- Global equity markets advanced and emerging markets outperformed developed markets for the week ending March 29, 2013. However, concerns about the Eurozone economy weighed on bonds.
- In Asia, regional markets rebounded except for Shanghai. Japan's industrial production fell. South Korea cut growth forecasts and Taiwan kept rates unchanged.
- Cyprus agreed to a bailout deal but gains in Europe were curbed by concerns in Italy and the Cyprus deal setting a precedent. Germany's retail sales rose but unemployment increased.
- US markets performed well on positive economic data despite a drop in consumer confidence. Home prices rose but durable goods orders were led by transport.
1. Market Review
WEEK ENDING MARCH 29, 2013
International
Global equity markets advanced as policymakers reached a financial assistance deal for Cyprus and US
economic data remained positive. In a reversal of recent trends, Emerging markets posted outperformed
developed counterparts, and this along with rally in US equities helped the MSCI AC World Index close up
0.36% (quarter +5.98%). At the same time, lingering concerns about contagion and economic prospects of
Eurozone kept global treasury bonds in demand and yields eased. As per OECD’s interim economic
assessment, global economy is picking up pace but growth in the euro area remains constrained. Crude oil
prices staged a rebound this week and contributed positively to the 0.58% rise in the Reuters Jefferies CRB
Index. In currency markets, the euro remained under pressure amidst concerns of contagion and limited
progress in coalition talks in Italy. Investors also weighed prospects of the Cyprus deal becoming a benchmark
for similar events in the future.
• Asia-Pacific: Regional equity markets bounced back this week. Indonesia and South Korean equities
were amongst the top gainers. Shanghai equities however bucked the region wide positive trend as the
country’s banking regulator tightened regulations over wealth management products to increase
transparency and curb risks. Contrary to expectations, Japan industrial production fell 0.1%mom in
February (up 0.3% previous month). South Korea cut its economic growth targets for 2013 to 2.3% from
3% previously, and said it plans to draw up a supplementary budget to re-invigorate the economy.Taiwan’s
central bank kept policy rates unchanged.
• Europe: Cyprus agreed to a $13 bln bailout deal and closure of its second largest bank, along with
levies on large depositors at the country’s top two banks. However, gains in regional markets were
curbed by the uncertain political situation in Italy and concern the Cyprus deal will lead to similar
bailout practices in future weighed on banks. On the economic front, Germany reported a rise in retail
sales, but unemployment increased. Bank of England said British banks need to raise $38 bln in new
capital by year-end to strengthen their balance sheets against any future losses. On the M&A front, DE
Master Blenders is mulling over a €7.2 bln takeover by investor group Joh A Benckiser and Allianz
bought Yapi Kredi banks’ non-life and pensions businesses for €684 mln.
• Americas: US equity markets continued to fare relatively better than counterparts and the S&P 500 index
finished the holiday shortened week at record highs. Sentiment was bolstered by easing Cyprus worried
and positive economic data. US Q4-2012 GDP growth number was revised upwards to an annualized rate
of 0.4% from 0.1% estimated earlier. February durable goods orders were up 5.7% - gains were however
led mainly by higher transport orders. Home prices, as measured by S&P/Case-Shiller Home Price Index,
rose 1.0% in January. However, the consumer confidence index dropped nearly 10 points to 59.7 in
February.
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 0.36 Xetra DAX* -1.47
FTSE Eurotop 100* 0.02 CAC 40* -1.03
MSCI AC Asia Pacific 0.93 FTSE 100* 0.30
Dow Jones* 0.46 Hang Seng* 0.83
Nasdaq* 0.69 Nikkei 0.48
S&P 500* 0.79 KOSPI 2.88
*As of March 28, 2013
India - Equity
Helped by positive global news flow, Indian equity markets snapped the losing streak during the holiday
shortened week and pared losses clocked earlier this quarter. Mid cap stocks rebounded and did relatively
better than large caps this week, but posted double-digit losses for the quarter. Amongst sectors, auto and
oil & gas stocks were the top underperformers, while consumer durable stocks recorded sharp gains. FIIs
pumped in close to $254 mln in the first two trading days of the week.
Quarterly Current Account Balance (as a % of GDP)
11% C urrent Account
C apital Account as % of G DP,
9%
annualized
7%
5%
3%
1%
-1%
-3%
-5%
-7%
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
• Macro: Helped by strong foreign capital flows, India’s Balance of Payments recorded a small surplus of
$0.78 bln in the December quarter as against a marginal deficit of $0.15 bln in the September quarter.
Increase in oil and gold imports alongside weak exports and lower remittances caused the current account
deficit (CAD) to widen to 6.7% of GDP or $32.5 bln. This impact was countered by strong FII and
foreign credit flows. The recent improvement in exports should help the CAD narrow in the March
quarter. However, a meaningful and sustainable reduction in CAD requires concerted efforts from
policymakers. At the same time, it is also important to focus on FDI flows, which can serve the twin
objectives of financing the CAD and boosting investment in the country.
Weekly change (%)
S&P BSE Sensex 0.53
CNX Nifty 0.55
CNX 500 0.77
CNX Midcap 1.15
S&P BSE Smallcap 0.55
3. India - Debt
Indian bond yields were little changed this week - short-end yields moved slightly down helped by additional
LAF facilities from RBI, while the benchmark 10-year paper moved up slightly.
• Yield movements: Benchmark 10-year gilt yield rose 3 bps, while that on the 1 and 5 year papers
moved down 5 bps and 1 bp respectively. Yields on the 30-year paper also increased by 2 bps. Yields
across the curve however stood lower vis-à-vis last quarter end levels.
• Liquidity/borrowings: Demand for liquidity under the RBI’s LAF window increased and repos averaged
Rs. 164,370 crore vis-à-vis Rs. 136,065 crore. As is typically the case at financial year-ends, the overnight call
money rates spiked up to16-17% from 7.5% levels seen last week.
• Forex: The Indian rupee closed slightly higher helped by government’s move on FII investments in debt
securities and improved global risk appetite. As of Mar 22, Indian forex reserves stood at around $293.4
bln, about $1 bln more than previous week levels primarily due to revaluation of forex assets.
Trends in FII investment ceiling in Debt ($ bln)
80
70 Total FII investment in bonds' limit raised
from US$30bn to US$75bn
60
50 50
45
40 45
30 40
20 20
25
10 15
20
10 10
0
Aug-11
Sep-10
Apr-11
Jun-12
Jan-13
Government Securities Corp/Infra Bonds
• Policy: As part of the overall process to simplify FII investment norms, the Finance Ministry said effective
April 1, 2013, the existing debt limits would be merged into two broad categories: Government securities
(by merging government securities old and government securities long term) of $25 bln and corporate
bonds of $51 bln (by merging QFIs, FIIs and FIIs long term infra bonds).The move is aimed at optimizing
utilization of current limits and boosting inflows. As per available data, despite the sharp increase in FII
investment limits to $76 bln, overall FII holdings of Indian debt stand at $33 bln. The SEBI’s current
auction mechanism for allocating debt limits will now change to an on tap system presently in place for
infrastructure bonds.To provide a guide to investors, the government also intends to put in place a process
for review of the limits.
29.03.2013 22.03.2013
Exchange rate (Rs./$) 54.28 54.33
Average repos (Rs. Cr) 164,372 136,065
1-yr gilt yield (%) 7.91 7.96
5-yr gilt yield (%) 7.91 7.92
10-yr gilt yield (%) 8.00 7.97
Source: Reuters, CCIL.