Market Review WEEK ENDING MARCH 29, 2013InternationalGlobal equity markets advanced as policymakers reached a financial assistance deal for Cyprus and USeconomic data remained positive. In a reversal of recent trends, Emerging markets posted outperformeddeveloped counterparts, and this along with rally in US equities helped the MSCI AC World Index close up0.36% (quarter +5.98%). At the same time, lingering concerns about contagion and economic prospects ofEurozone kept global treasury bonds in demand and yields eased. As per OECD’s interim economicassessment, global economy is picking up pace but growth in the euro area remains constrained. Crude oilprices staged a rebound this week and contributed positively to the 0.58% rise in the Reuters Jefferies CRBIndex. In currency markets, the euro remained under pressure amidst concerns of contagion and limitedprogress in coalition talks in Italy. Investors also weighed prospects of the Cyprus deal becoming a benchmarkfor similar events in the future.• Asia-Pacific: Regional equity markets bounced back this week. Indonesia and South Korean equities were amongst the top gainers. Shanghai equities however bucked the region wide positive trend as the country’s banking regulator tightened regulations over wealth management products to increase transparency and curb risks. Contrary to expectations, Japan industrial production fell 0.1%mom in February (up 0.3% previous month). South Korea cut its economic growth targets for 2013 to 2.3% from 3% previously, and said it plans to draw up a supplementary budget to re-invigorate the economy.Taiwan’s central bank kept policy rates unchanged.• Europe: Cyprus agreed to a $13 bln bailout deal and closure of its second largest bank, along with levies on large depositors at the country’s top two banks. However, gains in regional markets were curbed by the uncertain political situation in Italy and concern the Cyprus deal will lead to similar bailout practices in future weighed on banks. On the economic front, Germany reported a rise in retail sales, but unemployment increased. Bank of England said British banks need to raise $38 bln in new capital by year-end to strengthen their balance sheets against any future losses. On the M&A front, DE Master Blenders is mulling over a €7.2 bln takeover by investor group Joh A Benckiser and Allianz bought Yapi Kredi banks’ non-life and pensions businesses for €684 mln.• Americas: US equity markets continued to fare relatively better than counterparts and the S&P 500 index finished the holiday shortened week at record highs. Sentiment was bolstered by easing Cyprus worried and positive economic data. US Q4-2012 GDP growth number was revised upwards to an annualized rate of 0.4% from 0.1% estimated earlier. February durable goods orders were up 5.7% - gains were however led mainly by higher transport orders. Home prices, as measured by S&P/Case-Shiller Home Price Index, rose 1.0% in January. However, the consumer confidence index dropped nearly 10 points to 59.7 in February.
Weekly Weekly change (%) change (%) MSCI AC World Index 0.36 Xetra DAX* -1.47 FTSE Eurotop 100* 0.02 CAC 40* -1.03 MSCI AC Asia Pacific 0.93 FTSE 100* 0.30 Dow Jones* 0.46 Hang Seng* 0.83 Nasdaq* 0.69 Nikkei 0.48 S&P 500* 0.79 KOSPI 2.88 *As of March 28, 2013India - EquityHelped by positive global news flow, Indian equity markets snapped the losing streak during the holidayshortened week and pared losses clocked earlier this quarter. Mid cap stocks rebounded and did relativelybetter than large caps this week, but posted double-digit losses for the quarter. Amongst sectors, auto andoil & gas stocks were the top underperformers, while consumer durable stocks recorded sharp gains. FIIspumped in close to $254 mln in the first two trading days of the week. Quarterly Current Account Balance (as a % of GDP) 11% C urrent Account C apital Account as % of G DP, 9% annualized 7% 5% 3% 1% -1% -3% -5% -7% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12• Macro: Helped by strong foreign capital flows, India’s Balance of Payments recorded a small surplus of $0.78 bln in the December quarter as against a marginal deficit of $0.15 bln in the September quarter. Increase in oil and gold imports alongside weak exports and lower remittances caused the current account deficit (CAD) to widen to 6.7% of GDP or $32.5 bln. This impact was countered by strong FII and foreign credit flows. The recent improvement in exports should help the CAD narrow in the March quarter. However, a meaningful and sustainable reduction in CAD requires concerted efforts from policymakers. At the same time, it is also important to focus on FDI flows, which can serve the twin objectives of financing the CAD and boosting investment in the country. Weekly change (%) S&P BSE Sensex 0.53 CNX Nifty 0.55 CNX 500 0.77 CNX Midcap 1.15 S&P BSE Smallcap 0.55
India - DebtIndian bond yields were little changed this week - short-end yields moved slightly down helped by additionalLAF facilities from RBI, while the benchmark 10-year paper moved up slightly.• Yield movements: Benchmark 10-year gilt yield rose 3 bps, while that on the 1 and 5 year papers moved down 5 bps and 1 bp respectively. Yields on the 30-year paper also increased by 2 bps. Yields across the curve however stood lower vis-à-vis last quarter end levels.• Liquidity/borrowings: Demand for liquidity under the RBI’s LAF window increased and repos averaged Rs. 164,370 crore vis-à-vis Rs. 136,065 crore. As is typically the case at financial year-ends, the overnight call money rates spiked up to16-17% from 7.5% levels seen last week.• Forex: The Indian rupee closed slightly higher helped by government’s move on FII investments in debt securities and improved global risk appetite. As of Mar 22, Indian forex reserves stood at around $293.4 bln, about $1 bln more than previous week levels primarily due to revaluation of forex assets. Trends in FII investment ceiling in Debt ($ bln) 80 70 Total FII investment in bonds limit raised from US$30bn to US$75bn 60 50 50 45 40 45 30 40 20 20 25 10 15 20 10 10 0 Aug-11 Sep-10 Apr-11 Jun-12 Jan-13 Government Securities Corp/Infra Bonds• Policy: As part of the overall process to simplify FII investment norms, the Finance Ministry said effective April 1, 2013, the existing debt limits would be merged into two broad categories: Government securities (by merging government securities old and government securities long term) of $25 bln and corporate bonds of $51 bln (by merging QFIs, FIIs and FIIs long term infra bonds).The move is aimed at optimizing utilization of current limits and boosting inflows. As per available data, despite the sharp increase in FII investment limits to $76 bln, overall FII holdings of Indian debt stand at $33 bln. The SEBI’s current auction mechanism for allocating debt limits will now change to an on tap system presently in place for infrastructure bonds.To provide a guide to investors, the government also intends to put in place a process for review of the limits. 29.03.2013 22.03.2013 Exchange rate (Rs./$) 54.28 54.33 Average repos (Rs. Cr) 164,372 136,065 1-yr gilt yield (%) 7.91 7.96 5-yr gilt yield (%) 7.91 7.92 10-yr gilt yield (%) 8.00 7.97 Source: Reuters, CCIL.