InternationalGlobal investor sentiment was lifted by positive corporate earnings news and hopes that central banksworldwide will maintain loose monetary policies.The MSCI AC World Index managed to end 2.3% highereven as economic data out of the key economies was less reassuring and weighed on markets at close ofweek. Developed markets broadly outperformed emerging markets. Global bond markets pared losses at theclose of week as sentiment turned more cautious. In commodity markets, gold staged a sharp rebound andthe Reuters Jefferies CRB Index closed up 0.78%.The sterling pound strengthened this week after the UKGDP growth numbers came in better than expectations, whilst the US dollar and Euro lost ground.• Asia-Pacific: Regional equity markets underperformed with equities in mainland China andIndonesia registering declines. China’s flash HSBC manufacturing PMI index dipped to 50.5 from 51.6.Japan consumer prices excluding food fell 0.5% for the fifth consecutive month. Bank of Japan liftedeconomic growth projections for current fiscal to 2.9% from 2.3% and said inflation will touch 1.9%by end of March 2016. Australia said it will invest 5% of foreign exchange reserves in Chinese bonds.On the M&A front, GrainCorp accepted a $3.1 bln takeover offer from Archer Daniels Midland andThailand’s CP All offered to pay $6.6 bln for Siam Makro.• Europe: Sluggish economic data ahead of ECB meet next week bolstered rate cut expectations andhelped markets rally this week. Italian markets benefitted by the reelection of the President.Eurozone preliminary composite PMI was unchanged at 46.5 and data showed signs of weakness inGermany - the composite gauge for Germany slipped below 50 and the IFO business confidenceindex dropped. Spain reported a sharp jump in unemployment and is asking for an extension ondeficit reduction targets to stem economic weakness. Strong services sector performance lifted theUK GDP growth to 0.3% in Q1-2013.• Americas: Helped by positive earnings news flow and housing data, US equity indices closed in thepositive territory this week. Higher consumer spending helped US GDP growth accelerate to 2.5%(annualized basis) in the first quarter of 2013. However, the pace of expansion could have beenhigher, if not for public spending cuts. The University of Michigan/Thomson Reuters consumersentiment index declined in April and durable goods orders fell 5.7%, primarily on account of loweraircraft & defense goods orders. US housing sector continued to show improvement – new homesales rose 1.5% in March. Colombia maintained status quo on monetary policy.Market ReviewWEEK ENDED APRIL 26, 2013
Weekly Weeklychange (%) change (%)MSCI AC World Index 2.33 Xetra DAX 4.76FTSE Eurotop 100 3.58 CAC 40 4.33MSCI AC Asia Pacific 2.96 FTSE 100 2.22Dow Jones 1.13 Hang Seng 2.43Nasdaq 2.28 Nikkei 4.26S&P 500 1.74 KOSPI 1.98India - EquityIncreased hopes of monetary easing, strong FII inflows and positive corporate data helped Indian equitymarkets extend last week’s gains. The rally was fairly broad-based and all sectoral indices, except thosefocused technology and real estate, closed in the positive territory.Auto and capital goods stocks were thetop gainers. FIIs bought equities worth $520 mln in the first four trading days of the week. Etihad agreedto pick up a 24% stake in Jet Airways for $379 mln.• Outlook: With the exception of exports and inflation, domestic economic data has largely been onthe weaker side in recent times. Nonetheless, we believe the economy is at the bottom of thisslowdown cycle and growth should improve in the year ahead, helped by recent government policyefforts, lower borrowing costs and spending ahead of elections. Growth trends are likely to improveover the next year or so but return to high growth will be gradual.Despite the run-up over the last couple of weeks, headline index valuations remain close to long termaverages of about 14-15x 1-year forward PE, and various segments of the market appear undervalued.Earnings growth expectations are closer to reality this time around, unlike at the start of 2012, makingmarkets reasonably priced.BSE Sensex PE Levels (1-year forward earnings)Source: CLSA Asia-Pacific Markets
The recent fall in global commodity prices and easing borrowing costs should have a positive impacton both macro-economic indicators and earnings over the near term. The medium term outlookdepends on the evolving macro situation both in India and overseas. Earnings dispersion is expectedto remain high across sectors and hence we believe investors are better off adopting a bottom-up,fundamental research focus – quality of management/balance sheet will be important.Weekly change (%)S&P BSE Sensex 1.42CNX Nifty 1.53CNX 500 1.43CNX Midcap 1.19S&P BSE Smallcap 0.81India - DebtIndian treasury bond yields continued to ease this week on speculation the RBI will lower policy ratesnext week. FII demand for Indian bonds was sharply higher and flows amounted to $1 bln in the first fourtrading days of the week.• Yield movements: Treasury bond yields eased across the curve; the downshift was sharper at theshorter end of the curve and this helped the yield curve steepen. Benchmark 10-year gilt yield decreased3 bps, while yields on the 1 year paper moved down 11 bps.Yields on the 5 and 30-year paper eased 7and 3 bps respectively.• Liquidity/borrowings: Even as liquidity tightened and demand for liquidity under the RBI’s LAFwindow increased, overnight call money rates continued to hover around 7.5% levels during this holidayshortened week.• Forex: The Indian rupee maintained positive momentum, amidst strong FII inflows and weakness inthe greenback.As of Apr 19, Indian forex reserves stood at around $294.8 bln, about $486 mln less thanprevious week levels.• Monetary Policy: Market expectations of rate cuts have increased over the past couple of weeks, ledby the fall in global commodity prices and positive domestic inflation data.The Annual Monetary PolicyReview of RBI scheduled at end of next week will provide an insight into whether the RBI’s comforthas increased due to the recent developments. Given the favourable price movements, lower growthtrends and expectations of normal monsoon (as per IMD preliminary forecast), the bias is likely toremain in favour of growth.