1. International
The shadow of uncertainty over global liquidity continued to weigh on global financial markets, but the
fall in equity markets lost momentum towards the end of the week.The MSCI AC World Index lost 0.7%
and equity markets in Emerging Markets continued to underperform developed markets.The World Bank
reduced its global economic growth forecast for 2013 by 0.2% to 2.2% citing weakness in Europe and
slowdown in emerging markets, and is expected to gain momentum to 2014 (3% growth).The report also
expects global trade to accelerate albeit at a slow pace of 4% in 2014 and overall net capital flows into
developing countries to increase by 7.5% in 2013. Global treasury bond markets snapped their losing streak
and yields eased slightly as investors weighed fresh US economic data. In commodity markets, the Reuters
Jefferies CRB Index fell by 0.5%. Crude oil prices firmed up as geo-political tensions in the Middle East
stoked supply worries. EM currencies continued to witness heightened volatility this week and
policymakers resorted to a range of measures to curb the fall.The yen strengthened against the US dollar.
• Asia-Pacific: Japanese equity markets witnessed heightened volatility and closed the week with losses amidst
a stronger yen, even as economic data was positive. Japan’s Q1 GDP estimated was revised upwards to 4.1%
(earlier estimate of 3.5%) and BoJ maintained status quo on monetary policy. Emerging Asian equity markets
also closed in the negative territory mainly on global liquidity concerns. Bank Indonesia raised interest rates
by 25 bps to 6% to anchor inflation expectations,and also hiked the FASBI rate to support the rupiah.Central
banks in Korea and Philippines kept policy on hold. In China, industrial production expanded by 9.2%,
slightly lower than the 9.3% pace recorded previous month,but trade data surprised on the downside.Chinese
inter-bank liquidity tightened and money market rates jumped and a government debt auction was not
completely sold, for the first time in close to 2 years.
• Europe/Middle East: European equity markets gyrated to global worries about liquidity reversal but
managed to pare losses at close of week. On the economic front, Eurozone and UK industrial production
rose further in April, and UK labour report was positive. Helped by domestic consumption and
government spending, Turkey’s economy expanded by 6.5% qoq and the central bank launched forex
selling auctions to stem depreciation in the lira. MSCI’s move to upgrade UAE and Qatar to Emerging
Market status led a sharp rally in local markets and MSCI downgraded Greece to the EM grouping.
Greece’s government did not receive any bids for its stake sale in natural gas firm Depa, impacting its
privatization efforts.AstraZeneca is acquiring US firm Pearl Therapeutics for close to $1.2 bln.
• Americas: Regional equity markets remained under pressure,with Brazil witnessing sharp declines.S&P lifted
the long-term rating outlook on US to stable from negative, citing receding fiscal risks and policy support for
growth. On the economic front, US retail sales rose and initial jobless claims were also positive but Thomson
Reuters/University of Michigan consumer sentiment index dropped to 82.7 from 84.5 last month. US
industrial production was also flat. Elsewhere in the region, as part of, Brazil abolished the IOF tax on currency
derivatives, as part of its ongoing efforts to stabilize the real. M&A activity was high this week - Gannett is
buying Belo Corporation for about $1.5 bln and Google is acquiring Israeli company Waze for about $1.3 bln.
Market Review
WEEK ENDING JUNE 14, 2013
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index -0.70 Xetra DAX -1.54
FTSE Eurotop 100 -1.74 CAC 40 -1.74
MSCI AC Asia Pacific 0.33 FTSE 100 -1.62
Dow Jones -1.17 Hang Seng -2.81
Nasdaq -1.32 Nikkei -1.48
S&P 500 -1.01 KOSPI -1.80
India - Equity
Indian equity markets remained under pressure amidst the overall weakness in EM equity markets, due to
concerns over reversal in global liquidity. Except oil & gas all sectoral indices closed in the negative
territory. FIIs sold equities to the tune of $377 mln in the first four trading days of the week. On the
corporate front, Apollo Tyres is acquiring US-based Cooper Tire for Rs.14500 crore.
• Foreign Investments: The committee set up by SEBI under K. M. Chandrasekhar, has put forth
various suggestions to simplify the routes and procedure for foreign investment. Some of the
keyrecommendations include –
• Introduction of a new investor class called “Foreign Portfolio Investor (FPI)” consisting of current
categories such as FIIs/sub-accounts/QFIs, with the investment limit at 24%
• To allow FPIs to register with depository participants instead of SEBI - simplifies the registration
process.
• Investments upto 10% equity of a company to be portfolio investments and anything above 10% can
be FDI.
• Introduction of a risk-based approach to KYC with three categories of FPIs.
IIP Growth (YoY% and YoY%, 3MMA)
Source: Morgan Stanley
-7%
-1%
5%
11%
17%
23%
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
YoY%
YoY% 3MMA
3. • Macro: Growth in India’s industrial production moderated to 2.3% in April 2013 from a revised
growthof 3.4% in March.The slowdown was led by fall in mining sector output as well as deceleration
in manufacturing and electricity segments. As per use-based classification, capital goods production
posted a modest increase of 1%, despite low base. Overall the industry growth trends remain lacklustre,
but headline GDP growth might get a fillip by the good monsoons supporting farm production.
Weekly change (%)
S&P BSE Sensex -1.29
CNX Nifty -1.23
CNX 500 -2.06
CNX Midcap -4.04
S&P BSE Smallcap -3.18
India - Debt
Concerns the rise in rupee will add to inflationary issues and FII outflows ($1.4 bln) led Indian bond yields
to rise this week. Fitch revised outlook on India’s credit rating to Stable from Negative, citing progress on
fiscal consolidation and other government efforts to boost investment activity.
SEBI formally notified $5 bln increase in FII debt limits for government securities to $30 bln, but said the
increased limit will be available only to long term investors such as sovereign wealth funds, endowments
and pension funds.
• Yield movements: The yield curve steepened further this week as yields at the shorter end of the
curve witnessed smaller rise compared to the longer end of the curve.Yields on the 10-year and 5-year
papers increased by 11 bps and 12 bps respectively, while those on the 1-year paper rose 3 bps.Yield on
the 30 year Gilts stood 15 bps higher than last week levels.
• Liquidity/borrowings: Overnight call money rates dipped to 7.15% compared to 7.40% last week and
demand for liquidity at RBI’s LAF window averaged Rs. 65,000 crores.
• Forex: Helped by change in Fitch outlook as well as RBI intervention in currency markets, the Indian
rupee managed to bounce back from lifetime lows of close to Rs.59/$ to close at Rs.57.51/$ levels.
Forex reserves as of June 7 stood at $289 bln, $1.8 bln higher than previous week levels.
Trends in WPI and CPI
Source: Morgan Stanley Source: CLSA Asia-Pacific Markets
-6%
-2%
2%
6%
10%
14%
18%
May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13
Food Inflation
Non Food Inflation
Headline Inflation (WPI)
YoY%
3
4
5
6
7
8
9
10
11
12
Jan 12 Mar 12May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13May 13
(% YoY) CPI-new Core CPI-new
