1. Market Review
WEEK ENDED APRIL 27, 2012
International
Financial markets managed to close the week on a positive note, despite the political developments in Europe and
mixed economic news. The developments in France and Holland highlighted the growing opposition towards
tough austerity measures. Helped by earnings news and a rally in key developed markets, the MSCI AC World
Index added around 1% and technology stocks rallied. Mixed data along with increased views that the austerity
measures are impacting growth in Europe and S&P downgraded Spain’s sovereign rating. Expectations of more
monetary support helped bond prices move up marginally.The positive sentiment boosted commodity prices with
gold moving up on news of increased central bank purchase - the Reuters CRB index moved up by 1.4%.The
dollar index fell against major currencies and high yielding currencies gained ground.
• Asia-Pacific: Regional equity markets underperformed their counterparts in other regions on concerns
about exports amidst a slowing global economy. Bank of Japan announced further stimulus by expanding
its asset purchase programme by ¥5 trillion, extended the maturity and also increased the quantum allocated
to equities. Latest data pointed towards ongoing recovery in the Japanese economy and stable domestic
demand. The core inflation reading in Australia dipped, increasing hopes of monetary easing next week.
The South Korean economy seems to have picked up pace after three quarters, with GDP growing by 3.7%
in the previous quarter helped by manufacturing.
• Europe: Despite growth concerns and political developments, key European markets closed the week
on a positive note. First round results from the French presidential and the fall of the ruling government
in Netherlands, highlighted the waning support for fiscal austerity measures. S&P downgraded Spain’s
sovereign rating from A to BBB+, citing expanding deficits and weak growth prospects. Also the latest
employment report indicated that unemployment rate rose to 24.4% in Q1 the last quarter. Economic
news out of UK also was on the weaker side with GDP contracting by 0.8% in the previous quarter.
On the corporate side, Nestlé won the race to acquire Pfizer’s baby-food business in a $12 bln deal and
Vodafone will be acquiring Cable & Wireless, for around $1.6 bln.
• Americas: Earnings news helped US markets rally during the week even as economic data remained
weak.Technology stocks in particular benefited from the earnings newsflow and the NASDAQ gained.
The Federal Reserve reiterated commitment to leave interest rates at low levels until 2014 and also
indicated that it is ready to consider further stimulus to support the economy. The US economy grew
by 2.2% in the first quarter of 2012 (slowed from 3% growth in previous quarter) helped by consumer
spending. University of Michigan’s final consumer sentiment index for April showed an improvement,
while durable goods orders for March witnessed a decline. Mexico’s central bank left interest rates
unchanged at 4.5% and expressed increased optimism over growth prospects. Walmart’s stock was
impacted after reports that Mexican government is probing bribery allegations.

2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 1.13 Xetra DAX 0.76
FTSE Eurotop 100 0.41 CAC 40 2.44
MSCI AC Asia Pacific 0.07 FTSE 100 0.09
Dow Jones 1.53 Hang Seng -1.28
Nasdaq 2.29 Nikkei -0.42
S&P 500 1.80 KOSPI 0.04
India - Equity
Markets were impacted by FII outflows amidst relatively weak sentiment in the Asian region. Mid and small
cap stocks witnessed relatively higher declines than their large cap counterparts. Amongst sectors, realty, power
and capital goods indices fell relatively more, while technology indices managed to close in the positive
territory. FII flows turned negative to the tune of $314 mln in the first four trading days of the week.
The telecom regulator (TRAI) has released its recommendation on spectrum auctions and this weighed on
telecom stocks. In their current form, these recommendations can result in additional capital outlay for players
(especially the ones with cancelled licenses).
• Monsoons: The India Meteorological Department (IMD) has predicted normal rains in the upcoming
monsoon season - total rainfall is expected to be at 99% of the long term averages.While the agriculture sector’s
contribution to India’s GPD has been coming down (around 17% currently), it accounts for a large chunk of
employment. Given that a large part of the sector is dependent on rains (only around 45% of the cropped area
is irrigated), monsoons impact food production and inflation.
45 30%
All India - Net irrigated area as % of net sown Agriculture (as % of GDP)
area
40 27%
24%
35
21%
30
18%
25 15%
20 12%
F1990
F1991
F1992
F1993
F1994
F1995
F1996
F1997
F1998
F1999
F2000
F2001
F2002
F2003
F2004
F2005
F2006
F2007
F2008
F2009
F2010
F2011
F2012*
F1978
F1979
F1980
F1981
F1982
F1983
F1984
F1985
F1986
F1987
F1988
F1989
F1990
F1991
F1992
F1993
F1994
F1995
F1996
F1997
F1998
F1999
F2000
F2001
F2002
F2003
F2004
F2005
F2006
F2007
F2008
F2009
Source: Morgan Stanley, CSO, CMIE
• Outlook: The recent slowdown in FII inflows into India is in line with the global trends – the sharp rally
in global markets in the first two months of 2012, has tempered over the last month or so. This is largely
due to renewed fears around Europe and concerns about global growth amidst rising commodity prices.

3. For India, additional issues in terms of policy and changes to foreign investment taxation norms have
weighed on the markets.
We don’t expect the S&P change in outlook to have a significant impact and investors might focus on
individual company fundamentals rather than sovereign ratings.The concerns highlighted by S&P (deficits
and slowdown) are nothing new and have been largely factored into current valuations. Notwithstanding
the recent issues, India continues to be one of the most attractive investment opportunities for long term
investors and many of them are likely to increase exposure at attractive valuations. The important task in
front of the government is to change the perception about policy inaction/uncertainty, and there are signs
that we could see some progress on this front
Weekly change (%)
BSE Sensex -1.38
S&P CNX Nifty -1.89
S&P CNX 500 -2.25
CNX Midcap -3.38
BSE Smallcap -2.94
India - Debt
Government bond yields rose across maturities due to supply concerns while the short end yields remained flat.
Importer led demand continued to weigh on the rupee and the scheduled GOI auctions received a good response.
• Yield Movements: The 10-Yr Benchmark yield rose 20 bps. The 5-Yr Gilt yield rose 13 bps while the
5 –Yr AAA corporate bond yields rose 4 bps and the spreads compressed to 87 bps.Yields for 1 yr Gilt remained
unchanged while the 30 yr Gilt yields rose 20 bps. Spreads between the two widened to 80 bps.
• Liquidity/Borrowings: Liquidity remained tight with repos averaging Rs. 1,13,514 Crore as against
Rs. 94,629 Crore last week.The overnight rates closed marginally lower at 8.35% compared to 8.40% last week.
The scheduled auctions in four dated G-secs worth Rs. 16,000 crore witnessed bids of around Rs.40,000 crores
and were fully accepted.
• Forex: The rupee depreciated against the US dollar due to continued importer led demand and FII outflows.
It closed the week at 52.55 about 1% lower compared to previous week. Forex reserves as of April 20 stood
higher at $294.6 bln compared to $ 293.1 bln last week.
• Macro: Latest data indicated that deposit growth (14.3%) in 2012 continued to be lower than the credit growth
(18.7%). S&P’s change in outlook for India’s sovereign rating could lead to higher borrowing costs for Indian
companies, which have been borrowing in overseas markets due to the high interest rates in India.
The government does not borrow in overseas markets and hence there are no implications.
We expect gilts to remain under pressure given the supply pressures in the first half of the fiscal.The central bank
could consider additional liquidity enhancement measures including OMOs to temper the rise in gilt yields.

4. 27.04.2012 20.04.2012
Exchange rate (Rs./$) 52.55 52.07
Average repos (Rs. Cr) 113,514 94,629
1-yr gilt yield (%) 8.11 8.11
5-yr gilt yield (%) 8.56 8.43
10-yr gilt yield (%) 8.68 8.48
Source: Reuters, Bloomberg
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