NRI Corner Result

26th July, 2010

Weekly Economic and Market Analysis:

Against the backdrop of moderating US and China data, economic reports from Western Europe offered pleasant surprise. UK posted its strongest GDP gain in over nine years. Euro PMI index was impressive.
Sensex and Nifty went up by 0.98% and 1.02% to close at 18,131 and 5,449 respectively.
G-Sec yields rose initially on tight liquidity and expectation of another hike by RBI during the policy meet on 27th July. It remained range-bound towards the end of the week with 10 yr yield closing at 7.68%.
The INR rose to its strongest level last week boosted by a rise in global risk appetite and expectations of positive bank stress test results in Europe.
Commodities went up by 2% last week driven by oil and metal. A new tropical storm threatened oil production in the US gulf and pushed up energy prices. Experts believe that global manufacturing growth has peaked that will eventually push base metal down against other commodities.

Global Data Watch
July 26, 2010

Data Review	Unit	Last	Consensus	Actual	Comments
Global
US Housing starts (Jun), July 20	Mn units	0.58	0.55	0.55	Housing starts continued to decline in June after the end of the home buyer tax credit in Apr.
Euro area PMI manufacturing flash (Jul), July 22	Index	55.6	54.0	56.5	Defying downbeat expectations, the Euro area flash PMI manufacturing rose by 0.9pt in July. This suggests that hardly any of the strong growth momentum of 2Q10 has been lost so far, with growth still well above a 2.5% annualized pace. However, the surprise was due to huge gains in Germany, with the rest of the region softening a bit further.
US Existing home sales (Jun), July 22	Mn units	5.66	5.30	5.37	This is the second straight month that sales have declined following the April 30 contract- signing deadline associated with the home buyer tax credit.
UK GDP Prelim Estimate (2Q), July 23	% q/q	0.3	0.7	1.1	2Q GDP showed surprise surge. The preliminary estimate of 2Q GDP indicates that the UK recovery really got going last quarter with a strong 1.1%q/q gain. Business capex in 1Q was already very strong, while retail sales posted a solid gain in 2Q.
India
WPI Primary for week ending 10th July	% yoy	16.25	-	16.48	Primary articles moved up by 0.4% w/w due to rise in prices of food articles like Chicken, spices and milk.

Releases in bold are key releases; Out of 5 important data releases, 3 were better, and 1 was worse than expected and 1 was as expected.

Data Review	Unit	Last	Consensus	Comments
Global
US New home sales (Jun), July 26	000s	300	310	New home sales plummeted in May following the April end deadline associated with the end of the home buyer tax credit. Sales dropped more than 32% in May. Expected to improve a bit in Jun.
India RBI mtg, July 27	%	5.5	5.75	After raising policy rates 25bp three weeks ago, the RBI is slated to raise them again at the July 27 policy review given rising core inflation.
Euro area Unemployment rate (Jul), July 30	%	10.0	10.1	The number of unemployed has continued to rise in the Euro area, albeit at a very slow pace. The data suggests stabilization.
Japan Mfg PMI (Jul), July 30	Index	53.9	53.5	Industrial production growth is likely slowing from its recent rapid pace.
US GDP (2Q), July 30	% q/q	2.7 (1Q)	2.5	Real GDP is expected to have grown at a 2.5% in 2Q 2010. This would be a slight slowing from the 2.7% annualized growth from 1Q but would be the fourth consecutive quarter of growth.

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

Equity Market
July 26, 2010

Global Equity markets finished the week with a gain of 2.6%. Last week, Fed Chairman, Bernanke said that there's an "unusually uncertain" outlook for growth. But the Fed's near-zero interest rates and record balance sheet are already “very simulative”. Barack Obama signed America's "Financial-reform Bill" into law. The legislation grants the government new powers to supervise and break up companies it believes pose a threat to the economy. In Euro Zone, Only seven of 91 European banks failed the "stress tests" aimed at clearing up market fears about the strength of the continent's banking system amid the debt crisis. But experts believe the stress test was not stressful enough.

Last week, Emerging Markets gained 3.4%. Within Emerging Market, EMF Latam gained 6.4% followed by EMEA at 3.7% and EMF Asia at 2.1%. Last week, Argentina was the best performing EM while Hungary was the worst performing.

Global Emerging Market Monitor, July 23, 2010

	Best Performing Market			Worst Performing Market
Market (MSCI)	Argentina	Brazil	Peru	Hungary	Jordan	Philippines
Chg. over week (%)	7.4	7.4	4.9	-2.6	-1.6	-1.0

Indian Equity market
Sensex and Nifty went up by 175 points (0.98%) and 55 points (1.02%) to close at 18,131 and 5,449 respectively. FIIs invested $ 209 mn in cash. For current month total investment is $ 1,292 mn. For CY10 total investment is $ 2,213 mn. India’s monsoon was 15 % below normal but IMD officials are still hopeful of a normal monsoon this year. On sectotal basis last week, the biggest gainer was BSE Metal at 4.1% followed by BSE Capital Goods at 2.1%. The biggest loser was BSE Healthcare with a loss of 1.7%.

Index Performance

23rd July, 2010	Index	% change
BSE Sensex	18,131	1.0
S&P CNX Nifty	5,449	1.0
CNX Midcap	8,423	0.3
BSE Small Cap	9,439	(0.0)
BSE 100	9,669	0.9
BSE 200	2,305	0.8

Sector Indices Performance

Sectoral Indices	Price as on 23rd July'10	Performance (%)
Sectoral Indices	Price as on 23rd July'10	Last week	1m	12m
BSE Metal	15,516	4.1	1.8	31.1
BSE Capital Goods	15,331	2.1	5.7	23.7
BSE Consumer Durable	5,270	1.7	14.4	71.9
BSE PSU	9,527	1.5	2.9	16.3
BSE Auto	8,413	0.9	1.6	59.5
BSE Bank	11,491	0.8	3.9	36.6
BSE Teck	3,419	0.7	3.6	22.1
BSE Realty	3,486	0.7	8.6	(4.1)
BSE Power	3,167	(0.4)	1.4	10.9
BSE IT	5,473	0.3	1.2	47.6
BSE Oil & Gas	10,534	0.1	1.5	9.8
BSE FMCG	3,216	(0.3)	0.4	26.3
BSE Healthcare	5,629	(1.7)	(1.9)	46.4

Credit Market
July 26, 2010

Sovereign Yield

10 yr yield%	July 23	1 wk prior	2 wk prior	10 yr yield%	July 23	1 wk prior	2 wk prior
India	7.68	7.64	7.65	US	3.02	2.96	3.07

Global Credit markets
US Treasury yields continued to move up off the multiyear lows set on Wednesday with 10s at 2.9%. By the end of the week, 2s edged up 1bps to 0.6% and 10s rose 6bps to 3.02%.

GOI 10-yr Yield movement

Indian Credit Market
G-Sec yields rose on tight liquidity and expectation of another hike by RBI during the policy meet on 27th July. It remained range-bound towards the end of the week. The 10 yr benchmark closed the week at 7.68%. During the week, the liquidity continued to be tight. The net LAF balance was average negative Rs. 65,500 cr as against negative 54,000 cr in the previous week. Overnight call was in range of 3.0%-5.85 % during the week.
Next week, the G-Sec markets are expected to take cue from RBI’s policy meeting, liquidity scenario, policy-makers actions and global developments.

RBI auctions
Last week, RBI conducted 10 year SDL auction for 4 states for Rs. 3,431 cr with the cut-off yields in the range of 8.12% and 8.18%. In T-bill auction, 91 day T-bill (Rs. 2,000 cr) and 182 day T-bill (Rs. 1,500 cr) saw higher cut-offs of 5.74% (previous: 5.41%) and 5.95% (previous: 5.78%) respectively.

This week, RBI will conduct auction of 91 day (Rs. 2,000 cr) and 364 day T-bill (Rs. 1,000 cr) on July 28.

Forex Reserves
Reserves went up by $ 2,479 mn to $281.90 bn for week ending July 16 primarily driven by Foreign currency assets ($2,409 mn).

US$ Mn.	Change over
US$ Mn.	As on July 16, 2010	Last week	End-Mar, 10	End-Dec, 2009
Total Reserves	281,901	2,479	2,844	–1,569
Foreign Currency Assets	255,677	2,409	992	–2,906

Forex and Commodities
July 26, 2010

Currency Monitor

Base currency : INR	USD	GBP	EURO	YEN
July 23rd	47.00	71.88	60.53	53.97
1 w prior	46.80	72.08	60.37	53.66
2 w prior	46.75	70.92	59.36	52.81

Source: RBI

Currencies: The euro moved up on Friday 0.2% against the US Dollar to 1.292$/euro on expectation of positive stress test results. The US Dollar picked up 0.5% on the yen to 87.41yen/$.

The INR rose to its strongest level in a week last Friday boosted by a rise in global risk appetite after a string of strong data and expectations of positive bank stress test results in Europe. The INR closed at 47 per US Dollar on Friday, its strongest since July 19 and 0.7% stronger than Thursday's close of 47.33. But the INR still ended down 0.4% over the week.

Global Commodity Monitor

In USD	Gold	Silver	Crude (WTI)	Copper	Aluminium
July 23rd (EOD)	1,189.20	18.11	78.73	7,029	2,030
1 w prior	1,193.00	17.85	76.01	6,485	1,978
2 w prior	1,211.60	18.14	76.09	6,760	2,004

Source: Bloomberg

Commodities: Commodities went up by 2% last week driven by oil and metal. A new tropical storm threatened oil production in the US gulf and pushed up energy prices. A combination of falling inventories and increased demand of metal supported metal prices. On Friday, WTI crude oil fell $0.30 to $78.73/bbl, from Thursday’s 11-week high. Agriculture fell slightly as traders took profits on corn after it rallied nearly 20% over the last three weeks and evidence emerged that the recent hot weather would not damage crops as much as expected. Experts believe that global manufacturing growth has peaked that will eventually push base metal down against other commodities. But agriculture still remains a favourite on supply constraints and low inventories.

* 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.

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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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