Weekly Market Review ; May 3, 2013Document Transcript
InternationalGlobal equity markets moved up as investors took comfort from increased central bank bias towards growth,even as latest manufacturing data came in weak. Sentiment was also boosted by the latest US payroll dataand the MSCI AC World Index closed up 1.72%. Bond yields were largely unchanged as comfort frompolicy support was offset by increased demand for riskier assets and data out of US. Strong rally in gold andcrude oil helped the Reuters Jefferies CRB Index close up 1.67%. In currency markets, the Chineserenminbi touched record highs and there is speculation the government may be willing to widen thetrading band. Better payroll numbers helped the US dollar index pare losses at close of week.• Asia-Pacific: Regional equities were largely trading higher, with the exception of key markets such asJapanese and Indonesian equity markets. Japan industrial output increased marginally in March whileretail sales fell 0.3%. China’s official PMI index dropped from 50.9 to 50.6, the headline trend was inline with the readings from the HSBC index revealed in the week before.Taiwan’s economy grew at arelatively slower pace of 1.5% in Q1-2013 due to fall in demand from key trading partners. India’s centralbank announced another 25 bps cut in rates to 7.25%, but was circumspect about future rate cuts.• Europe: European equity markets moved up amidst positive policy action and formation of acoalition government in Italy. ECB lowered its benchmark refinancing rate by 25 bps to 0.5% andindicated it remains on stand-by to take further action if required. The European Commissionlowered 2013 & 2014 growth forecasts for the region to -0.4% (from -0.3%) and 1.2% (from 1.4%)respectively and said there is scope for easing the pace of austerity. Greece agreed to divest itscontrolling stake in gaming company OPAP for €712 mln. Portugal proposed reducing public sectorjobs to meet its deficit reduction targets. UK economic data beat market expectations - AprilManufacturing PMI inched up from 48.6 to 49.8. The Czech National Bank left policy ratesunchanged and Romania’s central bank narrowed its standing facility corridor.• Americas: US equity indices outperformed global markets and the S&P 500 touched record all-time highs amidst better than expected economic and positive corporate news. Non-farm payrollsexpanded by 165,000 in April and the unemployment rate fell to multi-year lows of 7.5%. Payrolldata for February and March were revised upwards.The April ISM manufacturing index retreated to50.7 from 51.3 in March, but the Conference Board’s consumer confidence index rose. The USFederal Reserve said it will continue its asset purchase programme, but will tweak the quantum/paceof purchases based on evolving economic conditions. Elsewhere in the region, Canada GDP grewby 0.3% for the second consecutive month in February. On the corporate front, Apple commenceda $17 bln bond offering, one of the largest bond issuances ever.Market ReviewWEEK ENDED MAY 3, 2013
Weekly Weeklychange (%) change (%)MSCI AC World Index 1.72 Xetra DAX 3.94FTSE Eurotop 100 1.88 CAC 40 2.70MSCI AC Asia Pacific -0.23 FTSE 100 1.48Dow Jones 1.78 Hang Seng 0.63Nasdaq 3.03 Nikkei* -1.37S&P 500 2.03 KOSPI 1.09*As of May 02, 2013India - EquityPositive global sentiment and hopes of monetary easing helped markets extend gains during the holidayshortened week. However, markets pared gains after RBI provided a cautious guidance on further ratecuts. Mid-cap stocks outperformed large caps. Amongst sectoral indices, the FMCG and technologyindices were the top gainers.The former benefitted from a spike in the shares of Hindustan Unilever, afterits parent company Unilever announced an open offer to purchase additional stake. In other corporatedevelopments, Bharti Airtel is raising equity through sale of 5% stake to Qatar Foundation Endowment.FIIs bought equities to the tune of $605 mln in the first three trading days of the week.• Macro: Latest manufacturing data was mixed - India’s index of eight core infrastructure industriesrecorded growth of 2.9% in March as against a decline of 2.5% in February. Growth was led by growthin steel, petroleum refinery and cement production. On the other hand, the HSBC ManufacturingPurchasing Managers Index (PMI) dipped from 52 to 51 in April, indicating economic activityremains sluggish.• Banking Sector: In its annual monetary policy review, RBI announced a slew of prudential measuresaimed at plugging systemic risks and increasing transparency.The central bank said it will issue draftguidelines on wealth management services/distribution of third party products and has disalloweddirect incentives to bank employees through distribution and tightened KYC norms. Other policymeasures announced include lower risk weightages for credit to residential real estate developers andnorms for dynamic loan loss provisioning as well as restructuring of credit. Separately, the bank hasalso rolled out measures to increase financial inclusion and boost sector’s reach. In an unusual move,RBI has announced controls on banks’ ability to import gold, besides introducing additionalrestrictions on lending against gold. It aims to put in place guidelines for NBFCs dealing in gold loans.The measures are positive and should lead to better governance and correct pricing of risks withinthe system. One will have to see the detailed guidelines to evaluate any impact on fee income forbanks. Broadly in our view, private banks remain well placed vis-à-vis public sector peers due to theirhigher capital adequacy levels and asset quality. Overall, India’s financial sector will be one of the keybeneficiaries of rising income levels and the growing demand for financial services/products. Inaddition, efforts to promote financial inclusion and increasing comfort with market-linkedinvestments are positive trends for the sector.
Weekly change (%)S&P BSE Sensex 1.50CNX Nifty 1.24CNX 500 1.47CNX Midcap 2.36S&P BSE Smallcap 0.14India - DebtIndian bond yields closed the week mixed after RBI delivered a 25 bps cut in repo rate but warned therewas limited scope for further monetary easing.The policy tone weighed on market sentiment, but marketsmanaged to recover from the sell-off and ended below highs.• Markets: : Treasury bond yields at the shorter end of the curve eased – both 1 & 5 year gilt yieldstraded 5 bps lower. In contrast, yield on the 10-year benchmark paper increased 6 bps. Overnight callmoney rates slid from around 7.5% to 7.2% levels.The Indian rupee was bolstered by government moveto cut withholding tax on FII debt holdings and relaxation of Tax Residency Certificate rules.Source: RBI• Liquidity/borrowings: The policy outcome was in line with expectations, amidst softer economicdata and fall in global commodity prices. However, the tone was cautious (compared to marketexpectations), despite the latest inflation and current account deficit (CAD) data.Whilst acknowledgingthe growth slowdown, the central bank said it is ready to use “all instruments under its command” tokeep inflation at desired levels (about 5% by March 2014).The central bank sees supply side-imbalances,particularly in food and infrastructure segment, along with rise in wages and MSPs (minimum prices foragricultural goods), as the key drivers of inflation. Besides, it has cited CAD as well as its funding as thebiggest risks to macro-economic stability.GDP growth projections for FY14 at 5.7% represent only a marginal recovery over its FY13 estimates(5.5%) and factor in tepid growth in manufacturing amidst weak external environment and stalledinvestment cycle. It has clearly stated the recovery will not be sustainable without meaningful rebound3.254.755.000.01.02.03.04.05.06.07.08.09.010.0Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13Reverse repo rate Repo rate CRR(%)!