Stock Market Brief Deck for "this does not happen often".pdf
Weekly Market Review - July 5, 2013
1. International
Global equity markets stabilised as investors took comfort from the comments of European central banks on the
continued accommodative monetary policy stance.The MSCI AC World index gained 0.69% as select pieces of
positive economic news flow also aided sentiment. However, EM countries continued to underperform their
developed market peers.A stronger-than-expected US jobs report reinforced views the Federal Reserve will start
reducing asset purchases later this year and pushed up US Treasury bond yields. German treasury yields however
eased due to weak economic data. Political turmoil in Egypt raised crude oil supply concerns and prices firmed
up before easing towards the end of the week.The Reuters Jefferies CRB Index ended 1.85% higher,even as gold
prices declined.The US dollar got a boost from strength in labour markets, while the euro and sterling weakened.
• Asia-Pacific: Chinese equities witnessed a relief rally as the liquidity squeeze eased and inter-bank rates
normalized, while markets in Indonesia, South Korea and Taiwan fell. China’s manufacturing PMI data was
however lacklustre – the official index declined to 50.1 from 50.8 and the HSBC gauge remained below
the key 50-mark.The Nikkei also posted sharp gains - Japanese Tankan survey index climbed into positive
territory reflecting marked improvement in sentiment amongst large manufacturers. Reserve Bank of
Australia kept the policy rate unchanged at 2.75%.
• Europe/Africa: Leading European equity indices closed mixed – fall in German factory orders
(1.3%mom) weighed on Xetra DAX, while stronger UK data boosted FTSE stocks. Both ECB and BoE
kept rates/asset purchase programmes unchanged. ECB guided for an easy monetary stance for an
extended period of time. UK PMI data was quite encouraging – both manufacturing and services PMI
rose. European Parliament voted against introducing caps on fund managers’ bonuses. Riksbank kept
rates unchanged this week. Russian policymakers expanded the central bank’s ambit to cover brokerages
and financial organizations. On the corporate front, Nokia is buying out Siemens stake in their mobile
equipment network venture for $2.2 bln. Romania and Poland announced rate cuts. Egypt’s stock and
bond markets rallied on domestic buying after the military took charge of administration after ouster of
President Morsi. Fitch cut long term rating by one level to B- on concerns the ongoing political turmoil
will hurt growth.
• Americas: US economic data lifted investor sentiment and helped US markets close in the positive
territory during the holiday shortened week. In contrast, Brazilian markets remained under pressure. US
non-farm payrolls exceeded market expectations – the economy added 195,000 jobs and the
unemployment rate held steady at 7.6%. ISM manufacturing index rose to above 50 in May – suggesting
expansion. In contrast, the non-manufacturing index dipped to 52.2. In Canada, data suggested labour
market was flat last month with economy shedding about 400 jobs, after adding 95,000 jobs last month.
On the corporate front, Steinway Musical Instruments is being acquired by Kohlberg for $438 mln.
Market Review
WEEK ENDED JULY 5, 2013
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 0.69 Xetra DAX -1.93
FTSE Eurotop 100 0.71 CAC 40 0.40
MSCI AC Asia Pacific 0.62 FTSE 100 2.57
Dow Jones 1.52 Hang Seng 0.25
Nasdaq 2.24 Nikkei 4.63
S&P 500 1.59 KOSPI -1.61
India - Equity
Indian equity markets extended gains on the back of positive global sentiment and corporate newsflow. FMCG
stocks continued to outperform the broad markets, while PSU and banking stocks declined. On the M&A front,
Hero MotoCorp bought 49.2% stake in US based superbike company Erik Buell Racing for $25 mln. FII flows
were slightly negative during the first four trading days of the week.
• Macro/Policy: After declining for three months, India's HSBC Markit manufacturing PMI increased
marginally from 50.1 levels to 50.3 in June, on the back of higher export orders and gains in overall
output. At the same time, the services PMI dropped to 51.7 from 53.6. New business orders sub-index
recorded a fall in for both the manufacturing and services indices. Besides, the rise in input price pressures
is a cause for worry.There have been quite a few developments on the policy front -
• Foreign Direct Investment (FDI)/Telecom: As part of its efforts to augment foreign capital flows, the
government is reviewing the FDI caps prevalent in various sectors.This week,Telecom panel proposed
raising the FDI limit for the sector to 100% from 74% previously.This could provide some succor to a
sector that has come under pressure in recent times due to policy issues and heightened competition.
• Banking: Late last week, RBI put out the draft guidelines for wealth management and third party
distribution services provided by banks. The overall intent of the guidelines is to curb mis-selling of
products, deal with conflict of interest issues arising out of the marketing/advisory function, enhance
KYC compliance and risk management systems. Some of these measures, especially those dealing with
incentives and the need for establishing new arm for wealth managed could have a short term impact on
fee incomes. The latter has been a key growth driver for many banks in the last decade or so, and we
expect quality private banking players with robust systems to gain lead ahead of the rest.
Draft norms on banks’ exposure to un-hedged corporates were announced and key recommendations
include - higher provisioning and risk-weights linked to earnings’ sensitivity to potential losses on un-
hedged exposures. Once implemented, the norms can hurt earnings of those banks with higher exposure
to forex lending business, but also lead to better risk management at banks.We continue to maintain a
3. relatively positive view on private bank players vis-à-vis the public sector units primarily owing to
concerns about asset quality and capital adequacy.
Indian policymakers continue to push through new measures, albeit at a slower pace.The economic impact
of many of these policy decisions will depend on the execution and will be visible only over the medium
to long term. Given the current account deficit situation, there is clearly a need to make Indian markets and
businesses attractive to foreign investors.
Weekly change (%)
S&P BSE Sensex 0.52
CNX Nifty 0.44
CNX 500 0.55
CNX Midcap 0.50
S&P BSE Smallcap 0.86
India - Debt
Indian bond yields were volatile this week and closed mixed amidst continued FII outflows (over $710 mln),
while the rupee fell to below Rs.60/$ levels amidst sustained strength in the US dollar.
• Yield movements: Bond yields closed higher at the shorter end of the curve, while yields at the
longer end were relatively flat. Yields on the 1-year and 5-year papers increased by 7 bps each,
while those on the 10-year paper were flat at 7.59%.Yield on the 30 year Gilts dipped 1 bp.
• Liquidity/ Borrowings: Demand for liquidity at RBI’s LAF window averaged Rs. 27,800 crore this week
and overnight call money rates slid to 6.60% levels. Scheduled bond auctions of GOI securities worth Rs.
15,000 crores received bids of over Rs. 40000 crores and were fully subscribed.
• Forex: Continued strength in the US dollar and FII outflows led the Indian rupee to fall by by 1.41% and
closed below the Rs.60/$.As of Jun 21, 2013, India’s forex reserves decreased $3.2 bln in the week to June 28
and stood at $284 bln.
• Policy: The Union Cabinet passed the populist Food Security Bill as an executive ordinance, with the focus
on providing food at subsidized prices to nearly two-thirds of the country’s population.The bill is expected
to push up food subsidies and initial estimates suggest the incremental burden may be to the tune of 0.2% of
GDP (and possibly revised higher depending on implementation costs).Whilst the government has managed
to keep the fiscal deficit in check in recent times and impact on FY14 numbers is likely to be limited, there
will be concerns over the medium to long term about impact of increased subsidies.
