- 1. International Global equity markets gained on hopes of
policy status quo on mixed economic data out of US, amidst strong
gains in Emerging Markets and some large M&A deals. This along
with strength in Asia Pacific and Europe, helped the MSCI AC World
Index gain 2.10%. Global benchmark treasury bonds pared losses
towards close of week on hopes of a delay in Fed Tapering. In its
latest economic assessment, the OECD expressed optimism about
growth trends in the developed world, but pointed towards a cloudy
outlook due to loss of momentum in major Emerging Economies. It
also highlighted downside risks such as the euro-area banking
systems vulnerability to renewed financial system volatility,
deadlock over US fiscal policy and capital flight from Emerging
Markets. In commodity markets, crude oil prices continued to trend
higher amidst geopolitical uncertainty and lower US crude
inventories, while gold benefitted from the shift in investor
expectations from Fed. Overall the Reuters Jefferies CRB index
closed 0.75% up.The sterling pound gained on the back of rising
expectations of strong economic recovery. Asia-Pacific: Regional
markets recorded strong gains this week - Hong Kong equities rose
on speculation that China is looking ease capital controls to boost
the economy. Chinas services PMI rose to 52.8 from 51.3. The OECD
said it expects Chinas economy to pick up pace in the quarters
ahead. Japan equities benefitted from a weaker yen and Indian
equities rallied following fresh policy measures to stabilize the
rupee.The Reserve Bank of Australia and Bank of Japan maintained
status quo on monetary policy. The latter also raised its economic
outlook, citing firm consumer spending and modest gains in capex.
Indonesia exports fell and the trade deficit widened to a record
$2.3 bln from $850 mln previously. On the corporate front, US
authorities approved Chinese firm Shuanghai Internationals
acquisition of Smithfield Foods and Bank of America exited its
China Construction Bank. Europe: European equity markets were
buoyed by central bank newsflow and rising confidence in the
regions economy. BoE and ECB left monetary policies unchanged.
Noting the recent improvement in the economy, ECB raised GDP growth
estimates for 2013 to -0.4% (earlier -0.6%), but comments from
officials signalled caution about said the bank remains on the
vigil to counter any rise in risks. Eurozone Q2 GDP growth number
was confirmed at 0.3%. German exports however declined by 1.1%mom
and trade surplus narrowed. Switzerland economy expanded by 0.5% in
Q2, slightly less than 0.6% growth clocked in sequentially previous
quarter. Poland also kept monetary policy on hold, but changes to
the pension system weighed on equity and bond markets. On the
M&A front,Verizon agreed to purchaseVodafones 45% stake in
their American JV for $130 bln and Nokia said it is selling its
handset division to Microsoft for $5 bln. Americas: US and Canada
equity markets moved up this week, but Brazil witnessed sharper
gains amidst hopes of increased demand for commodities and index
heavyweight OGX soared after exercising a $1 bln put option. US
markets got a boost from renewed expectations of a delay in
stimulus withdrawal after non-farm payrolls expanded by 169,000 in
August, less than market expectations and prior two month figures
were revised downwards. On the other hand, both ISM non- Market
Review WEEK ENDED SEPTEMBER 07, 2013
2. manufacturing and manufacturing indices ticked higher
suggesting acceleration in growth. Economic data from other parts
of the region was also positive - Canadas economy added 59,200 jobs
and the unemployment rate dipped by 0.1% to 7.1%. Helped by
sustained rise in investment, Brazil Q2 GDP grew by 1.5%qoq and was
ahead of market expectations.While Colombias central bank left key
policy rate unchanged at 3.25%, Mexico reduced its overnight
lending rate by 25 bps to 3.75%. Jarden is acquiring Yankee Candle
for about $1.8 bln. LinkedIn stock rose after the company said it
plans to issue $1 bln of equity. Weekly Weekly change (%) change
(%) MSCI AC World Index 2.10 Xetra DAX 2.13 FTSE Eurotop 100 2.87
CAC 40 2.93 MSCI AC Asia Pacific 2.75 FTSE 100 2.10 Dow Jones 0.76
Hang Seng 4.09 Nasdaq 1.95 Nikkei 3.52 S&P 500 1.36 KOSPI 1.50
India - Equity New measures by the central bank and ensuing
recovery in the rupee, along with strong global cues helped Indian
equity markets gain this week. Barring technology stocks all
sectoral indices closed in the positive territory. Banking sector
stocks were the top gainers as the RBI relaxed bank branch
licensing and indicated new licenses will be issued by January
2014, amongst others. FII flows also marginally positive this week
at $150 mln. Macro/Policy: Latest PMI data for India suggests the
recent tightening of monetary conditions has exacerbated the
weakness in the economy. The HSBC manufacturing PMI index slid to
48.5 from 50.1, and the services PMI dipped to 47.6 from 47.9. This
along with last weeks weaker-than- expected GDP report caused many
research houses to downgrade economic growth and earnings
estimates. On the rupee front, a lot will depend on global news
flow in the weeks ahead - whilst the Federal Reserve is unlikely to
make any significant changes, given the impact on global financial
markets, it could initiate symbolic moves in the form of marginal
reduction in bond purchases. The policy tone will be closely
scrutinized for future direction. The Pension Bill received the Lok
Sabhas nod this week the bill, which has been in the works for a
while now, provides the Pension Fund Regulatory and Development
Authority statutory backing and allows 26% FDI in the sector.
Indias pension sector contrasts with many of its global
counterparts with conservative asset allocation, limited private
player participation and few investment alternatives. Given the
country's long term growth potential and positive demographics, the
sector would be of interest to both global and domestic players.
However, the fee levels need to be commercially viable for long
term players and there needs to be open access to all retirement
assets (majority of the assets are presently with EPFO and NPS I).
Technology: Tech stocks have outperformed broad markets in recent
months on expectations of better earnings growth due to increased
exports amidst signs of economic stabilization in the developed
world and a weakening rupee.While the rupee weakness can help in
boosting margins on existing pricing deals, the main factor is
likely to be the improvement in demand in key markets such 3. as
US, Europe and UK. The current environment (especially the
depreciating rupee) can also help companies take a long term view
on deals, boosting growth trends. Looking beyond the near term, a
more important trend is that many of the companies have been
diversifying their revenue base and scaling up their focus on
Horizon 3 services (Social, Mobile,Analytics and Cloud). Given the
strategic nature of the latter for clients, such business could be
relatively stable. Overall, companies with a diverse business model
(in terms of vertical as well as geographies) and focused on high
margin segments appear well poised for medium term growth. Weekly
change (%) S&P BSE Sensex 3.49 CNX Nifty 3.81 CNX 500 3.44 CNX
Midcap 2.70 S&P BSE Smallcap 2.94 India - Debt Indian debt
markets snapped recent losing streak and bond prices rose after
policy measures bolstered sentiment. Profit-booking however
resulted in yields closing off intra-week lows. Yield Movements:
Yields edged lower across the curve - the 10-Yr benchmark yield
declined 28 bps. The 5-year Gilt yield fell 41 bps while the 5year
AAA corporate bond yields eased by 29 bps and the spread expanded
to 108 bps from 96 bps.Yields for 1 yr gilts eased by 81 bps, while
30 year Gilts decreased 33 bps.The yield curve remained inverted.
Liquidity/Borrowings: Liquidity conditions remained tight with
repos averaging around Rs. 39,000 crore. Scheduled GOI bond auction
size was reduced to Rs. 10,000 crore from Rs. 15000 crore. Auctions
for the two securities received strong response and there was no
devolvement on primary dealers. Forex: The rupee managed to eke
weekly gains of 0.7% on the back of new RBI measures, FII inflows
and dollar sales by exporters.The currency however closed off
intraweek high of Rs.65/$. Forex reserves as of August 30 were down
to $275.5 bln. Policy: In a bid to prop up the currency, the
central bank enhanced limits for exporters to re-book cancelled
forward exchange contracts and offered banks a special window to
swap foreign currency non- resident (FCNR) deposits at concessional
rates. The bank also increased overseas borrowing limit for banks
to 100% of unimpaired Tier I capital (earlier 50% unimpaired
capital). The events of the past month have further complicated the
policy environment as the government along with the central bank
looked to support the rupee, without impacting economic growth.
Initial remarks by the new central bank head suggest policy
continuity and an increased emphasis on communication clarity. His
address also laid emphasis on increasing financial inclusion and
monitoring as well as sharing 4. data on NPAs/restructured loans.
The bank is also expected to issue CPI-linked inflation index bonds
by November 2013. Apart from this, the new governor indicated that
the central bank has instituted a committee to review monetary
policy framework, including providing quantitative objectives to
RBI. 06.09.2013 30.08.2013 Exchange rate (Rs./$) 65.24 65.70
Average repos (Rs. Cr) 39,613 39,724 1-yr gilt yield (%) 9.91 10.72
5-yr gilt yield (%) 8.86 9.27 10-yr gilt yield (%) 8.71 8.99
Source: Reuters, CCIL. The information contained in this commentary
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