial output increased in February on the back of gains in Germany, France and Netherlands. UK’s industrial data also surprised to the upside for February, growing 1.0%mom. In Poland, the Monetary Policy Council (MPC) kept the policy rate unchanged at 3.25%. Russia cut 2013 growth forecasts from 3.6% to 2.4%.• Americas: US equity indices touched fresh cyclical peaks, but closed the week off highs after weak retail sales and consumer confidence data weighed on sentiment. Financial stocks were amongst the top gainers after results of two banking majors came in ahead of market expectations. US FOMC meeting minutes were inadvertently released ahead of time and indicated active debate on the bond buying programme. While retail sales and US consumer confidence fell, initial jobless claims fell sharply. Elsewhere in the region, Brazil annual inflation rate came in above the central bank’s target range and Chile central bank left policy rates unchanged. The Colombian peso weakened on expectations the stimulus plan to be unveiled next week will contain currency depreciation measures.
Weekly Weekly change (%) change (%) MSCI AC World Index 2.46 Xetra DAX 1.12 FTSE Eurotop 100 1.59 CAC 40 1.80 MSCI AC Asia Pacific 3.51 FTSE 100 2.15 Dow Jones 2.06 Hang Seng 1.67 Nasdaq 2.84 Nikkei 5.08 S&P 500 2.29 KOSPI -0.16India - EquityIndian equity markets lost ground this week as investors turned to focus on earnings and FII flows weretepid, even as macro-economic data was relatively positive. Lower-than-expected earnings performanceand guidance from IT services major Infosys triggered a sell-off in the technology sector and the indexclosed with double digit losses. In contrast, banking, auto and real estate sector indices delivered positivereturns. Mid and small cap stocks fared better than large caps. FII inflows were negative for the secondconsecutive week ($102.5 mln outflows in first four trading days). Trends in IIP (%YoY, 3mma) Source: Citigroup• Macro/Outlook: Growth in India’s industrial production moved back to positive territory in February – output grew by 0.6%yoy as against a 2.5% decline recorded in the previous month.The expansion was led by manufacturing sector (+2.2%), which offset the impact of electricity and mining contraction.An analysis by user-based industries indicated reversal of decline trend in investment activity while consumer goods production remained positive. Despite the uptick, overall growth trend remains subdued and reiterates the need for government policy action to alleviate issues facing investment. The global environment remains uncertain with asset classes benefitting from increased easing.Tepid global growth weighs on export oriented economies in the EM space and Asia. Also with developed economies such as Japan focused on aggressive monetary stimulus, the consequent currency movements will have a bearing on asset classes as well as trade.Asian countries could intervene in currency markets to protect their export competitiveness.
Weekly change (%) S&P BSE Sensex -1.13 CNX Nifty -0.44 CNX 500 -0.32 CNX Midcap -0.04 S&P BSE Smallcap -0.71India - DebtTreasury bond markets gained as fresh economic data continued to point towards sluggish growth and retailinflation eased slightly. Investor demand stayed high at scheduled GOI bond auctions. FIIs sold Indian debtsecurities worth $432 mln in the first four trading days of the week.• Yield movements: Yields moved across the yield curve, sharper down-moves were seen at the longer end. Benchmark 10-year gilt yield decreased 10 bps, while that on the 1 year paper moved down 4. Yields on the 5 and 30-year paper eased 11 and 10 bps respectively.• Liquidity/borrowings: Liquidity situation was largely stable - demand for liquidity under the RBI’s LAF window increased and repos averaged Rs. 164,370 crore vis-à-vis Rs. 136,065 crore. Scheduled auctions of four GOI securities worth Rs. 15,000 crores were oversubscribed over 4x.• Forex: Despite FII outflows, the Indian rupee strengthened this week. Hopes the current account deficit will narrow helped by lower oil & gold prices boosted the currency. As of Apr 5, Indian forex reserves stood at around $293.8 bln, about $1.2 bln more than previous week levels primarily due to revaluation of forex assets. CPI Headline Inflation (YoY%) 1 2% C omb in ed CP I R ural C PI Urban CPI Yo Y % 1 1% 1 0.4% 1 0.4% 1 0.3% 1 0% 9% 8% 7% J an -1 2 M ar-1 2 May -12 Ju l-12 S ep-12 Nov -1 2 J an-13 Mar-13 Source: CSO, Morgan Stanley Research• Macro: Consumer price inflation data released this week pointed towards some easing in food prices. As a result, growth in the headline index moved down from 10.9% to 10.4%yoy in February. As we go along, investors are likely to keenly watch monsoon forecasts for insights into the likely trends in food prices in the coming year.