|
| Economic Indicators |
31-Aug-10
|
30-Jul-10
|
Change
|
| Rs/$ |
47.08 |
46.41 |
1.44% |
| Forex Reserves ($ bn) |
282.55 |
284.18 |
-0.57% |
| Oil Price ($/barrel) |
71.92 |
79.39 |
-9.41% |
| Gold (Rs. / 10 gm) |
18,920 |
17,768 |
6.48% |
| FII Fund flow* |
111,857 |
176,576 |
-64,719 |
| MF Fund flow* |
31,696 |
-44,045 |
75,741 |
| DII Fund flow* |
-45,138 |
-63,231 |
18,094 |
| (DII – MF) fund flow* |
76,834 |
19,186 |
57,647 |
*INR mn.
|
August 2010
|
July 2010
|
| Monthly Inflation (WPI) |
9.97% |
10.55% |
| GDP Growth |
| 5 Year CAGR [2006-2010] |
FY09 |
FY10 |
| 8.30% |
6.70% |
7.40% |
| Benchmark Returns |
1 Y |
3 Y |
5 Y |
| BSE 100 |
17.05 |
7.01 |
18.13 |
| CRISIL Bond Index |
5.73% |
6.47% |
5.53% |
Equity Indices
|
31-Aug-10
|
30-Jul-10
|
% Change
|
| BSE SENSEX |
17,971 |
17,868 |
0.6 |
| S&P CNX NIFTY (50) |
5,402 |
5,368 |
0.7 |
| INDIA BSE MIDCAP |
7,597 |
7,408 |
2.6 |
| CNX MIDCAP INDEX |
8,680 |
8,415 |
3.1 |
Global Indices
|
31-Aug-10
|
30-Jul-10
|
% Change
|
| DOW JONES INDUSTRIALS |
10,015 |
10,466 |
-4.3 |
| HANG SENG |
20,537 |
21,030 |
-2.3 |
| FTSE 100 |
5,225 |
5,258 |
-0.6 |
| NIKKEI 225 STOCK AVERAGE |
8,824 |
9,537 |
-7.5 |
Fixed Income Yields
|
31-Aug-10
|
30-Jul-10
|
% Change
|
| NSE Mibor |
5.13% |
4.86% |
0.27% |
| 5 year G-Sec |
7.68% |
7.62% |
0.06% |
| 5 year AAA |
8.54% |
8.53% |
0.01% |
| 10 year G-Sec |
7.95% |
7.82% |
0.13% |
| 10 year AAA |
8.78% |
8.83% |
-0.05% |
Fixed Income
The debt market started the month on a bearish note. However, market sentiment changed during the middle of the month following comments from one of the RBI Deputy Governors that RBI had done enough to manage inflationary expectations. Also adding to the positive sentiment was the FOMC meeting held on August 10, 2010. The Fed left its benchmark federal funds rate unchanged at 0-0.25%. The Fed presented downward assessment to economic growth of US. Fed also announced that it would use the proceeds from it mortgage bond portfolio to buy long term Treasury securities. The IIP figure for the month of June was seen at 7.1% which was less than the market expectations. All these factors led to a considerable improvement in the government securities market.
RBI released its annual report for the year 2009-10. While the growth outlook for 2010-11 remained robust, RBI stressed that inflation had emerged as a major concern. The yields increased on the back of this report and the 10 year benchmark security 7.80% due 2020 closed at a yield of 7.95% as on 31 August, 2010. Real GDP growth rose to 8.8% y-o-y in Q1 2010 from 8.6% in the last quarter, in line with expectations, led by higher agriculture and services sector growth and suggesting robust domestic demand. The WPI inflation for the month of July was noted at 9.97%. The Indian Rupee depreciated to 47.08 against the dollar as on 31 August 2010.
Outlook
We expect the debt market to trade in a range with domestic and international data to play a major role. Elevated inflation, uncertainty over the monetary policy meeting due in September and tight system liquidity conditions will continue to keep bond markets under pressure. We expect corporate yields to remain under pressure owing to tight system liquidity. We expect the Indian rupee to remain weak against the dollar over the next few weeks. However, from a medium term perspective, we expect Rupee to appreciate against the US dollar.
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Equity
Markets moved in a narrow range in August, despite very strong buying from the FIIs, who bought US$2.4bn worth of Indian Equities during the month. Domestic institutions, however, continued to be on the selling side. While lack of negative news and easy liquidity conditions globally acted as incentive for foreigners to buy Indian Equities, rich valuations and lack luster performance of corporate India in the first quarter of the fiscal led to selling by domestic institutions. Quarterly earnings turned out to be a key driver for stock performance. Stocks that surpassed earnings expectations performed well, while those that disappointed attracted selling.
Outlook
Global economic data points in the recent past have been disappointing. Second quarter US GDP growth was revised down from 2.4% to 1.6%. Thus, economic recovery is happening at a pace lower than anticipated. Further, the domestic economic data also seems to be losing momentum. Industrial production (IP) growth decelerated to 7.1% yoy in June (11.3% yoy in May and 16.5% yoy in April 2010). Corporate earnings data for Q1FY11 suggests that there will be a downgrade to full year earnings estimates. While foreign buying continues to keep the markets buoyant, a number of forces including rising interest rates, slower than expected earnings growth and rich valuations (Sensex is at 18x FY11E) are likely to keep the upside limited. From a long-term perspective, India remains an attractive investment opportunity given the high economic growth.
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