Market Review WEEK ENDED MARCH 15, 2013InternationalEncouraging economic data out of key economies helped many developed market stock indices to touchmulti-year cyclical highs. However, in continuation of the 2013 trends, EM equity indices continued tounderperform. The MSCI AC World Index closed up 0.68% helped mainly by gains in Japan and the US.Global bond yields eased marginally and the spreads between US treasuries and other key treasuries hit anew high on optimism about the US economy. Physical demand alongside data suggesting inflation was onthe rise in US boosted gold prices for the second consecutive week. This along with overall increase inmarket risk appetite helped the Reuters Jefferies CRB Index close up 0.70%. In currency markets, the USdollar retreated at close of week on speculation that US monetary policy will remain accommodativeamidst moderate inflation numbers. The Aussie dollar surged as the economy added 71,500 jobs inFebruary.• Asia-Pacific: Japanese equities registered sharp gains on the back of positive US economic news flow and expectations the upcoming change in leadership at BoJ will have a favourable impact. EM Asian equities however fell sharply and closed the week in negative territory. Notwithstanding the upbeat investor sentiment in Japan, latest machinery orders data (for January) reflected a weak capex environment. Amidst concerns about rising mortgage rates, property developers led Hong Kong equities lower. Chinese consumer inflation jumped up from 2% in January to 3.2% in February and comments from PBoC officials indicated discomfort over inflationary pressures. Policymakers pegged current year growth at 7.5% and retained focus on consumption. The Bank of Korea kept its benchmark policy rate unchanged at 2.75%.• Europe: Regional equity markets closed higher amidst signs of a new deal to allow budgetary flexibility to deal with growing opposition to austerity measures. Ireland accessed bond markets for the first time since January 2010 and raised €5bn at yields lower than those of comparable bonds of crisis- affected Euro nations. International lenders agreed to a ~$13 bln bailout for Cyprus, but imposed a 9.9% levy on all bank deposits over €100,000. On the economic front, industrial production in Eurozone and UK fell 0.4% and 1.2% respectively in January. The Norges Bank left policy rates unchanged at 1.50% but significantly reduced its policy rate projections.• Americas: US equity markets remained buoyant on the back of sustained positive economic news flow. Better than expected US retail sales figures reinforced expectations of increased consumer spending. US industrial output rose by 0.7% in February and jobless claims four-week average fell to multi-year lows. At the same time, US consumer prices moved up 0.7% on the back of sharp increase in gasoline prices and consumer sentiment declined to 71.8 from 77.6. Elsewhere in the region, Brazil’s retail sales increased 5.9% in January from a year earlier and authorities announced a series of tax cuts on foodstuffs/staples to lower inflation. Mexico cut policy rates by 50 bps to 4%. On the corporate front, SAC Capital agreed to pay over $600 mln to SEC for settling insider trading charges.
Weekly Weekly change (%) change (%) MSCI AC World Index 0.68 Xetra DAX 0.71 FTSE Eurotop 100 0.71 CAC 40 0.10 MSCI AC Asia Pacific 0.81 FTSE 100 0.09 Dow Jones 0.81 Hang Seng -2.42 Nasdaq 0.14 Nikkei 2.26 S&P 500 0.61 KOSPI -0.97India - EquityIndian equity markets fell in line with many other Emerging Markets. While latest economic output datawas relatively positive, markets remained cautious as inflation indices rose ahead of RBI’s policy reviewnext week. Small cap stocks continued to underperform large caps. All sectoral indices closed in the red,except defensive sectors such as FMCG and healthcare. Consumer durables and banking stocks were thetop losers. Foreign portfolio flows amounted to $490 mln in the first four trading days of the week.• Macro: Latest economic data releases pointed towards stabilization/modest pick-up in the economy. Exports growth picked up (+4.2%yoy) and this along with slower expansion in imports helped the trade deficit decline to multi-month lows of $14.9 bln (previous month $20 bln). Trends in Trade Deficit (US$ bln) Source: DGCI&S Growth in India’s industrial production bounced back in January – up 2.4%yoy after a –0.5% in December. Expansion in electricity and manufacturing output helped offset weakness in the mining sector. Use-based classification indicated capital goods production remained in the negative territory. While the January IP number has surprised on the upside, the cumulative data for the fiscal year to date remains dismal at 0.9% vs. 3.4% in the corresponding period previous year. As we have been saying, incremental policy push on investments remains critical for a sustainable economic recovery. The current slowdown traces its origins to the policy response after the global financial crisis in 2008.The large fiscal stimulus in the following years resulted in consumption-led growth even as investment
activity got impacted due to various policy issues.The withdrawal of the fiscal largesse thereafter was quite gradual and this combined with the infrastructural bottlenecks in the country led to supply-side pressures and high inflation. This has inevitably led to higher interest rates that have now started to impact consumption. Hence, there is an urgent need to boost investment activity through higher infrastructure spending and reforms.While India was one of the few economies across the globe that coped well with the global crisis, it needs to strengthen the foundation for sustainable economic growth. Weekly change (%) BSE Sensex -1.30 S&P CNX Nifty -1.23 S&P CNX 500 -1.34 CNX Midcap -1.55 BSE Smallcap -2.44India - DebtIndian bond markets were volatile as investors digested fresh economic news flow and speculated aboutprobability of rate cuts at next week’s RBI policy meet. Foreign funds bought Indian debt securities worth$287 mln in the first four trading days of the week. S&P stated that the sovereign rating outlook can berevised upwards if fiscal deficit is contained and investment climate improves.• Yield movements: Benchmark gilt yields closed mixed – yields at the short-end spiked reflecting the systemic liquidity shortfalls – 1 year gilt yield closed up 18 bps. At the same time, yields at the longer end of the curve ended flat compared to last week levels.• Liquidity/borrowings: Demand for liquidity under the RBI’s LAF window rebounded this week and overnight call money rates edged higher to close at 7.8-7.9% mark. RBI infused close to Rs. 10,000 crores into the system through OMO purchase auctions.• Forex: The rupee extended gains from last week helped by foreign fund flows, dollar sales by exporters and relative dollar weakness. As of Mar 08, Indian forex reserves stood at around $290 bln, about $224 mln less than previous week levels primarily due to revaluation of forex assets. Trends in core headline inflation