1. International
Global investor sentiment was lifted by positive corporate earnings news and hopes that central banks
worldwide will maintain loose monetary policies.The MSCI AC World Index managed to end 2.3% higher
even as economic data out of the key economies was less reassuring and weighed on markets at close of
week. Developed markets broadly outperformed emerging markets. Global bond markets pared losses at the
close of week as sentiment turned more cautious. In commodity markets, gold staged a sharp rebound and
the Reuters Jefferies CRB Index closed up 0.78%.The sterling pound strengthened this week after the UK
GDP growth numbers came in better than expectations, whilst the US dollar and Euro lost ground.
• Asia-Pacific: Regional equity markets underperformed with equities in mainland China and
Indonesia registering declines. China’s flash HSBC manufacturing PMI index dipped to 50.5 from 51.6.
Japan consumer prices excluding food fell 0.5% for the fifth consecutive month. Bank of Japan lifted
economic growth projections for current fiscal to 2.9% from 2.3% and said inflation will touch 1.9%
by end of March 2016. Australia said it will invest 5% of foreign exchange reserves in Chinese bonds.
On the M&A front, GrainCorp accepted a $3.1 bln takeover offer from Archer Daniels Midland and
Thailand’s CP All offered to pay $6.6 bln for Siam Makro.
• Europe: Sluggish economic data ahead of ECB meet next week bolstered rate cut expectations and
helped markets rally this week. Italian markets benefitted by the reelection of the President.
Eurozone preliminary composite PMI was unchanged at 46.5 and data showed signs of weakness in
Germany - the composite gauge for Germany slipped below 50 and the IFO business confidence
index dropped. Spain reported a sharp jump in unemployment and is asking for an extension on
deficit reduction targets to stem economic weakness. Strong services sector performance lifted the
UK GDP growth to 0.3% in Q1-2013.
• Americas: Helped by positive earnings news flow and housing data, US equity indices closed in the
positive territory this week. Higher consumer spending helped US GDP growth accelerate to 2.5%
(annualized basis) in the first quarter of 2013. However, the pace of expansion could have been
higher, if not for public spending cuts. The University of Michigan/Thomson Reuters consumer
sentiment index declined in April and durable goods orders fell 5.7%, primarily on account of lower
aircraft & defense goods orders. US housing sector continued to show improvement – new home
sales rose 1.5% in March. Colombia maintained status quo on monetary policy.
Market Review
WEEK ENDED APRIL 26, 2013
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 2.33 Xetra DAX 4.76
FTSE Eurotop 100 3.58 CAC 40 4.33
MSCI AC Asia Pacific 2.96 FTSE 100 2.22
Dow Jones 1.13 Hang Seng 2.43
Nasdaq 2.28 Nikkei 4.26
S&P 500 1.74 KOSPI 1.98
India - Equity
Increased hopes of monetary easing, strong FII inflows and positive corporate data helped Indian equity
markets extend last week’s gains. The rally was fairly broad-based and all sectoral indices, except those
focused technology and real estate, closed in the positive territory.Auto and capital goods stocks were the
top gainers. FIIs bought equities worth $520 mln in the first four trading days of the week. Etihad agreed
to pick up a 24% stake in Jet Airways for $379 mln.
• Outlook: With the exception of exports and inflation, domestic economic data has largely been on
the weaker side in recent times. Nonetheless, we believe the economy is at the bottom of this
slowdown cycle and growth should improve in the year ahead, helped by recent government policy
efforts, lower borrowing costs and spending ahead of elections. Growth trends are likely to improve
over the next year or so but return to high growth will be gradual.
Despite the run-up over the last couple of weeks, headline index valuations remain close to long term
averages of about 14-15x 1-year forward PE, and various segments of the market appear undervalued.
Earnings growth expectations are closer to reality this time around, unlike at the start of 2012, making
markets reasonably priced.
BSE Sensex PE Levels (1-year forward earnings)
Source: CLSA Asia-Pacific Markets
3. The recent fall in global commodity prices and easing borrowing costs should have a positive impact
on both macro-economic indicators and earnings over the near term. The medium term outlook
depends on the evolving macro situation both in India and overseas. Earnings dispersion is expected
to remain high across sectors and hence we believe investors are better off adopting a bottom-up,
fundamental research focus – quality of management/balance sheet will be important.
Weekly change (%)
S&P BSE Sensex 1.42
CNX Nifty 1.53
CNX 500 1.43
CNX Midcap 1.19
S&P BSE Smallcap 0.81
India - Debt
Indian treasury bond yields continued to ease this week on speculation the RBI will lower policy rates
next week. FII demand for Indian bonds was sharply higher and flows amounted to $1 bln in the first four
trading days of the week.
• Yield movements: Treasury bond yields eased across the curve; the downshift was sharper at the
shorter end of the curve and this helped the yield curve steepen. Benchmark 10-year gilt yield decreased
3 bps, while yields on the 1 year paper moved down 11 bps.Yields on the 5 and 30-year paper eased 7
and 3 bps respectively.
• Liquidity/borrowings: Even as liquidity tightened and demand for liquidity under the RBI’s LAF
window increased, overnight call money rates continued to hover around 7.5% levels during this holiday
shortened week.
• Forex: The Indian rupee maintained positive momentum, amidst strong FII inflows and weakness in
the greenback.As of Apr 19, Indian forex reserves stood at around $294.8 bln, about $486 mln less than
previous week levels.
• Monetary Policy: Market expectations of rate cuts have increased over the past couple of weeks, led
by the fall in global commodity prices and positive domestic inflation data.The Annual Monetary Policy
Review of RBI scheduled at end of next week will provide an insight into whether the RBI’s comfort
has increased due to the recent developments. Given the favourable price movements, lower growth
trends and expectations of normal monsoon (as per IMD preliminary forecast), the bias is likely to
remain in favour of growth.
