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Weekly Market Review - August 9, 2013
1. International
Global equity markets were in consolidation mode amidst fresh economic data out of major economies
pointing towards growth momentum and renewed concerns about global liquidity support. The MSCI
AC World index declined 0.45% led by negative trend in most markets. Global treasury bond yields rose
amidst renewed debate about Fed tapering, with the exception of US long dated treasury yields, which
were supported by strong demand at bond auctions. Commodity prices moved up on hopes the improved
economic conditions in China and other large economies will boost demand, and the Reuters Jefferies
CRB index closed up 0.57%. The International Energy Agency cut oil demand growth forecast from
930,000 b/d in 2013 to 900,000 b/d. It also reduced demand growth for 2014 by 9.1% to 1.1 million
b/d. In currency markets, the sterling was bolstered by solid domestic economic data. Many Asian
currencies also gained ground against the US dollar on positive data out of China.
• Asia-Pacific: Chinese economic data surprised on the upside and helped Shanghai equities notch
gains – industrial production expanded 9.7%, and exports and imports growth accelerated, alongside
industrial production and fixed asset investment. Real estate investment also increased, but retail sales
were slightly lower than previous month. Consumer prices rose by 2.7%yoy, the same pace as last
month. Most other regional markets however closed in the negative territory. Japanese equities were
amongst the top losers as a rising yen led to concerns about exporters profitability. Bank of Korea and
Japan maintained status quo on policy, while the central bank of Australia announced a 25 bps rate cut
to 2.5%. Singapore raised its economic growth projections for the current year to 2.5%-3.5% from 1-
3% forecast previously. On the corporate front, DBS pulled back from its bid to acquire Bank
Danamon.
• Europe: Regional equity markets fared relatively well, but trends were divergent amongst key
markets – French equities rallied amidst positive trade data and led by optimism around banking
stocks. German and UK equity benchmark indices however closed marginally lower. German
exports, industrial production and new orders data was robust. Italy’s economic conditions improved
as Q2 GDP growth came in at -0.2%, much better than -0.6% recorded in sequential previous
quarter. Stronger exports growth helped UK Q2 trade deficit narrow. Bank of England guided
monetary policy will remain easy till such time the unemployment rate has eased to at least 7%,
provided inflation trends remain within comfort zone of around 2%. In the central bank’s view, the
unemployment rate is likely to remain above this threshold until Q3-2016. On the M&A front,
America Movil approached KPN with a €7.2 bln offer for the remaining 70% it does not own in
the firm.
• Americas: US and Canadian equity indices edged lower amidst the debate about withdrawal of
stimulus by US Federal Reserve. On the economic front, helped by strong growth in exports, US
trade deficit narrowed by 22% to $34.2 bln in June. ISM non-manufacturing index continued to
rise, indicating activity in the services sector is also contributing positively to growth. In Canada,
the June trade gap reduced as exports rose faster than imports. Mexico industrial production came
in below expectations and the central bank downgraded growth forecasts citing fall in public
Market Review
WEEK ENDED AUGUST 09, 2013
2. spending and sluggish manufacturing growth. Amazon founder purchased Washington Post for
$250 mln and New York Times Company agreed to sell the Boston Globe for $70 mln to John
Henry.
Weekly Weekly
change (%) change (%)
MSCI AC World Index -0.45 Xetra DAX -0.82
FTSE Eurotop 100 0.22 CAC 40 0.76
MSCI AC Asia Pacific -1.25 FTSE 100 -0.97
Dow Jones -1.49 Hang Seng -1.73
Nasdaq -0.80 Nikkei -5.88
S&P 500 -1.07 KOSPI -2.22
India - Equity
Indian equity markets extended declines amidst continued weakness in the rupee and muted FII flows.
Small cap stocks however managed to rebound and closed in the positive zone. While capital goods and
consumer durables underperformed broad markets, metal and real estate stocks bounced back from lows.
• Macro/Policy: The Monsoon session of the Indian Parliament got underway this week and the Rajya
Sabha approved the Companies Bill, which will repeal the extant Companies Act, 1956. The Bill is
aimed at improving the corporate legislative framework across a range of areas including audit,
shareholder rights and corporate governance practices. Key provisions include setting aside certain
portion of profits for corporate social responsibility, stricter punishment for insider trading, introduces
class action suits thereby empowering shareholders to take legal action against management
wrongdoings. Overall, the regulation is progressive and should have a positive impact on Corporate
India over the medium term. One will have to wait for the Corporate Affairs Ministry to unveil the
operational rules/guidelines to get more clarity and for the bill to take effect in the true sense.
Trends in Owernership of BSE 500
Source: CMIE, Citi Research
3.9%
5.3%
4.7% 4.8%
4.3%
4.7% 5.1% 5.2%
5.8% 5.8%
5.0%
3.7%
3.0%
3.9% 4.0% 3.9% 3.9% 3.6% 3.6% 3.5%
14.2%
13.4%
12.2%
11.2% 11.0%
10.1%
9.2%
8.2% 8.0% 7.8% 7.9% 7.7%
12.4%
12.9%
18.3%
19.3%
19.9%
17.4%
15.7% 16.0%
17.3% 17.6%
21.7%
4.4%
5.4%
3.7%
4.3%
16.6%
0%
4%
8%
12%
16%
20%
24%
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Insurance Domestic MFs Public FII+ADR+GDR
3. • Institutional Ownership Trends: As per latest data, FII ownership of Indian stocks (BSE 500)
increased to an all-time high of 21.7% in June, following FII inflows of $3.2 bln during the quarter.
At the same time, local institutions ownership has remained largely stagnant and retail holdings have
been on the decline.
We expect long term investors across the globe to maintain exposure to India and potentially add to their
exposure at lower levels. However, as we have been saying, this time around the growth slowdown can
be attributed to domestic factors. Whilst global investors are cognizant of India’s long term investment
attractiveness, in a globalized world, investments tend to follow the path of least resistance. Given the
negative newsflow on the macro front, there is a need to take up structural reforms in various areas to
boost foreign investor confidence in the economy.
Weekly change (%)
S&P BSE Sensex -1.96
CNX Nifty -1.98
CNX 500 -1.50
CNX Midcap 0.31
S&P BSE Smallcap 1.09
India - Debt
Indian yields witnessed a modest rise as the rupee fell further and RBI announced fresh measures to drain
systemic liquidity. Earlier in the week, hopes that the government will announce more measures to boost
foreign flows and speculation the new governor will favour growth had helped yields ease. Lower than
expected cut-offs at the bond auctions also kept the increase in bond yields in check.
• Yield Movements: With the exception of the 5-year paper, treasury bond yields moved up across
maturity buckets.Yields on 1-year gilts were up by 10 bps, while those on 10-year gilt rose 4 bps.The
30-year benchmark gilts increased by 1 bp.
• Liquidity/Borrowings: Overnight call money rates rose sharply to close at above 10%. RBI said it will
auction Rs. 22000 worth cash management bills once every week to mop up liquidity and address
volatility in forex markets. Scheduled GOI bond auctions received strong demand and were fully
subscribed.
• Forex: FII outflows from debt markets and importer demand for dollars led the rupee to weaken to
fresh lows this week. RBI measures however helped the currency pull back and close marginally above
last week levels. As of Aug 2, India’s forex reserves stood at $277 bln, down nearly $3 compared to last
week levels.
