1. International
Global equity markets closed the week and the month of July on a positive note, helped by hopes of
robust economic and earnings data, and expectations that US Fed will keep stimulus in place.The MSCI
AC World Index closed up 0.97% (up 4.69% in July), but Emerging Markets witnessed declines (up
0.77% in July). Benchmark treasury bond markets were range-bound and closed marginally higher, even
as central bank news flow emphasised status quo. In commodity markets, gold prices edged lower and
grain/food prices softened on estimates of higher US production. Gain in crude oil prices helped offset
losses partially and the Reuters Jefferies CRB index closed down 0.24%. The index managed to clock
gains of 3.02% last month. In currency markets, Euro registered gains against major currencies on
expectations of better growth, whilst US dollar gained amidst continued speculation about the direction
of US quantitative easing.
• Asia-Pacific: Asian markets exhibited divergent trends – while Japan, Greater China equities recorded
gains, India, Indonesia and Taiwan posted declines. Japan industrial production declined 3.3%, but
unemployment rate eased to 3.9% and ratio of jobs available to job seekers increased. China’s official
PMI index data contrasted with HSBC’s release – the former index improved slightly to 50.3 from
50.1, indicating pick up in the pace of growth.The services PMI data also showed signs of recovery in
the sector. Chinese central bank infused liquidity through reserve repo operations. Indonesia reported
sharp rise in inflation on the back of fuel price hike, and a fall in exports caused the trade deficit to
widen. Indonesia’s economy expanded by 5.81%yoy in the June quarter, less than market expectations
and corresponding quarter last year.
• Europe: Regional stock markets rose amidst robust economic data and continued central bank
support. Euro zone unemployment rate stayed at 12.1% but the 24,000 reduction in the number of
unemployed suggested economy may be turning the corner. UK manufacturing and construction
activity expanded. ECB and BoE remained on hold. Central banks in Israel and Czech Republic also
left rates unchanged. Publicis and Omnicom announced a $35 bln merger, creating the world’s
largest advertising agency. Barclays announced a $8.9 billion rights issue to meet regulatory
requirements and Deutsche Bank is planning reduce its balance sheet to meet leverage requirements.
• Americas: US equity markets climbed higher towards the close of week as mixed jobs report
sparked speculation the US Fed will defer stimulus pullback. Non-farm payrolls increased by
162,000, but less than market expectations, and the jobless rate eased to 7.4%. In contrast, US June
quarter GDP growth data surprised on the upside – growth accelerated to 1.7% from 1.1% in the
sequential previous quarter. The US’s Bureau of Economic Analysis has also announced a change
in methodology for calculating GDP (inclusion of R&D, entertainment...etc), which added
around 3% to the US GDP. Elsewhere in the region, Brazil sold currency swaps to strengthen the
real. On the corporate front, Irish biotechnology firm Elan is being purchased by Perrigo for $8.6
bln. JP Morgan Chase said it would pay $410 mln penalty to regulators on charges of manipulating
power prices.
Market Review
WEEK ENDED AUGUST 02, 2013
2. Weekly Weekly
change (%) change (%)
MSCI AC World Index 0.97 Xetra DAX 1.97
FTSE Eurotop 100 1.65 CAC 40 1.94
MSCI AC Asia Pacific 0.10 FTSE 100 1.42
Dow Jones 0.64 Hang Seng 1.01
Nasdaq 2.12 Nikkei 2.38
S&P 500 1.07 KOSPI 0.66
India - Equity
Weak domestic economic news along with earnings data, amidst concerns about the impact of rupee-
related policy measures, weighed on Indian equities markets. Mid and small cap stocks underperformed
large caps amidst risk aversion. Real estate and power stocks recorded double-digit losses. The week
witnessed $145 mln FII outflows in the first four trading days of the week.
• Macro/Policy: As per latest data, the index of eight core infrastructure industries, which has 37.9%
weight in the IIP, witnessed marginal growth in June (up 0.1%yoy) due to fall in coal, natural gas and
crude oil output. India’s HSBC manufacturing PMI index dipped to 50.1 from 50.3. This week, the
government announced a higher interest rate subvention for exporters and eased some of the FDI
restrictions placed on multi-brand retail sector (such as local sourcing) and clarified policy stance on
others.These changes have been made to address concerns raised by some of the large foreign players.
• Corporate Earnings: The corporate earnings season has been a mixed bag so far.While results from
IT, Telecom and private banking sectors exceeded market expectations, reduced consumer spending
weighed on earnings performance of FMCG and consumer discretionary businesses. In continuation
of recent trends, results from the capital goods/infrastructure related industries disappointed markets.
Indian pharmaceutical companies were able to counter slower product off-take in domestic segment
(ahead of new drug pricing rules taking effect), through exports. In the banking sector, private and
retail sector focused banks continued to fare well, while PSU banks showed increase in asset quality
pressures.The current tough market conditions are likely to result in increased differentiation in the
performance of banks, and those with stronger financial position are likely to outperform.
As we have shared earlier, there are tentative signs of growth bottoming out and GDP growth may be
slightly better than last year. However, a meaningful recovery in economic growth will take time,
especially as monetary policy focus has shifted towards rupee stability. Given this, we think Corporate
India earnings growth will be subdued in the current financial year. Fresh policy measures to boost
growth along with the outcome of national elections next year, will shape the outlook for the next
year and beyond. Companies deriving a fair share of revenues from overseas/US markets may be
relatively better placed than pure domestic demand plays over the near term.
3. Weekly change (%)
S&P BSE Sensex -2.96
CNX Nifty -3.54
CNX 500 -4.27
CNX Midcap -5.88
S&P BSE Smallcap -6.13
India - Debt
Indian bond markets took a breather this week as RBI left benchmark rates unchanged and indicated that
recent liquidity measures are temporary in nature and will be gradually reversed as the rupee stabilizes.The
rupee however reversed recent gains and closed 3.4% lower. RBI move to tighten hedging norms for FIIs
helped the rupee recover somewhat.
• Markets: Yields edged lower at the shorter end of the curve, while those at the longer end stood slightly
higher. With the daily LAF borrowings capped, banks were seen tapping the MSF window. Overnight
call money rates however closed the week lower. Scheduled GOI bond auctions received good response
but two of the securities partially devolved on primary dealers. Muted FII flows caused the rupee to
weaken against the US dollar this week.
Source: CEIC, Bloomberg Finance LP, Deutsche Bank
• Policy: The overall policy tone remains cautious (with a dovish tinge) and reflects the trade-off between
external sector stability & growth.We need to keep in mind that large EM countries (Brazil,Turkey and
Indonesia) have been undertaking tightening measures to defend their currencies. RBI has indicated
that barring the rupee pressures, the overall macro situation would have provided adequate background
to ease rates further. However, the central bank has decided to focus on external sector stability for the
time being and has indicated a gradual reversal of liquidity tightening, as rupee settles into a stable band
against the US dollar. Given the weak growth environment in India and overseas, the case for monetary
easing could only become stronger. The government needs to focus on addressing the CAD concerns
and boost investor confidence (both domestic and foreign) through concrete measures.
