InternationalGlobal equity markets fell further amidst lingering concerns about the timing of the reduction in assetpurchases, but markets recovered some ground towards the end of the week. The latter helped the USmarkets close with weekly gains, but the MSCI AC World Index finished 0.43% lower, led by declines inAsia-Pacific and Emerging Markets. Bond yields rose from the lows witnessed earlier in the week inreaction to the strong US payroll data. Commodity prices rebounded and the Reuters Jefferies CRB Indexclosed up 2.07%. Ongoing unrest in South Africa’s mining industry pushed up platinum prices, while betterthan expected US jobs data boosted crude oil prices. In currency markets, the sterling benefitted from signsthe UK economy was recovering and the Japanese Yen strengthened.• Asia-Pacific: A stronger yen and profit booking led Japanese equities to correct sharply. Other regionalequity markets as well as currencies came under pressure on increased concerns about foreign flows onceglobal liquidity starts to reduce. Japan’s Prime Minister unveiled the strategy to boost growth including effortsto boosting corporate activity and undertake structural reforms. Japan’s Government Pension InvestmentFund has announced its intention to reduce exposure to local bonds (60% from 67%) and increase equityallocation.Weak economic data further added pressure on regional markets. HSBC PMI readings for many ofAsian economies showed growth is moderating. Australia’s Q1 GDP growth came at 2.2%qoq, slightly lowerthan 2.3% recorded• Europe/Middle East: Better manufacturing data out of US and select Europe countries helpedEuropean equities pare losses towards the close of week. European manufacturing PMIs suggested the paceof contraction in the region’s industry eased last month and German industrial output expanded by1.8%mom in April. UK’s trade deficit narrowed in April and the manufacturing and services PMIs werestrong. Bank of England maintained status quo on policy while the Polish central bank cut key policy rateby 25 bps to 2.75% and also intervened in the currency markets to support zloty. Ukraine’s central bankcut interest rates by 50 bps to 7%. Turkish equity markets and currency partially recouped losses at closeof week after the Prime Minister agreed to talks with protestors. On the M&A front, SevernTrent rejecteda revised takeover offer of about $8.2 bln from a consortium of investors comprising Kuwait sovereignwealth fund and Borealis Infrastructure.• Americas: Positive economic data helped US equity indices bounce back towards the close of week,but markets in Canada, Brazil and Mexico closed with losses. Non-farm payrolls expanded by175,000, more than market estimates, and the unemployment rate inched up to 7.6%.The May ISMnon-manufacturing index increased marginally, while manufacturing index slid and the US tradedeficit widened by 8.5% to $40.3 bln reflecting sharp rise in imports. Canada also reported largegains in payrolls (95,000) and the unemployment rate dipped to 7.1% from 7.2%. Banco de Mexicoretained benchmark policy rate at 4%.With a view to stem the sharp depreciation in real and therebyalso reduce inflationary pressures, Brazil abolished its tax on foreign investment in bonds, which wasintroduced in 2010. S&P cut outlook on Brazil’s sovereign rating to negative, citing slow economicgrowth and rising fiscal burden.Market ReviewWEEK ENDED JUNE 07, 2013
Weekly Weeklychange (%) change (%)MSCI AC World Index -0.43 Xetra DAX -1.13FTSE Eurotop 100 -1.72 CAC 40 -1.92MSCI AC Asia Pacific -3.31 FTSE 100 -2.60Dow Jones 0.88 Hang Seng -3.65Nasdaq 0.39 Nikkei -6.51S&P 500 0.78 KOSPI -3.86India - EquityFrontline equity indices extended declines this week on the back of weak domestic economic data andcautious global sentiment. Mid and small cap stocks fared better than large caps. Except for technologyand healthcare all sectoral indices closed in the red. FII flows were muted this week - $108 mln in thefirst four trading days.• Macro/Outlook: India’s PMI data released this week showed divergent trends across themanufacturing and services sector. The services PMI jumped up from 50.7 last month to 53.6.Expansion in the service sector, which accounts for about 60% of India’s GDP, was led mainly by neworders. In contrast, India’s manufacturing sector PMI dipped to 50.1 from 51.0 in April. A similartrend is seen across many EM/Asian countries this month.The ongoing debate about Fed stimulus has raised concerns about reversal in liquidity from globalmarkets and EM currencies including the Indian rupee have witnessed sharp declines.The rupee’s fallhas been exacerbated by India’s high current account deficit, though the country continues to seestrong foreign capital flows – FII flows in equity and debt markets aggregated over $19 bln for2013YTD. The government and RBI have taken varied steps to discourage household demand forgold, one of the key drivers of India’s widening current account deficit, as well as announced measuresto streamline FII investment norms.This week, the government hiked gold import duty by 2% to 6%and RBI extended gold import restrictions to NBFCs and star houses, earlier applicable to banks.Webelieve the government also needs to address domestic supply constraints to ease current accountpressures - for example, in the area of energy by augmenting domestic coal supply.While currency depreciation typically is seen to boost export competitiveness, so far the rupeedeclines seen since 2008 seem to have had limited impact on India’s exports. It will need to be seenif this changes in coming quarters with a relatively improved global growth environment and domesticpolicy backdrop.
Weekly change (%)S&P BSE Sensex -1.68CNX Nifty -1.75CNX 500 -1.29CNX Midcap -0.22S&P BSE Smallcap 0.32India - DebtIndian bond prices gained this week and yields eased as the RBI provided liquidity through OMOpurchase auctions and on reports suggesting the government is looking to raise the cap on FII investmentsby $5 bln.RBI successfully auctioned its first in the series of new inflation-linked bonds this week – the Rs. 1,000crore issue was oversubscribed close to 4.5 times and the real yield was set at 1.44% above the WPI.• Yield movements: The yield curve steepened this week with yields at the shorter end of the curvewitnessing a sharper decline than longer end of the curve.Yields on both the 10-year and 5-year papersdecreased by 5 bps, while those on the 1-year paper decreased 8 bps.Yield on the 30 year Gilts stood 1bps lower than last week levels.• Liquidity/borrowings: OMO purchase auctions this week helped the liquidity situation improve.Repos averaged about Rs. 61,320 crore as against Rs. 88,966 crore last week. However, overnight callmoney rates closed slightly higher at 7.40% compared to 7.00% last week. Scheduled auctions in fourGOI (excluding inflation indexed bonds) worth Rs. 14,000 crore witnessed good response and there wasno devolvement on primary dealers.• Forex: Strong dollar demand and FII outflows from Indian debt markets led the Indian rupee to weakenfurther this week.The currency breached the Rs.57/$ mark and closed down 1% against the US dollar.Forex reserves as of May 31, stood at $288 bln, $4 bln less than previous week levels.% Contribution to YoY Credit Growth2.0%2.0%2.3%2.3%2.2%2.2%2.8%2.4%2.8%3.0%2.3%3.1%3.3%3.5%2.4% 2.5% 2.5% 2.8% 2.8% 2.7% 2.4% 2.7%3.1%2.6% 2.7% 2.7%2.6%2.7%5.0%4.0%3.6% 3.5% 3.6% 3.8%4.6% 3.7% 3.9% 3.9% 3.2%3.6%2.9% 2.8% 3.0%3.0%2.7%1.7%1.0%0.7% 1.7% 1.8% 1.8%2.1% 2.2% 2.3% 2.4% 2.6%2.8%2.4% 2.0% 2.0%1.0%1.3%2.2%2.4%1.6%1.1% 1.0% 1.1%1.1% 0.8% 0.7% 0.5% 0.5%0.8%0.7% 1.2% 0.9%0.9%1.3%5.6%3.3%4.8%4.2%4.9% 5.2% 5.3%6.0%4.6% 4.0% 4.4% 4.3%4.5%3.3%3.9% 4.0%3.5%2.9%2.9%3.0%4.1%4.7%2.5%3.8%5.4%2.2%2.6%0%5%10%15%20%25%Mar-11Jun-11Sep-11Dec-11Mar-12Apr-12May-12Jun-12Jul-12Aug-12Sep-12Oct-12Nov-12Dec-12Jan-13Feb-13Mar-13Apr-13Infrastructure Personal Loans ServicesAgri & Allied Activities SME Other Large IndustriesIndustries excl. Infra