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Weekly Market Review - September 27, 2013
1. International
Global equity markets witnessed consolidation after last week’s rally (due to the Federal Reserve surprise)
as concerns about the political impasse over US budget overshadowed positive economic data from key
countries. The MSCI AC World index closed down 0.62% led by Emerging Markets. US Treasury bond
yields rose on concerns about the debt ceiling, while those in Europe eased on comments by officials that
further stimulus may be considered depending on evolution of economic growth. In commodity markets,
crude oil prices edged lower on indications that a non-military solution to the Syrian crisis was likely.The
Reuters Jefferies CRB index declined 0.16%. The sterling and the yen strengthened (as comments from
officials suggested corporate tax rates may not be reduced), while the US dollar was impacted by budget
uncertainty.
• Asia-Pacific: Regional equity fell led by sharp declines in Indonesia, India and China. On the economic
front, Japan’s consumer price inflation rose to 0.9%yoy led by increase in energy costs and .As per latest data,
Chinese industrial firm profits grew over 24%yoy in August, adding to signs the economy is stabilizing.
Moving further in its efforts to liberalize currency controls, Chinese government stated its intent to pilot
capital account convertibility for yuan in a free trade zone being set up in Shanghai.Taiwan’s central bank left
policy rates unchanged. On the corporate front,Alibaba said it will move its $60 bln IPO to US from Hong
Kong due to issues with differential voting rights on shares. KKR is in talks for buying out a majority stake
in Panasonic’s healthcare unit for $1.7 bln.
• Europe: Markets in the region were dragged down by concerns about political situation in Italy and US
budget. In Germany, the ruling party led by Merkel in the incumbent coalition government won elections
by near super-majority. France’s latest budget attempts to balance need for fiscal control and growth – the
authorities will levy new taxes to raise revenues while public spending is projected to rise 0.5%. Euro area
composite PMI moved up and German IFO rose marginally in September. Israel and Hungary central
bank reduced policy rates by 25 bps (to 1%) and 20 bps (to 3.60%) respectively. ICAP is to pay a $87 mln
penalty for allegedly manipulating the LIBOR. UK government is looking to sell up to £3.3 bln
privatization of Royal Mail.
• Americas: US equity indices slid as investors focused on budget news flow, even as economic data
remained quite positive. Tech stocks however managed to stay positive. Canada retail sales expanded by
0.6%, reversing the decline posted last month. Brazil recorded a current account deficit of $5.5 bln in
August, much lower than July levels of $9 bln.The central bank however revised down 2013 estimates of
trade surplus to $2 bln from $7 bln earlier. On the M&A front, Applied Metals is buying rival Tokyo
Electron for $10 bln. A consortium led by Canada’s Fairfax Financial is buying out Blackberry for $4.7
bln. JP Morgan offered to pay $11 bln for settling mortgage probes.
Market Review
WEEK ENDED SEPTEMBER 27, 2013
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index -0.62 Xetra DAX -0.16
FTSE Eurotop 100 -0.40 CAC 40 -0.40
MSCI AC Asia Pacific 0.09 FTSE 100 -1.27
Dow Jones -1.25 Hang Seng -1.26
Nasdaq 0.18 Nikkei 0.12
S&P 500 -1.06 KOSPI 0.31
India - Equity
Indian equity markets edged lower on global concerns and worries about monetary tightening. In
continuation of recent trends, FII flows remained positive - $135 mln during the first four trading days of
the week and close to $2 bln for the month. Mid and small caps fared better than large caps. Amongst
sectors, banking and real estate sectors were the top losers while healthcare, technology and consumer
durables gained.
• Policy: The Cabinet Committee on Economic Affairs approved the methodology for coal blocks
auctioning.This marks the first step in creating a structured and transparent process for allocation of coal.
Uncertainty about fuel availability had led to sub-optimal utilization of power production capacity in
recent years and weighed on the performance of private power producers. Whilst the policy clarity on
auctions is welcome, we need to see how this plays out on the ground as the onus of securing approvals
and land acquisition still rests with corporates.
Change in coal-based power generation capacity and domestic coal output growth
Source: Ministry of Coal, CEA, CLSA
Following last week’s monetary policy decision, investors remain concerned about economic growth
prospects.While a tighter monetary policy regime may weigh on short term growth, we believe that stable
inflation levels are important for long term growth prospects (and ability to sustain a high growth
trajectory). Overall, the current environment can be viewed as an adjustment phase for the Indian
economy as we correct fiscal largesse and increased leveraged amongst certain segments of Corporate
India.The latter is reflected in companies looking to raise additional capital through equity and sale of
non-core assets (those with large debt burden). Such changes can help lay a stronger foundation for the
next growth phase in India.
3. Weekly change (%)
S&P BSE Sensex -2.65
CNX Nifty -2.98
CNX 500 -2.28
CNX Midcap -0.46
S&P BSE Smallcap 0.21
India - Debt
Indian bond markets started off the week on a pessimistic note following last week’s partial devolvement
of GOI bond auctions and concerns about monetary tightening. Markets however pared losses later in the
week after the borrowing calendar came in along expected lines and RBI assured liquidity support. Short
term funding rates however eased in response to last week’s cut in the MSF rate.
Source: Bloomberg, CLSA
• Yield Movements: Yields on the 10-Yr benchmark gilts rose 44 bps, while the 5-year Gilt yield
increased by 19 bps.Yields on the 5–year AAA corporate bonds was largely flat over the week and
the spread narrowed to 98 bps from 118 bps. 1 yr gilt yields decreased by 8 bps, while 30 year Gilts
dipped by 1 bp. Spreads between the long and short dated securities (1/30 year gilts) turned
positive.
• Liquidity/borrowings: Systemic liquidity improved slightly from last week levels but overall borrowing
under MSF window remained high and the total deficit stood above Rs. 1 trillion mark. Scheduled GOI
bond auctions received strong response and were fully subscribed.
• Forex: The Indian rupee reversed gains towards the close of week on dollar buying by corporates. Helped
by currency revaluation, forex reserves were up at $270.4 bln as of September 20.
• Policy: The latest government borrowing calendar was in line with market expectations – gross
borrowings are pegged at Rs. 2.35 lakh crore in H2-FY13. Most of the borrowing is concentrated in the
10-14 year maturity bucket.The auction calendar however did not provide clarity on the Budget proposal
about debt buyback/switch to a longer maturity paper for Rs. 50,000 crore worth of GOI paper.
Meanwhile, the central bank has assured investors that it will maintain adequate systemic liquidity and
undertake OMOs if required, so as to facilitate government borrowings and meet currency demand, ahead
of the festive season.
