1. International
Global financial markets remained in the positive zone on reiteration about US monetary policy support for
growth and earnings news flow. The MSCI AC World Index closed nearly 1% above last week levels, with
technology stocks and select Asian markets underperforming.The G20 meet this weekend is expected to discuss
OECD proposals on tax co-operation to curb tax evasion by multi-national companies. Global treasury bond
prices rallied for the second week in a row as the Federal Reserve reiterated that any change in policy stance will
be gradual and dependent on economic data. Commodities also benefited from expectations of sustained stimulus
and the Reuters Jefferies CRB Index ended 1.49% higher. Change in demand-supply dynamics caused a sharp
surge in theWTI crude oil price and brought it at par with the Brent index. Over the last few years, theWTI has
typically traded at a significant discount to the Brent. In currency markets, the US dollar edged lower while the
pound rose amidst optimism about economic growth.
• Asia-Pacific: Regional equity markets exhibited divergent trends – while Shanghai and Taiwan stock
markets posted declines, Indonesia and Indian equities recorded gains. The Nikkei also remained on an
upward trajectory, but sentiment turned cautious ahead of the upper house elections over the weekend. In
China, Q2-2013 headline GDP growth came in at 7.5% yoy, slightly less than the previous quarter and the
June industrial production slowed to 8.9%yoy (9.2%yoy last month).Taking a step towards market-determined
rates, the People’s Bank of China removed the floor on lending rates set at 70% of benchmark lending rates.
IMF urged China to undertake structural reforms to rebalance its economy towards a sustainable model and
the need to reign in excess credit. Reports indicate Japan’s MeijiYasuda is in talks to buy a 15% stake in Thai
Life for $700 mln.
• Europe/Africa: European markets outperformed global counterparts on the back of encouraging
corporate news flow. French markets were buoyed by passage of a bill mandating banks to segregate
proprietary trading from retail banking. Greece Parliament approved fresh austerity measures, which would
enable the nation avail loans from the EU-IMF. UK economic data was broadly positive – retail sales rose
and claimant count showed improvement in the labour market is underway. As per an OECD study,
unemployment in Southern European economies is likely to rise through 2014. Central bank of South
Africa maintained benchmark policy rate at 5%. On the corporate front, Commerzbank managed to sell
a portfolio of UK commercial real estate assets for €5 bln and private equity firm Altor bought Rossignol.
• Americas: Latest comments from the Federal Reserve and earnings reports by banks and other major
corporates helped US stock indices rise. However, the Nasdaq index fell marginally on the latest earnings
news. Brazilian stocks extended gains amidst positive external newsflow, while higher commodity prices
lifted mood in Canada. Moody’s raised the outlook on US sovereign rating to stable from negative.The
city of Detroit filed for bankruptcy, becoming on one of the largest cities to do so. While headline
consumer price inflation increased 0.5%mom, core inflation trends were subdued at 0.2%mom.The Bank
of Canada left rates unchanged. Data showed Brazil inflation levels eased last month as transport costs fell.
On the corporate front, Chevron entered into an agreement with Argentina’s YPF to invest $1.2 bln in
Vaca Muerta shale gas and Barclays refused to pay a $740 fine imposed by regulators for manipulating US
electricity prices.
Market Review
WEEK ENDED JULY 19, 2013

2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 0.96 Xetra DAX 1.45
FTSE Eurotop 100 1.08 CAC 40 1.82
MSCI AC Asia Pacific 0.03 FTSE 100 1.31
Dow Jones 0.51 Hang Seng 0.40
Nasdaq -0.35 Nikkei 0.58
S&P 500 0.71 KOSPI 0.08
India - Equity
Positive global sentiment rubbed off on local markets and this along with good earnings reports helped
markets overcome weakness due to the RBI measures. FII flows were however negative (-$101 mln) in
the first four trading days of the week. Sectoral trends were divergent – interest rate sensitive stocks viz.,
banking, real estate, capital goods fell on concerns the liquidity tightening will weigh on growth. FMCG
stocks found favour with investors amidst risk aversion as well as hopes the monsoons will boost rural
demand.
• Macro/Policy: The central bank and the government are clearly targeting rupee speculation and have
indicated that the measures are temporary.At a broad level, the extent of impact on banks will depend on
their dependence on wholesale funding and asset quality. Highly levered corporates could face increased
pressures. It may be too early to assess the exact impact of such a move on the economy, given the various
imponderables and will depend a lot on the time period these measures will be in place.
The government has been trying to shake off the perception about policy paralysis and in another move this
week it has relaxed FDI norms in various sectors (telecom, credit information companies, asset reconstruction
and insurance*),besides moving to the automatic route in others.The changes are in line with the recent focus
to attract foreign flows.Whilst growth momentum is unlikely to change over the near term, hopefully these
measures will help in restoring foreign investor confidence about the direction of reforms.
IMF GDP Growth Projections
Yoy change 2013 2014
World 3.1% 3.8%
Advanced Economies 1.2% 2.1%
- US 1.7% 2.7%
- Euro area -0.6% 0.9%
- Japan 2.0% 1.2%
Emerging Economies 5.0% 5.4%
- Brazil 2.5% 3.2%
- Russia 2.5% 3.3%
- Emerging Asia 6.9% 7.0%
- India 5.6% 6.3%
- China 7.8% 7.7%
- ASEAN-5 5.6% 5.7%
Source: IMF WEO July 2013

3. Notwithstanding the near term risks in terms of the weak rupee and sluggish growth, we remain positive
about the medium to long term prospects.Whilst growth rates could slow down further, they remain well
ahead of other EM countries and especially the developed world. Earnings dispersion is expected to
remain high during such tough times, and bottom-up fundamental research with a strong emphasis on
the quality of companies, especially their managements and balance sheets, should work well.
*subject to Parliament approval
Weekly change (%)
S&P BSE Sensex 0.96
CNX Nifty 0.34
CNX 500 0.04
CNX Midcap -0.69
S&P BSE Smallcap -0.53
India - Debt
Local bond markets were shaken by measures to tighten rupee supply and thereby curb speculation in
foreign exchange markets.Yields however came off the week’s highs on Friday, on views that the measures
are temporary and the central bank sold just about one-fifth of securities at the open market operation.
• Yield Movements: Yields rose sharply across maturities and the curve was inverted as yields on
shorter-dated securities rose sharply. Yields on the 1- and 5-year papers jumped 110 bps and 61
bps respectively, while those on the 10-year paper increased 51 bps to 8.13%.Yield on the 30 year
gilts were up 61 bps.Yields on the 5-year AAA corporate bonds also rose by a similar quantum.
• Liquidity/borrowings: Demand for liquidity rose sharply ahead of RBI measures taking effect mid-week
and call rates surged to over 9%, but ended the week lower at about 6.3%. Scheduled bond auctions of
GOI securities worth Rs. 15,000 crores partially devolved on primary dealers owing to price mis-match.
Besides, at open market sale operations of Rs. 12,000 crores, the central bank rejected majority of the bids
received at higher yield levels.
• Forex: The Indian rupee got a boost from central bank and government measures to curb speculative
activity and ease foreign investment norms, and gained 0.4% over the week. Further, comments from
policymakers seem to suggest more measures are being considered.As of Jul 12, 2013, India’s forex reserves
stood at $280 bln, marginally changed over last week levels.
Source: RBI, Credit Suisse Research

4. • Macro/Policy: In a move to curb speculative trades, RBI announced few changes this week –
• It increased interest rates on Marginal Standing Facility (MSF), an emergency funding option available
to banks, by 200 bps to 10.25%
• Announced sale of Rs. 12,000 crores of G-Sec under Open Market Operations (OMO)
• Capped liquidity under Liquidity Adjustment Facility (LAF) at 1% of NDTL (Net Demand and Time
Liabilities).This means around bank borrowings above Rs.75,000 crores will be at 10.25%
The measures need to be seen in the context of continued weakness in the rupee and the limitations of
drawing down forex reserves to stem the currency’s fall. In addition, the RBI could have been also
concerned about the impact of a weak rupee on imported inflation and Indian companies with unhedged
foreign borrowings.
Whilst the government has indicated that these measures should not be viewed as a prelude to a change
in monetary policy, the combined impact of these measures is being viewed as ‘quantitative tightening’.
Looking ahead, global developments and rupee trends will weigh on monetary policy direction. Any
change in benchmark interest rates is expected to depend on the effectiveness of these measures in
stemming the rupee decline. It is too early to gauge the exact impact on economic growth and these
developments are likely to muddy the outlook further. Further measures may be announced to fund
current account deficit and boost foreign inflows (including a sovereign bond issuance).
19.07.2013 12.07.2013
Exchange rate (Rs./$) 59.35 59.56
Average repos (Rs. Cr) 103,114 51,699
1-yr gilt yield (%) 8.63 7.53
5-yr gilt yield (%) 8.29 7.68
10-yr gilt yield (%) 8.13 7.62
Source: Reuters, CCIL.
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