1. International
Global equity markets fell further amidst lingering concerns about the timing of the reduction in asset
purchases, but markets recovered some ground towards the end of the week. The latter helped the US
markets close with weekly gains, but the MSCI AC World Index finished 0.43% lower, led by declines in
Asia-Pacific and Emerging Markets. Bond yields rose from the lows witnessed earlier in the week in
reaction to the strong US payroll data. Commodity prices rebounded and the Reuters Jefferies CRB Index
closed up 2.07%. Ongoing unrest in South Africa’s mining industry pushed up platinum prices, while better
than expected US jobs data boosted crude oil prices. In currency markets, the sterling benefitted from signs
the UK economy was recovering and the Japanese Yen strengthened.
• Asia-Pacific: A stronger yen and profit booking led Japanese equities to correct sharply. Other regional
equity markets as well as currencies came under pressure on increased concerns about foreign flows once
global liquidity starts to reduce. Japan’s Prime Minister unveiled the strategy to boost growth including efforts
to boosting corporate activity and undertake structural reforms. Japan’s Government Pension Investment
Fund has announced its intention to reduce exposure to local bonds (60% from 67%) and increase equity
allocation.Weak economic data further added pressure on regional markets. HSBC PMI readings for many of
Asian economies showed growth is moderating. Australia’s Q1 GDP growth came at 2.2%qoq, slightly lower
than 2.3% recorded
• Europe/Middle East: Better manufacturing data out of US and select Europe countries helped
European equities pare losses towards the close of week. European manufacturing PMIs suggested the pace
of contraction in the region’s industry eased last month and German industrial output expanded by
1.8%mom in April. UK’s trade deficit narrowed in April and the manufacturing and services PMIs were
strong. Bank of England maintained status quo on policy while the Polish central bank cut key policy rate
by 25 bps to 2.75% and also intervened in the currency markets to support zloty. Ukraine’s central bank
cut interest rates by 50 bps to 7%. Turkish equity markets and currency partially recouped losses at close
of week after the Prime Minister agreed to talks with protestors. On the M&A front, SevernTrent rejected
a revised takeover offer of about $8.2 bln from a consortium of investors comprising Kuwait sovereign
wealth 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 by
175,000, more than market estimates, and the unemployment rate inched up to 7.6%.The May ISM
non-manufacturing index increased marginally, while manufacturing index slid and the US trade
deficit widened by 8.5% to $40.3 bln reflecting sharp rise in imports. Canada also reported large
gains in payrolls (95,000) and the unemployment rate dipped to 7.1% from 7.2%. Banco de Mexico
retained benchmark policy rate at 4%.With a view to stem the sharp depreciation in real and thereby
also reduce inflationary pressures, Brazil abolished its tax on foreign investment in bonds, which was
introduced in 2010. S&P cut outlook on Brazil’s sovereign rating to negative, citing slow economic
growth and rising fiscal burden.
Market Review
WEEK ENDED JUNE 07, 2013
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index -0.43 Xetra DAX -1.13
FTSE Eurotop 100 -1.72 CAC 40 -1.92
MSCI AC Asia Pacific -3.31 FTSE 100 -2.60
Dow Jones 0.88 Hang Seng -3.65
Nasdaq 0.39 Nikkei -6.51
S&P 500 0.78 KOSPI -3.86
India - Equity
Frontline equity indices extended declines this week on the back of weak domestic economic data and
cautious global sentiment. Mid and small cap stocks fared better than large caps. Except for technology
and healthcare all sectoral indices closed in the red. FII flows were muted this week - $108 mln in the
first four trading days.
• Macro/Outlook: India’s PMI data released this week showed divergent trends across the
manufacturing 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 new
orders. In contrast, India’s manufacturing sector PMI dipped to 50.1 from 51.0 in April. A similar
trend is seen across many EM/Asian countries this month.
The ongoing debate about Fed stimulus has raised concerns about reversal in liquidity from global
markets and EM currencies including the Indian rupee have witnessed sharp declines.The rupee’s fall
has been exacerbated by India’s high current account deficit, though the country continues to see
strong foreign capital flows – FII flows in equity and debt markets aggregated over $19 bln for
2013YTD. The government and RBI have taken varied steps to discourage household demand for
gold, one of the key drivers of India’s widening current account deficit, as well as announced measures
to 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.We
believe the government also needs to address domestic supply constraints to ease current account
pressures - 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 rupee
declines seen since 2008 seem to have had limited impact on India’s exports. It will need to be seen
if this changes in coming quarters with a relatively improved global growth environment and domestic
policy backdrop.
3. Weekly change (%)
S&P BSE Sensex -1.68
CNX Nifty -1.75
CNX 500 -1.29
CNX Midcap -0.22
S&P BSE Smallcap 0.32
India - Debt
Indian bond prices gained this week and yields eased as the RBI provided liquidity through OMO
purchase auctions and on reports suggesting the government is looking to raise the cap on FII investments
by $5 bln.
RBI successfully auctioned its first in the series of new inflation-linked bonds this week – the Rs. 1,000
crore issue was oversubscribed close to 4.5 times and the real yield was set at 1.44% above the WPI.
• Yield movements: The yield curve steepened this week with yields at the shorter end of the curve
witnessing a sharper decline than longer end of the curve.Yields on both the 10-year and 5-year papers
decreased by 5 bps, while those on the 1-year paper decreased 8 bps.Yield on the 30 year Gilts stood 1
bps lower than last week levels.
• Liquidity/borrowings: OMO purchase auctions this week helped the liquidity situation improve.
Repos averaged about Rs. 61,320 crore as against Rs. 88,966 crore last week. However, overnight call
money rates closed slightly higher at 7.40% compared to 7.00% last week. Scheduled auctions in four
GOI (excluding inflation indexed bonds) worth Rs. 14,000 crore witnessed good response and there was
no devolvement on primary dealers.
• Forex: Strong dollar demand and FII outflows from Indian debt markets led the Indian rupee to weaken
further this week.The currency breached the Rs.57/$ 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 Growth
2.0%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-11
Jun-11
Sep-11
Dec-11
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
Infrastructure Personal Loans Services
Agri & Allied Activities SME Other Large Industries
Industries excl. Infra
