Knowledge Quotient

8th March, 2010

Weekly Economic and Market Analysis:

The global economy seems to be downshifting but the anticipated broadening of base taking hold.
EM policymakers remain biased towards growth. Euro area continues to be the laggard, and fallout from the Greek crisis will continue to slow down the region’s overall recovery.
Last week post budget, Sensex and Nifty went up by 565 points (3.44%) and 166 points (3.38%) to close at 16,994 and 5,089 respectively.
The G-Sec bonds yields hardened on fuel price hike and expectation of higher inflation.
The INR strengthened 1% last week, to 45.78 per USD. It has gained 2% so far this year.
The WTI price of oil increased to $81.50/bbl. Experts are bullish on oil in medium term. Oil prices fluctuated in a range during last two weeks on both falling inventory numbers and lower demand as refineries move into seasonal maintenance.

Global Data Watch
Mar 8, 2010

Data Review		Last	Consensus	Actual	Comments
Global
China PMI mfg (Feb)	Index	57.4	-	55.8	February manufacturing PMIs eased on weather and early impact of shift in lending policy.
Euro area PMI mfg final (Feb)	Index	52.4	54.1	54.2	The recovery in manufacturing picked up pace.
US ISM mfg (Feb)	Index	58.4	57.0	56.5	The Feb ISM manuf moved down.
Australia RBA mtg	%	3.75	3.75	4.00	By hiking another 25bp (forth hike), the RBA signaled that the process of policy normalization has much further to run.
Australia: GDP (4Q)	%q/q	0.9	2.6	2.7	Real GDP expanded 2.7%q/q, three times that in 3Q, mostly driven by domestic factors.
Euro area GDP prelim (4Q)	% q/q	0.4	0.1	0.1	The export recovery is positive, but the 1.3%-pt q/q contribution from net trade was entirely offset by weakness in domestic final sales.
US Pending homes (Jan)	mn	97.8	93.7	90.4	Pending home sales declined 7.6%m/m in Jan after 0.8% rise in Dec and 13.7% fall in Nov. The index has declined 19.6% since its peak in Oct.
US Unemployment rate (Feb)	%	9.7	9.9	9.7	The Jan rate was sustained in Feb, a welcome development.
India
3Q GDP FY10	% yoy	7.9	7.1	6.0%	GDP was lower than expected on negative agri growth and decline in govt spending as reflected in social and community services.
Inflation for Primary Articles for week ending Feb 20	% yoy	15.84	-	15.0	For the week, Food price inflation came down.

Releases in bold are key releases; Out of 10 important data releases, 4 were better, and 5 were worse than expected and 1 was as expected.

Data Review		Last	Consensus	Comments
Global
Germany IP (Jan), Mar 8	%m/m	-2.6	1.5	German industrial production likely rose 1.5%m/m in Jan. The increase would reflect not only positive payback after the sharp 2.6%m/m decline in Dec, but also the huge 4.3%m/m surge in German industrial orders in Jan.
China Trade balance (Feb), Mar 10	$ bn	14.2	4.8	February exports likely rose at a faster pace in %oya terms, reflecting a low base effect but slowed on monthly basis.
Germany Foreign trade (Jan), Mar 10	€ bn,	16.7	-	The recovery in German exports expected to remain firmly on track.
China IP, Mar 11	% m/m	1.1	-0.2	Sequential trend growth in IP likely eased modestly in Jan-Feb, reflecting the Lunar New Year effect as well as the impact of authorities’ various measures to curb excessive credit expansion.
Japan GDP 2nd est (4Q), Mar 11	% q/q	4.6 (1st est)	4.1	Corporate profits rebounded in 4Q, but the second estimate of GDP is likely to be revised down to 4.1%.
Euro area IP (Jan), Mar 12	%m/m	-1.7	1.1	In the Euro area as a whole, industrial production (ex. construction) is expected to have increased 1.1%m/m in Jan.
Japan IP final (Jan), Mar 12	% m/m	1.9	2.5	Japan industrial production to move up in Jan.

Consensus forecasts are preliminary data, releases in bold are key releases.

Equity Market
Mar 8, 2010

Global Equity markets climbed through Monday-Wednesday, remained flat on Thursday and then jumped 1.5% on Friday to a 6-week high. Last week, Equity prices climbed 4.2% in the Euro area, 3.3% in the US, 3.0% in the EM, and 2.3% in Japan. Within Emerging Market, EMEA gained the most at 5.9% followed by EMF Latam at 4.6% and EMF Asia at 3.4%. Last week, Russia was the best performing EM while Morocco was the worst performing.

Global Emerging Market Monitor, Mar 5th, 2010

	Best Performing Market			Worst Performing Market
Market (MSCI)	Russia	Hungary	Turkey	Morocco	Philippines	Jordan
Chg. over week (%)	7.2	5.8	5.6	-2.1	-0.1	0.6

Indian Equity market
Last week, Sensex and Nifty went up by 565 points (3.44%) and 166 points (3.38%) to close at 16,994 and 5,089 respectively. FIIs invested $ 638 mn in cash. For CY10 total investment is $ -1,346 mn. The market continued to be bullish post budget as it met most of the market expectations. The partial roll back of indirect tax was expected and manufacturers are likely to pass on the increase to consumers as pricing power is back with the manufacturers on higher demand. The Finance Minister pledged in the Budget to cut the deficit to 5.5% of GDP in FY11. The growth expectation in FY11 was also pegged higher at 8.5%. Globally, Greek Government stepped up austerity measures to justify EU solidarity and this helped market sentiment. All sectoral indices closed in positive above 1%. The BSE Metal and BSE Realty were the best gainers while BSE IT was the least gainer.

Index Performance (%)

5th Mar’10	Index	% change
BSE Sensex	16,994	3.4
S&P CNX Nifty	5,089	3.4
CNX Midcap	7,585	5.8
BSE Small Cap	8,500	5.4
BSE 100	9,079	3.7
BSE 200	2,152	3.9

Sector Indices Performance

Sectoral Indices	Price as on 5th Mar‘10	Performance (%)
Sectoral Indices	Price as on 5th Mar‘10	Last week	1m	12m
BSE Metal	17,560	7.1	14.3	293.2
BSE Realty	3,460	6.9	6.5	154.6
BSE Auto	7,553	5.3	11.1	189.0
BSE FMCG	2,783	4.5	3.1	47.5
BSE Power	3,088	4.3	4.9	91.1
BSE Bank	10,199	3.8	10.6	173.6
BSE Consumer Durable	4,128	3.2	5.6	178.5
BSE Capital Goods	13,885	3.0	8.5	153.5
BSE Healthcare	5,050	2.8	6.6	98.7
BSE Teck	3,256	2.4	6.9	98.7
BSE Oil & Gas	9,767	1.8	2.0	73.6
BSE PSU	9,324	1.2	2.4	97.6
BSE IT	5,229	1.1	9.0	160.0

Credit Market
Mar 8, 2010

Sovereign Yield

10 yr yield%	Mar 5	1 wk prior	2 wk prior	10 yr yield%	Mar 5	1 wk prior	2 wk prior
India	7.97	7.86	7.88	US	3.69	3.61	3.78

Global Credit markets
US Treasury yields went up. Yelds of 2s were up 10bps by the end of the week, and 10s were up by 8bps.

GOI 10-yr Yield movement

Indian Credit Market
During the week, the G-Sec bonds yields harden on fuel price hike and moved in a narrow range. The 10 year benchmark G-Sec yields moved closer to 8% mark and closed the week higher at 7.97% as against the previous week’s close of 7.86%. During the week, there was ample overall liquidity in the market, average LAF balances were Rs. 65,870 cr (previous week: Rs. 64,308 cr). The overnight money market rates were in the range of 2.00%- 3.40% during the week.
Next week, the G-Sec markets are expected to take cues from industrial production numbers, global cues, inflation numbers and any specific comments from policy makers.

RBI auctions
Last week, RBI auctioned 91day T-bill and 182 day T-Bill for Rs. 4,500 cr and Rs.1,500 cr with higher cut-off yield of 4.22% and 4.70% respectively as against the previous cut-offs of 4.13% and 4.55% respectively. This week, RBI will conduct 10 year SDL auction of Rs. 5,446.96 cr for seven on March 9. RBI announced the auction of 91-day T-Bills and 364-day T-Bills for Rs 5,000 cr and Rs.3,000 cr respectively on March 10.

Forex Reserves
Reserves went down by $315 mn to $278.357 bn for week ending Feb 26, primarily on account of revaluation of Foreign currency assets (-$212 mn). Gold prices also went down by $136 mn.

US$ Mn.	Change over
US$ Mn.	As on Feb 26, 2010	Last week	End-Mar, 09	End-Dec, 2009
Total Reserves	278,357	–315	26,372	–5,113
Foreign Currency Assets	253,991	–212	12,565	–4,592

Forex and Commodities
Mar 8, 2010

Currency Monitor

Base currency : INR	USD	GBP	EURO	YEN
Mar 5th	45.78	68.83	62.15	51.25
1 w prior	46.23	70.66	62.81	51.73
2 w prior	46.47	71.50	62.56	50.55

Source: RBI

Currencies: The USD closed at $1.363/euro, unchanged from previous Friday and 90.3yen/dollar, up 1.5% last week. However, on a trade-weighted basis, the USD slipped 0.4% last week, as EM currencies strengthened 0.8% versus the USD according to JP Morgan’s broad EM currency aggregate.

The INR registered weekly gain for the fourth consecutive week, the longest winning streak since Oct, on stronger regional peers and a higher domestic stock market. The rupee strengthened 1% last week, to 45.78 per USD. It reached 45.605 intraday, the strongest level since Jan 19. The INR has gained 2% so far this year, the third-best performance among the 10 most-active Asian currencies outside of Japan.

Global Commodity Monitor

In USD	Gold	Silver	Crude (WTI)	Copper	Aluminium
Mar 5th (EOD)	1134.65	17.36	81.50	7,545	2,230
1 w prior	1117.60	16.48	79.66	7,195	2,134
2 w prior	1,119.20	16.32	79.81	7,432	2,139

Source: Bloomberg

Commodities: Commodities gained over the week. The WTI price of oil increased $1.29 on Friday, up $1.84 last week to an 8-week high of $81.50/bbl. The current price is less than $2 from the year-to-date high of $83.18. Crude oil has traded in a narrow range between $77 and $82 in the past two weeks, as the market moved between falling inventory numbers and lower demand as refineries move into seasonal maintenance. It was also observed that Chinese refinery demand weakened whenever prices moved above $80 due to government-mandated refinery margin policy. Experts are bullish on oil in medium term and expect it to move up to $90 by year end.

* REER is defined as a weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries, relates to the purchasing power parity (PPP) hypothesis. Here it is basically REER on trade basis for 6 countries.

* Latest available.

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By : Geetima Das Krishna - Economic Research, Reliance Capital Asset Management Ltd

* Disclaimer

The information contained herein is the independent and personal view of the author and should not be construed as an investment advise or a standard investment procedure and are not the views of the Company. Neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the authenticity of such information.

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