May 2015

CONTENT

INDIAN ECONOMY

1

INDIAN EQUITY MARKET

2

INDIAN FIXED INCOME

3

GLOBAL EQUITY MARKET

5

GLOBAL FIXED INCOME

5

CURRENCY

6

COMMODITY

6

View from the Top

Indian equity and debt markets suffered considerable setback in April. One of the key triggers for the sell-off in both the markets was uncertainty about retrospective taxes, which could be imposed on foreign investors. Recovery in global crude oil prices and forecast of sub-normal monsoon may result in higher inflation numbers going forward. This lowered the possibility of a further rate cut by the Reserve Bank of India (RBI) in the near term. Selling pressure also intensified on account of persistent worries over Greek debt crisis, disappointing U.S. economic data and a cautious stance by the U.S. Federal Reserve. On the equity front, decline in large-cap stocks was more severe than mid- and small-cap stocks. Investors were also uncertain about a near-term pickup in corporate earnings, which could justify the recent run up in valuations. On the debt side, the yield on the 10-year benchmark GOI bond touched the level of 7.86% and continued to show signs of weakness. Meanwhile, foreign investors retreated from bond markets and emerged as net sellers in April. Gold prices remained flat during the month. The impact of a sell-off by foreign institutions was felt on the rupee, which along with other Asian currencies, weakened against the dollar. Amid a series of negative news, there were some positives as well. A global rating agency raised India’s sovereign outlook. Moreover, the World Bank projected India’s GDP growth at 7.5% in FY16 and said that the country has taken strong strides towards higher growth and enhanced stability. The country’s industrial production grew at 5% in February on account of improvement in mining and manufacturing activities. Both, retail and wholesale inflation declined in March. On the global front, most markets closed in green though concerns over Greece remained. Chinese markets gained considerably during the month. At the same time, robust corporate earnings boosted markets in the U.S. The Securities and Exchange Board of India has allowed foreign investors to reinvest in Government bonds the same day.

Outlook

The trend of global oil prices will be closely tracked. A recovery in oil prices could undermine the Central Bank’s ability to cut interest rates. The cloud of an impending interest rate hike in the U.S. is likely to re-emerge as the U.S. economy strengthens. Fund flow from foreign institutions will be a key determinant in the near-term outlook in the markets. A further decline in the rupee could boost export-oriented firms such as those in the technology space.

We are pleased to bring to you the latest version of the Monthly Market Buzz for May. Happy Reading!!!

Maneesh Ajmani Head - Wealth Management

INDIAN ECONOMY

• The Reserve Bank of India (RBI), at its first Bi-monthly

Economic Releases in April-2015

Monetary Policy review for 2015-16, kept the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 7.5% as it sought more clarity on inflation. Consequently, the reverse repo rate under the LAF remained unchanged at 6.5% and the Marginal Standing Facility rate and the Bank Rate remained at 8.5%. The Cash Reserve Ratio of scheduled banks also remained unchanged at 4.0% of Net Demand and Time Liabilities.

Key Indicator

Period

Actual

Previous

Repo Rate

Apr-15

7.50%

7.50%

Reverse Repo

Apr-15

6.50%

6.50%

CRR

Apr-15

4.00%

4.00%

Feb-15

5.00%

2.80%

Mar-15

-2.33%

-2.06%

Export (Y-o-Y)

Mar-15

-21.06%

-14.99%

• The Index of Industrial Production (IIP) for February grew at a

Import (Y-o-Y)

Mar-15

-13.44%

-15.68%

robust 5% against a contraction of 2% in February last year. This can be attributed to growth in capital goods and consumer goods sectors. The capital goods output grew at 8.8% compared to -17.6% in the same period last year while the consumer goods output growth stood at 5.2% compared to -5.2% in the same period. The manufacturing sector output grew at 5.2% compared to -3.9% in the same period last year. The IIP data for January has been revised to 2.8% from 2.6%.

Index of Industrial Production (IIP) Wholesale Price Index Inflation(WPI)

Source: RBI, Reuters Monthly WPI Movement

Growth (%)

9.00

5.00

1.00

-3.00 Mar-13

• Consumer Price Index-based inflation fell to 5.17% in March Sep-13

Mar-14

Sep-14

Mar-15

Source: Office of the Economic Adviser, Ministry of Commerce & Industry

IIP Movement

Growth (%)

16.00

from 5.37% in February. Food inflation also came down to 6.14% in March from 6.88% in February. While rural inflation declined to 5.58% in March from 5.79% in February, urban inflation fell to 4.75% from 4.95% in the same period.

8.00

• Wholesale Price Index (WPI)-based inflation contracted for

0.00

the fifth straight month and stood at -2.33% in March against -2.06% in February. WPI inflation for manufactured products stood at -0.19% in March compared to 0.33% in February. Food articles inflation fell to 6.31% from 7.74% in February. WPI for primary articles fell to 0.08% in March from 1.43% in February.

-8.00 -16.00 Feb-10

Feb-11

Feb-12

IIP (%MoM) Source: Reuters

Feb-13

Feb-14

IIP (%YoY)

Feb-15

• India’s trade deficit widened to $11.79 billion in March from $6.85 billion in February. Trade deficit for the full financial year 2014-15 widened to $137.01 billion compared to $135.80 billion recorded in the previous year. While exports for March rose to $23.95 billion from $21.55 billion in February, imports rose to $35.74 billion in March from $28.39 billion in the previous month.

• Foreign Direct Investment (FDI) in India rose by 63% to $3.28 billion (about Rs. 20,397 crore) in February, 2015. In February last year, the country had received FDI worth $2.01 billion. During the period from April to February period of 2014-15, foreign fund inflows rose by 39% on a yearly basis to $28.81 billion. The inflows stood at $20.76 billion during the same period a year ago.

• HSBC Services Purchasing Managers’ Index fell to 53.0 in March from 53.9 in February but still higher than January’s figure of 52.4. New business grew but at a slower rate compared to the previous month. Employment generation rose during the reported month after relative job stagnation in February.

• Data released by the Society of Indian Automobile Manufacturers showed that domestic passenger car sales grew 2.64% to 1,76,011 units in March against 1,71,491 units in the same month of the last year. Sales of commercial vehicles were up 2.14% to 65,470 units in March. For the entire fiscal 2014-15, domestic car sales grew by 4.99% to 18,76,017 units compared to 17,86,826 units in the previous fiscal.

Page | 1

• Indian equity markets extended losses during the month as

Indian Equity Market Growth of Rs 10,000 over Last 3-Yrs

Figure in INR

18,000 14,000

10,000 6,000 Apr-12

Apr-13

S&P BSE Mid cap

Apr-14

S&P BSE Sensex

Apr-15

S&P BSE Small cap

Source : MFI Explorer

29,200

11000

28,400

4500

27,600

-2000 2-Apr-15

11-Apr-15

20-Apr-15

FII/FPI Net investment

S&P BSE Sensex Index

Figure in INR (Cr.)

DII, FII Investment & S&P BSE Sensex - April 2015 17500

26,800 29-Apr-15

DII Net investment

Source: MFI Explorer

Monthly returns as on April 30, 2015 S&P BSE Metal

3.5%

S&P BSE Bankex

0.8%

S&P BSE Small cap

0.5%

S&P BSE Consumer Durables

-0.4%

S&P BSE PSU

-0.6%

S&P BSE Oil & Gas

-1.5%

S&P BSE Mid cap

-1.7%

S&P BSE FMCG

-3.3%

S&P BSE Sensex

-3.4%

CNX Nifty

-3.6%

S&P BSE Capital Goods

-4.5%

S&P BSE Auto

-4.8%

S&P BSE Realty S&P BSE Health care

-5.5%

• Later during the month, bourses witnessed pressure

-6.4%

-7.4% S&P BSE Teck -8.7% S&P BSE IT -10% Source: MFI Explorer

sentiments improved after a global rating agency revised India's sovereign rating outlook from "stable" to "positive". The rating agency said that India's growth may remain stronger than the global average and more robust than the median for similarly-rated sovereigns, following recent policy announcements. Bourses got more support after the Cabinet Committee on Economic Affairs approved increase in investment limit of Foreign Institutional Investors in a prominent pharmaceutical company. However, gains were restricted following the Reserve Bank of India’s move to keep the policy rates unchanged at its monetary policy review.

country’s industrial production grew at 5% in February on account of improvement in mining and manufacturing activities. The country’s retail inflation unexpectedly slowed to a three-month low in March while the Wholesale Price Index (WPI)-based inflation for March touched a record low of (-) 2.33%. Lower inflation numbers raised the possibility that the RBI may cut interest rates in the near term.

-2.1%

S&P BSE100

• Markets remained firm initially during the month as investor

• Markets found support again after data showed that the

-1.2%

S&P BSE Power

concerns over Minimum Alternate Tax (MAT) triggered foreign fund outflows. Weak monsoon forecast, delay in passage of Land Acquisition Bill and widening of trade deficit to a four-month high in March also weighed on investor sentiments. Uncertainty over Greece’s debt situation and cautious stance by the U.S. Federal Reserve put further pressure on the bourses. However, markets found some support after a major global rating agency raised India's sovereign rating outlook. Moreover, the World Bank projected India’s GDP growth at 7.5% in FY16 and said that the country has taken strong strides towards higher growth and enhanced stability.

-5%

0%

5%

following disappointing quarterly results from major IT companies. Investor sentiments dampened further after a major global rating agency downgraded Greece’s credit rating. Selling pressure intensified amid concerns over the impact of retrospective taxation for Foreign Institutional Investors and after data showed that the country's trade deficit widened in March. Meanwhile, a global rating agency said that emerging economies in Asia-Pacific region, including India, have a high degree of immunity to external shocks, but may face challenges when the U.S. Federal Reserve begins raising interest rates.

• Towards the end of the month, markets remained weak on concerns over foreign fund outflows due to uncertainty pertaining to MAT. Selling pressure was also triggered on account of persistent worries over Greek debt crisis, disappointing U.S. economic data and cautious stance by the U.S. Federal Reserve. Page | 2

• Bond yields rose after the RBI left its key policy rates

Indian Fixed Income Indicators (Yield %)

April 30, 2015

March 31, 2015

Call Rate

7.70%

11.21%

1 Mth NSE Mibor

8.09%

8.76%

10‐Yr benchmark bond

7.86%

7.74%

Reverse Repo

6.50%

6.50%

Repo

7.50%

7.50%

Bank Rate

8.50%

8.50%

CRR

4.00%

4.00%

• Initially during the month, bond markets were hit after

Source: Reuters

the Central Bank maintained status quo at its first bimonthly monetary policy review for 2015-16. Investor sentiments dampened as the RBI stated that further monetary easing will depend on factors like commercial banks reducing their lending rates and the movement of consumer inflation going forward.

10-Yr Benchmark Bond

Yield (%)

9.0 8.5

• Bond yields traded in a thin range thereafter till the end

8.0 7.5 Apr-14

Aug-14

Dec-14

Apr-15

Source: Reuters

7.94

15

7.86

10

7.78

5

7.70

0

1 Yr

5 Yr

10 Yr

Change in bps

20 Yr Apr-15

Change in bps

Yield (%)

India Yield Curve Shift (Month-on-Month)

30 Yr Mar-15

8.71

-50

8.23

-100

-150

7.75 1 Yr

5 Yr

Change in bps

10 Yr

20 Yr

Apr-15

30 Yr

Apr-14

Change in bps

0

• Bond yields rose later ahead of the Fed’s policy review.

• Government bond yields increased in the range of 2 bps

India Yield Curve Shift (Year- on- Year) 9.19

of the month due to absence of any fresh trigger. Bond prices got some support after Moody's Investors Service raised India’s rating outlook from stable to positive. The credit rating agency expects that the action by policymakers will improve the country's economic strength in the medium term. The trend of the bond market reversed again as investors became cautious ahead of the inflation data though lower domestic inflation numbers for March helped ease concerns.

Fall in the rupee and rise in global crude oil prices also hit the bond market. During the month, Brent crude oil prices rose nearly 20% and the rupee weakened around 1.5% against the dollar, which increased inflationary concerns.

Source: Reuters

Yield (%)

unchanged. Rise in international oil prices and weakness in the rupee also hit the bond markets. Bond yields moved up further on concerns over rise in inflation, subnormal monsoon and uncertainty over the U.S Federal Reserve’s stance on interest rate hike. As a result, the yield on the 10-year benchmark bond rose 12 bps to close at 7.86% against the previous month’s close of 7.74%, after moving in the range of 7.72% to 7.86%.

to 13 bps across the yield curve. The impact of rise was more visible towards the far end of the curve. In case of corporate bonds, yields increased across the maturities in the range of 8 bps to 11 bps, barring 1 to 3-year papers that fell by up to 18 bps. Spread between AAA Corporate bond and Gilt contracted by up to 23 bps across the segments, except the 4-year paper, where the spread expanded by 5 bps.

Source: Reuters

• The RBI conducted the auctions of Government Securities worth Rs. 64,000 crore and the cut-off yield stood in the range of 7.68% to 7.94%. Auctions of State Development Loans were also conducted and the allotted amount stood at Rs. 16,740 crore, for which the cut-off yield stood in the range of 8.05% to 8.1%.

Page | 3

• Interbank call money rate remained in the range of 7.25% 115,000

14

-5,000

11

-125,000

8 Apr-13

Dec-13

-245,000 Apr-15

Aug-14

M3 Supply

Rs. in Crore

in (%)

Liquidity Monitor- M3 Supply and Net Borrowings 17

Net Borrowings

Source: Reuters

Spread (in bps)

90

10 Year Corporate Bond Spread (for AAA & AA bonds)

• The Central Bank continued to conduct term repo auctions

60

30 0 Apr-14

Aug-14 AAA Bond Spread

Dec-14 AA Bond Spread

Apr-15

Source: Reuters

Movements of Key Policy Rates in India 9.0

(%)

7.0

Apr-12

Apr-13

Reverse Repo

Apr-14

Repo

Apr-15

• Data from the RBI showed that External Commercial

Spread (in bps)

Borrowings and Foreign Currency Convertible Bonds stood at $2.66 billion in March compared to $2.26 billion in the previous month.

5 Year Corporate Bond Spread (for AAA & AA bonds)

• Data on sectoral deployment of bank credit showed that non-

60

20 Apr-14

Aug-14

AAA Bond Spread Source: Reuters

foreign investors to reinvest in Government bonds the same day.

CRR

Source: RBI

100

under its revised liquidity framework to ensure that liquidity condition within the system remains comfortable. During the first half of the month, the Central Bank conducted term repo auctions and allotted Rs. 79,525 crore in April and the cut-off stood in the range of 7.51% to 8.20% compared to Rs. 2,28,895 crore in March. In the second half, the RBI conducted auctions of various variable rate repo (ranging from overnight to 15-day) and allotted cumulatively worth Rs. 134,129 crore. The cut-off rate stood in the range of 7.51% to 7.60%.

• The Securities and Exchange Board of India has allowed

5.0

3.0 Apr-11

and 7.72% during the month due to comfortable liquidity position in the banking system. Banks’ net average lending through the Liquidity Adjustment Facility (LAF) window stood at Rs. 157.75 crore, compared to the previous month’s average borrowing of Rs. 1,931.92 crore. Banks’ average borrowings under the Marginal Standing Facility (MSF) window stood at Rs. 1,174 crore, lower compared to the previous month’s average borrowing of Rs. 3,085.60 crore.

Dec-14

AA Bond Spread

Apr-15

food bank credit increased by 8.6% during 2014-15 (March 21, 2014 to March 20, 2015) compared to an increase of 14.3% during 2013-14 (March 22, 2013 to March 21, 2014). Credit to agriculture and allied activities increased by 15% during 2014-15 compared to 13.5% rise during 2013-14.

• The International Monetary Fund (IMF) and the World Bank in separate forecasts estimated that India's economic growth will overtake that of China’s in 2015 to become the world's fastest growing economy. The gap is expected to widen further in 2016. Both the IMF and the World Bank estimate India's GDP growth rising to 7.5% in 2015 from 7.2% in the previous year.

Page | 4

GLOBAL EQUITY MARKET

United States

• The U.S. markets rose following upbeat quarterly corporate

Performance of Major International Markets (as on April 30,2015) Indices

Country

1 Mth (%)

Nasdaq 100

U.S.

1.86

S&P 500

U.S.

0.85

DJ Industrial Avg

U.S.

0.36

SET Composite Index

Thailand

1.38

Jakarta Composite

Indonesia

-7.83

earning numbers and a series of positive economic data. Bourses gave up most of the gains towards the end of the month following weak U.S. GDP data for the first quarter of 2015. Lack of guidance from the U.S. Federal Reserve (Fed) regarding its outlook on key interest rate also hit the markets.

United States

Europe

Asia Pacific

Straits Times Index

Singapore

1.17

South Korea

4.22

Nikkei Stock Average 225

Japan

1.63

Taiwan SE Weighted Index

Taiwan

2.44

Shanghai Composite Index

China

18.51

S&P BSE Sensex

India

-3.38

Australia

-1.72

U.K.

2.77

KOSPI Index

S&P/ASX 200

• European markets remained under pressure during the month except the U.K. bourses, which rose 2.77%. Surge in Euro zone confidence data, which rose to the highest level in nearly seven and half years in April, and recovery in German export and industrial production in February supported the markets initially. However, the trend reversed later on worries over Greece and more-than-anticipated slowdown in the U.K. economic growth. Asia

• Asian markets rose as investor sentiments improved after

Europe FTSE 100 CAC 40 DAX Index

France

0.26

Germany

-4.28

China's State Council announced measures to expand the scope of the country’s 1.2 trillion-yuan social security fund. Meanwhile, the Bank of Japan continued with its decision to increase monetary base at an annual base of 80 trillion yen. Bourses witnessed some pressure after China's GDP growth slowed to a six-year low in the first quarter of 2015. However, hopes of more stimulus measures from Chinese policy makers following some weak economic data boosted investor sentiments.

Source: MFI Explorer & Reuters

GLOBAL FIXED INCOME - U.S. TREASURY • The yield on the 10-year U.S. Treasury bond rose by 11 bps

U.S. Treasury Yield Curve Shift (Month-on-Month) 20.90

3.00

25

Yield (%)

9.00

Change in bps

11.00 6.50

2.00

11

-0.31

1.00 -3.04

-3.29 -9.66

-3

2.00 3.20

Change in bps

30-Apr-15

30 Years

10 Years

7 Years

5 Years

3 Years

2 Years

1 Year

6 Months

3 Months

-17 1 Month

0.00

• Later, Treasury prices got some support on the back of slower pace of rise in U.S. retail sales and sharp drop in U.S. industrial production. Moreover U.S. housing starts grew less than expected in March and jobless claims rose unexpectedly in the week ended April 11.

31-Mar-15

Source: Reuters

3.00

Yield ( %)

during the month under review to close at 2.04% compared to the previous month’s close of 1.93%. The U.S. Treasury prices witnessed some volatility in the first half of the month as U.S. jobs data witnessed a mixed trend.

• However, bond prices fell after the European Central Bank

U.S. 10 Year Treasury Yield

2.50

2.00

1.50 Apr-14

Movement during the Month Aug-14

Dec-14

Apr-15

downplayed the chances of Greece leaving the Euro zone. Treasury prices fell further after existing home sales in the U.S. rose more than expected in March. The trend continued after the Fed stated at its monetary policy review that the sluggishness in the U.S. economy was temporary and did not provide any timeline for raising interest rates.

Source: Reuters

Page | 5

CURRENCY

INR

• The rupee weakened against the dollar initially during the

Movement of Major Currencies (as on April 30, 2015) Value (as on30-Apr-2015)

1 Mth

3 Mth

1 Yr

U.S. Dollar

63.58

62.59

61.76

60.34

Pound Sterling

97.99

92.46

93.13

101.45

Euro

70.53

67.51

70.03

83.31

Yen (Per Rs.100)

54.00

52.00

52.00

59.00

Currency

Source: RBI

month after the RBI maintained status quo at its first bimonthly monetary policy review for 2015-16. The rupee fell further, tracking decline in other Asian currencies amid concerns over a slowdown in China. Weakness in domestic equity markets and upbeat U.S. macroeconomic data hit the rupee further. However, positive wholesale inflation data and upbeat Indian economic growth outlook by the International Monetary Fund restricted the losses. EURO

• The euro rose against the dollar initially during the month on Rupee Versus Dollar during the year

INR V/S USD

64 62 60 58 Apr-14 Source: RBI

Aug-14

Dec-14

Apr-15

the back of weaker-than-expected U.S. jobs data in March. However, the trend reversed as divergence between the monetary policies in the U.S. and Euro region continued to weigh on the euro. The euro rose again and closed the month in green after the U.S. new home sales numbers in March registered the biggest decline since July 2013. The euro got more support as the U.S. economic growth eased more than expected in the first quarter of 2015.

Crude

• Oil prices surged around 20% and hit the highest level of the

COMMODITIES Performance of Various Commodities

Commodities

Last Closing 30-Apr-15

Crude Brent ($/Barrel) Gold ($/Oz) Gold (Rs/10 gm) Silver ($/Oz) Silver (Rs/Kg)

Returns (in %) 1 Wk

1 Mth

6 Mth

1 Yr

63.75

1.98

19.63

-24.57

-41.50

1,183.85 27,047.00 16.12 37,454.00

-0.82 1.64 1.58 4.30

0.06 3.11 -3.01 1.27

0.85 4.55 -0.12 5.18

-8.32 -9.16 -15.65 -10.59

Source: Reuters

year during the month. Signs of falling production in the U.S. and concerns over Yemen boosted oil prices. Rising tensions in Yemen increased worries over supply disruption from the Middle East. Crude oil prices found further support after Saudi Arabia’s Oil Minister said that the nation may hike oil prices if other producers outside the Organization of the Petroleum Exporting Countries joined the effort. However, gains were capped to some extent after Iran and the six world powers reached a deal in broad general terms on the former’s nuclear program. The deal may lead to lifting of sanctions on the nation, resulting in an increase in oil supply. Gold

Commodity prices

120

• Gold prices remained flat during the month amid uncertainty

Movement of Commodity Prices Over 1 Year (Rebased to 100)

90

60

30 Apr-14

Aug-14 Gold (US$)

Dec-14 Silver (US$)

Apr-15

over the U.S. interest rate hike. Weakness in the dollar against the euro and disappointing U.S. economic data supported the safe-haven appeal of the metal. However, the bullion witnessed pressure after the Federal Reserve stated that the recent slowdown in the U.S. economy was transitory and did not rule out the possibility of an interest rate hike this year.

Brent Crude

Source:Reuters

Page | 6

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All information mentioned in this document pertains to the month ended April 30, 2015.

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