1. Market Review
WEEK ENDED MARCH 15, 2013
International
Encouraging economic data out of key economies helped many developed market stock indices to touch
multi-year cyclical highs. However, in continuation of the 2013 trends, EM equity indices continued to
underperform. The MSCI AC World Index closed up 0.68% helped mainly by gains in Japan and the US.
Global bond yields eased marginally and the spreads between US treasuries and other key treasuries hit a
new high on optimism about the US economy. Physical demand alongside data suggesting inflation was on
the rise in US boosted gold prices for the second consecutive week. This along with overall increase in
market risk appetite helped the Reuters Jefferies CRB Index close up 0.70%. In currency markets, the US
dollar retreated at close of week on speculation that US monetary policy will remain accommodative
amidst moderate inflation numbers. The Aussie dollar surged as the economy added 71,500 jobs in
February.
• Asia-Pacific: Japanese equities registered sharp gains on the back of positive US economic news flow
and expectations the upcoming change in leadership at BoJ will have a favourable impact. EM Asian
equities however fell sharply and closed the week in negative territory. Notwithstanding the upbeat
investor sentiment in Japan, latest machinery orders data (for January) reflected a weak capex
environment. Amidst concerns about rising mortgage rates, property developers led Hong Kong equities
lower. Chinese consumer inflation jumped up from 2% in January to 3.2% in February and comments
from PBoC officials indicated discomfort over inflationary pressures. Policymakers pegged current year
growth at 7.5% and retained focus on consumption. The Bank of Korea kept its benchmark policy rate
unchanged at 2.75%.
• Europe: Regional equity markets closed higher amidst signs of a new deal to allow budgetary
flexibility to deal with growing opposition to austerity measures. Ireland accessed bond markets for the
first time since January 2010 and raised €5bn at yields lower than those of comparable bonds of crisis-
affected Euro nations. International lenders agreed to a ~$13 bln bailout for Cyprus, but imposed a 9.9%
levy on all bank deposits over €100,000. On the economic front, industrial production in Eurozone and
UK fell 0.4% and 1.2% respectively in January. The Norges Bank left policy rates unchanged at 1.50%
but significantly reduced its policy rate projections.
• Americas: US equity markets remained buoyant on the back of sustained positive economic news flow.
Better than expected US retail sales figures reinforced expectations of increased consumer spending. US
industrial output rose by 0.7% in February and jobless claims four-week average fell to multi-year lows.
At the same time, US consumer prices moved up 0.7% on the back of sharp increase in gasoline prices
and consumer sentiment declined to 71.8 from 77.6. Elsewhere in the region, Brazil’s retail sales increased
5.9% in January from a year earlier and authorities announced a series of tax cuts on foodstuffs/staples to
lower inflation. Mexico cut policy rates by 50 bps to 4%. On the corporate front, SAC Capital agreed to
pay over $600 mln to SEC for settling insider trading charges.
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 0.68 Xetra DAX 0.71
FTSE Eurotop 100 0.71 CAC 40 0.10
MSCI AC Asia Pacific 0.81 FTSE 100 0.09
Dow Jones 0.81 Hang Seng -2.42
Nasdaq 0.14 Nikkei 2.26
S&P 500 0.61 KOSPI -0.97
India - Equity
Indian equity markets fell in line with many other Emerging Markets. While latest economic output data
was relatively positive, markets remained cautious as inflation indices rose ahead of RBI’s policy review
next week. Small cap stocks continued to underperform large caps. All sectoral indices closed in the red,
except defensive sectors such as FMCG and healthcare. Consumer durables and banking stocks were the
top losers. Foreign portfolio flows amounted to $490 mln in the first four trading days of the week.
• Macro: Latest economic data releases pointed towards stabilization/modest pick-up in the economy.
Exports growth picked up (+4.2%yoy) and this along with slower expansion in imports helped the trade
deficit decline to multi-month lows of $14.9 bln (previous month $20 bln).
Trends in Trade Deficit (US$ bln)
Source: DGCI&S
Growth in India’s industrial production bounced back in January – up 2.4%yoy after a –0.5% in December.
Expansion in electricity and manufacturing output helped offset weakness in the mining sector. Use-based
classification indicated capital goods production remained in the negative territory. While the January IP
number has surprised on the upside, the cumulative data for the fiscal year to date remains dismal at 0.9%
vs. 3.4% in the corresponding period previous year.
As we have been saying, incremental policy push on investments remains critical for a sustainable economic
recovery. The current slowdown traces its origins to the policy response after the global financial crisis in
2008.The large fiscal stimulus in the following years resulted in consumption-led growth even as investment
3. activity got impacted due to various policy issues.The withdrawal of the fiscal largesse thereafter was quite
gradual and this combined with the infrastructural bottlenecks in the country led to supply-side pressures
and high inflation. This has inevitably led to higher interest rates that have now started to impact
consumption. Hence, there is an urgent need to boost investment activity through higher infrastructure
spending and reforms.While India was one of the few economies across the globe that coped well with the
global crisis, it needs to strengthen the foundation for sustainable economic growth.
Weekly change (%)
BSE Sensex -1.30
S&P CNX Nifty -1.23
S&P CNX 500 -1.34
CNX Midcap -1.55
BSE Smallcap -2.44
India - Debt
Indian bond markets were volatile as investors digested fresh economic news flow and speculated about
probability of rate cuts at next week’s RBI policy meet. Foreign funds bought Indian debt securities worth
$287 mln in the first four trading days of the week. S&P stated that the sovereign rating outlook can be
revised upwards if fiscal deficit is contained and investment climate improves.
• Yield movements: Benchmark gilt yields closed mixed – yields at the short-end spiked reflecting the
systemic liquidity shortfalls – 1 year gilt yield closed up 18 bps. At the same time, yields at the longer
end of the curve ended flat compared to last week levels.
• Liquidity/borrowings: Demand for liquidity under the RBI’s LAF window rebounded this week and
overnight call money rates edged higher to close at 7.8-7.9% mark. RBI infused close to Rs. 10,000 crores
into the system through OMO purchase auctions.
• Forex: The rupee extended gains from last week helped by foreign fund flows, dollar sales by exporters
and relative dollar weakness. As of Mar 08, Indian forex reserves stood at around $290 bln, about $224 mln
less than previous week levels primarily due to revaluation of forex assets.
Trends in core headline inflation
