Last Friday was fairly turbulent for global equity markets on the back of fresh concerns growing on the currencies of
emerging markets. Argentina depreciated its currency by almost 15% largely as their efforts to stabilize its currency
were not bearing fruit and finally the Central bank decided to let the currency find its own level. Some kind of
turbulence was also seen in Turkey due to cases of corruption against the incumbent Prime Minister. Emerging
market currencies like Brazil, South Africa, Ukraine, also weakened on the concerns of tapering related activities
restarting in the US. The US Federal’s two-day meeting is starting tomorrow and there are a lot of concerns on
whether there is going to be a fresh tapering activity or not. Our sense is that some of this is just a knee-jerk
reaction to some of the negative news which has been floating around.
We believe that a large part of the challenge related to tapering is already discounted by the markets in general and
specifically in India. Indian currency has done much better in the last four months in comparison to lot of other
emerging market currencies. This was essentially because of the fact that almost USD 34Bn worth of deposits were
raised by RBI in the same duration so Indian Forex reserves have moved up in excess of USD 290Bn. Also, India is a
lot more stable and stronger in terms of Current Account situation to face any volatility in the global currency
markets. Indian Current Account Deficit (CAD) has already come down from 4.5-5% levels seven months back to
almost 3% of the GDP in FY14 and we believe this is going to end up even lower on completion of the full year. Thus
we believe that a lot of concerns about the rupee and CAD are largely behind us. It is only because of the global
turbulence that we are going to see some volatility in the domestic markets also, but we do not believe that there is
a scope of a very random downward depreciation in Rupee. A small trading band of +/- 5% is possible in any asset
class but that should be about it.
Last month, both CPI and WPI data cooled off thus we expect a status quo in the RBI policy tomorrow. We believe
that RBI would like to see inflation data in the next few months before carrying out any tightening activity. This is
also important because of the fact that growth remains extremely muted as depicted by the IIP data which came
out in the last few months has been quite muted. RBI would probably consider this as one of the factors before
raising rates any further.
Globally, a bad set of data came out from China. The Manufacturing activity showed some kind of slowdown which
was the worst data shown in the last six months. Forbes also released some report stating the liquidity crunch which
some of the Chinese Banks are facing which also led to a knee-jerk reaction in the Global markets. We continue to
wait for more clarity on these things but as of now we do not see any reason to panic.
IMF revises India's growth forecast in 2014-15 (Apr-Mar) to 5.4% from 5.0% in October.
A Reserve Bank of India panel on Tuesday recommended that monetary policy be set by a committee and
that consumer price index (CPI) inflation be used to set an inflation target, eventually of 4 percent.
The central bank had been widely expected to keep its policy repo rate unchanged at 7.75 percent at its
next policy review on January 28, following a decline in wholesale price inflation.
RBI buys gilts worth Rs 9,477 cr at OMO auction held on 22 Jan 2014.
Italy's cabinet approved a decree on Friday paving the way for the privatization of up to 40 percent of the
post office as the government tries to bring down its huge public debt.
Ireland and Spain both drew strong demand for bonds in auctions this month, while European shares
climbed to fresh 5-1/2 year peaks last week as investors grow more bullish.
Sovereign debt fell as a proportion of national output in all three of the euro zone's biggest
economies, Germany, France and Italy, as well as in Portugal, one of the five countries that needed a
bailout to help its government or its banks through the crisis years.
U.S. home resales rose in December after three straight months of declines, showing some resilience in
the housing market recovery despite higher mortgage rates.
U.S. Manufacturing Purchasing Managers Index fell to 53.7 early this month from 55.0 in December.
China's economy grew 7.7 percent in 2013 after easing in the final three months on sagging investment
growth, a cooldown that some analysts say is a sign of the more sober times ahead as the government
wrestles to implement major reforms.
China's urban unemployment rate ticked up slightly to 4.05 percent at the end of December 2013 from
4.04 percent three months earlier.
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