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March view: High voltage month; sharp moves ahead
Make or break month for markets
UP exit polls hint at significant gains for SP
Budget expectations: What’s inside the Pandora’s box?
Liquidity blues: CRR cut on board; rate cuts still some time away
Cement: States go after cement industry
Telecom: Battle for subscribers to get aggressive
Crucial events lined up; a make or break month for markets
After a splendid run in January, Nifty took a breather in February. Q3FY12 earnings
season has just concluded. Analysis suggests that the earnings growth is showing
signs of cooling off. Come March and it would be one of the most crucial months as
far the Indian markets are concerned. The month has many important events lined
up like the Union budget, Reserve Bank of India policy review and above all the
outcome of Uttar Pradesh (UP) and other state elections. It can be a make or break
month that can set the tone for the rest of the year.
Talking of the UP elections, several of the exit polls are suggesting a better-thanexpected
performance for SP (at No.1 position) and disappointment for Congress
(lagging at No. 4). Indications are that SP may gain large number of seats, enough
to form the government in state even without Congress’ support. Such an outcome
will be disappointing for the markets that have all along expected an SP-Congress
alliance (implying SP will sideline TMC as Congress’ key ally at the Centre).
At the central bank policy review later this month, we don’t expect rate cuts.
However, taking into account the stiff liquidity in the system, the central bank is
likely to continue with the reduction in the cash reserve ratio to the extent of
50bps. There is a perceptible risk of imported inflation from rising crude prices
hence the RBI would exercise caution before embarking on the rate cut cycle.
Political tensions between Iran and Israel made the crude boil. Brent scaled to ~USD 125/bbl levels. Escalation of a full scale war
between these two countries is still within the realms of possibility. Now, an interesting fact worth noting is that in rupee terms,
the value of Brent crude is at its all time high. Thanks to a weak rupee and firm crude, the absolute realizations are at an all time
high. As we had stated in the last month’s issue of “hEDGE-Feb-12-EDEL”, the risk of imported inflation still remains a grave
concern. As we head into the final month of FY2011-12, the market is evenly poised for a strong move in either direction as we
await the outcomes of important events. From the current levels (5280), the upside seems restricted at 5630 for this month as
short-term momentum oscillators have rolled bearish.
UP exit polls hint at significant gains for SP
With polling over across five states in assembly elections, several media houses have come out with exit polls/ post poll results.
While exit polls are not necessarily a final say on the results – in fact, they have largely missed dominant trend on some occasions
(e.g. 2007 UP assembly elections) - they are considered a good indicator of what one can expect from actual results (to be
announced on 6th March 2012). As U.P elections are the most important from national politics point of view, we focus on UP exit
polls and their likely impact.
Two trends visible in most exit polls
SP performing better-than-expected and the party most likely to form the govt.
Congress performance though better from 2007 seems to be below expectations and therefore may or may not be a part of
the government formation in the state. Earlier expectations were that it would play a key role in government formation.
Markets may be disappointed
Over the past few months, markets have been anticipating both SP and Congress to gain significantly in the elections and to form
the government in the state. This, as believed, will mean that SP will support UPA at the Centre (sidelining TMC) and will help kick
start the reform process. While this is still a possibility, it is less likely as majority of exit polls are showing large gains for SP
instead, meaning that SP could form the government without Congress support. If this happens, Congress will be on the back
foot; its allies within UPA as well as opposition parties will raise their pitch against Congress, thereby making governance even
more difficult. This will be an unfavourable outcome for the economy and financial markets.
Budget expectations: What’s inside the Pandora’s box?
The announcement of Union Budget will be another important event that the market will look forward to this month. The Budget
is likely to focus on increasing the revenue sources. This is likely to materialise through duty hikes and increasing the ambit of
services under the tax bracket. Despite a lackluster year, disinvestment should be on the agenda. 2G spectrum auctioning should
return this year as well. Partial implementation of the proposed Direct Tax Code can also be expected in the Budget.
Withdrawal of fiscal stimulus by raising excise and service tax rates across the board by 200bps and widening service tax net.
On the Services side front, we are expecting that the tax base may expand with the inclusion of new items. Currently, we
have 125-130 services under the tax bracket.
On the non-tax front, to mop up more money, markets can look at telecom sector for re-auctioning of spectrum.
We are expecting fiscal consolidation through subsidy rationalization (increase of INR 3 per liter on diesel is a healthy
possibility), and a partial decontrol of urea prices (decreasing raw material prices strengthen the case for the same).
Food subsidy, however, may be raised as government introduces Food Security Bill.
Socialisation of personal tax structure – by raising maximum income tax exemption limit, reintroducing personal tax
surcharge on high tax bracket assessees and doubling of corporate tax surcharge.
This may probably be the last opportunity for the Finance Minister to present an economic budget in the current term of UPA,
as FY14 union budget (being the last full-fledged budget before general elections in 2014) will likely be guided by the
imperatives of a populist agenda driving the end motives.
Liquidity blues: CRR cut on board; rate cuts still some time away
Liquidity conditions in the economy have been tough and we have not seen such tightness in the recent past. The amount
borrowed under the liquidity adjustment facility (LAF) window of the Reserve Bank of India touched an all time high of INR 1.92tn
in the first week of March. It must also be noted that banks have resorted to the Marginal Standing Facility window (borrowing at
9.50%) for addressing the liquidity strain. Moreover, the overnight call money market rates are at elevated levels of ~9.50%. The
market expectation on the pricing of the open market operations is also muted. We would like to re-emphasize our view of a cut
in reserve ratios. However, on the backdrop of impending fuel price hikes post election results and the escalating crude oil prices,
the central bank may well keep it (reducing the key rates) short. The primary and secondary equity market activities have also
contributed their bit in drying up the systemic liquidity
February marked the revival of the dormant primary market. The issue from the Multi Commodity Exchange received a very
healthy response from the investors. Overall, the issue was subscribed by ~54x with the qualified institutional buyers bidding for
~49x of the size reserved for the QIB portion. The retail portion was subscribed to the extent of ~24x. An issue with a size of ~INR
6bn attracted applications worth ~INR 320bn. HDFC’s stake worth ~INR 102bn - sold off by Citigroup in the secondary market -
also saw a very good response from both domestic as well as foreign investors. Also, the ONGC share auction worth ~INR 122bn
(for ~42cr shares at the floor price of INR 290) now concluded also kept the market guessing on the liquidity front.
Over optimism leads to interim correction; Nifty drops more than 6%
The liquidity stress in the system has played its part in helping the Nifty basis expand to record highs of 110bps vs average of 50-
60bps. During the course of the February expiry week, the cost of rolling long Nifty futures position expanded to ~75bps. Similarly,
the roll cost levels in stock futures expanded to ~95-100bps. Nifty cost of carry (annualized) had touched ~14.2% at the start of
the March series. We believe that such high levels of carry in the derivatives can be attributed be the rising borrowing costs.
However, a point worth noting is that such irrational expansion in the cost of carry has often been a pre-cursor to market
corrections. We have witnessed Nifty correcting by more than 6% since the February expiry week when optimism was at its peak
and roll cost levels were more than 100 bps.
Long term re-financing operations (LTRO)-2: Another lifeline
Post the first long-term re-financing operation (LTRO) last December by the European Central Bank (ECB), on 29 February, 2012,
the ECB offered another unlimited 3-year LTRO at a cost of 1% to European banks. In this operation, banks raised Euro 529.5bn, a
small increase compared to the first LTRO of Euro 489bn. Around 800 banks received this cheap funding, much more than 523
banks registered in the first round. On one hand, this may exaggerate the real financing needs as banks, especially Spanish and
Italian ones, significant participants in LTRO II, will be able to raise funds in the market. Moreover, banks are not only borrowing
for this years funding but also to utilize these funds for the next three years. Banks still has an option to return the money after
one year. Spanish and Italian banks appear to have increased the assets allocation in their own sovereign bonds through this
cheap funding.
Cement: States go after cement industry (Our cement analyst – Navin Sahadeo)
One after another, several states seem to be going after the cement industry, demanding a drop in the current prices. First it was
Himachal Pradesh, where the state govt. forced companies to reduce prices by INR 25/bag. Then it was Chhattisgarh, wherein
local politicians demanded lower prices. And now, if media articles are to be believed, there are protests emerging against high
cement prices in Chandrapur (Maharashtra) and Guwahati (Assam). Going by the success in Himachal Pradesh, it definitely sets a
negative trend for other states. Our biggest concern is the South region where despite a low industry utilisation of ~55%, cement
prices are at an all time high. We believe it as a negative development for the industry.
Telecom: Battle for subscribers to get aggressive (Our telecom analyst – Ganesh Duvvuri)
GSM subscriber additions in Jan-12 improved with the net additions of 8.44mn (+12% MoM). Bharti added an impressive ~1.3mn
of subscribers - the highest since July 2011. During the Q3FY12 results call, Bharti had expressed frustration that its competitors
namely Idea continued to offer freebies although it joined the leaders in raising prepaid tariffs by 20% in July 2011. Bharti has also
indicated that it would start focusing on the market share and might get aggressive. The higher monthly additions suggest the
same. Bharti remains our top pick due to low expectations, reasonable valuations and strong business model. Vodafone
continued with its focus of growing revenues through a mix of volume growth and improvement in yields. It added 0.86mn
subscribers compared to 0.91mn in Dec 2011.
Idea added 1.75mn subscribers in Jan 2012 compared to over 2mn in each of the previous (two) months. Idea’s monthly
subscriber additions have fluctuated but it has remained in the top two in terms of incremental subscriber market share. Idea had
lower additions in five of its top seven circles including key circles of Maharashtra and M.P. which constitute 26% of revenues.
Uninor continued with its focus on filling up capacity, adding 2.5mn subscribers. With the cancellation of its licenses by the
Supreme Court, we believe Uninor has become more aggressive hence expect it to sustain industry leading additions. We believe
that subscriber addition numbers would continue to lose its relevance with factors like usage and RPM increasing in importance
as growth drivers. On those aspects, we believe that incumbent GSM operators should continue to score well.
Technical view: Choppy sessions to test trader’s strength (Our technical analyst -Tejas J Shah)
After a stellar start to the year 2012, Nifty went on to extend the rally into February as it managed to break past the 50%
retracement level of 5435 and thereafter, nearly tested the crucial 61.8% retracement level of 5650. The index hit the peak in
mid-February and saw a strong reversal thereafter as the persistent overbought state and the ominous negative divergence
played out with the Nifty losing ~4.3% of its gains from the peak. As we head into the final month of FY2011-12, the market is
evenly poised for a strong move in either direction as we await the outcomes of important events (UP and other state elections/
RBI Monetary Policy and the Union Budget).
Technically, the breakout of the 14-month trend channel remains intact as long as the index manages to stay afloat 5210 along
with the presence of a cluster of support between 5180-5170 (200 DMA), thus giving the left out bulls to seek an entry with
minimal risk. From the current levels (5280), the upside seems restricted at 5630 for this month as short-term momentum
oscillators have rolled bearish. On the other hand, intermediate term momentum indicators continue to gain strength after a buy
crossover i.e. the weekly MACD has moved above the zero line in a positive territory, screaming out the bullish outlook. It is most
likely that the index may test lower levels in the first half and recover back above 5400 in the latter half to resume the uptrend
that began at the onset of this year
Sectorally, the high beta names that rallied hard in the past seven-weeks have started to roll over, giving the mantle to defensive
sectors like FMCG, IT and Pharma. The top performing Realty, Metals and Banking are likely to remain volatile in the first half of
the month and one can look to buy the declines here. Cap goods and cement are expected to stay stable in the month whereas IT
is likely to gain some ground after two months of underperformance. Broader markets are yet to feel the brunt of the decline,
and risk underperforming the frontline index before settling down
Global events
The ECB announced the second tranche of its long term refinancing operations (LTRO), with 800 banks tapping ~EUR529bn of
3 year funds. With EUR489bn borrowed in LTRO
‐
1 (December 2011), the ECB has pumped in an aggregate ~EUR1trn into the
banking system.
US economy grew a bit faster than first thought in the last few months of 2011, as unemployment rate has come off
significantly with businesses hiring more workers and incomes growing. Overall, the economic output expanded at a 3%
annual rate in the October-December period, its fastest growth in a year-and-a-half as compared to government’s
expectations of 2.8%. Ben Bernanke also told congressional committee that the government's financial forecasts expected the
US economy to advance by 2.25%, at the same pace of H2 of 2011.
Performance of emerging markets was positive across; TAIEX (up ~8.0%), SET (up ~7.1%), and Shanghai (up ~5.9%) followed
developed markets closely.
In continuation with January’s trends, Nifty and Sensex gave positive returns of ~3.6% and ~3.3% respectively.
Nikkei (up 10.5%) was the biggest gainer amidst all major markets, leading the chart.
Among developed markets, Hang Seng (up ~6.3%) was the second biggest gainer followed by Nasdaq (up ~5.4%) and CAC 40
(up ~4.7%).
FII flows remain upbeat
FIIs were net buyers in India (cash + futures) in February. Taiwan, among emerging markets (ex-India), posted the highest
FII inflow of ~USD2.21bn.
In India, FIIs were net buyers of ~USD4.47bn (cash + futures) in February. In the cash segment, FIIs bought ~USD5.13bn
while in futures; they were net sellers of ~USD0.66bn
Domestic funds continue to sell
In continuation with last month’s trend, domestic mutual funds were net sellers in February.
They were net sellers of ~USD353.6mn of Indian equities in February.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
March view: High voltage month; sharp moves ahead
Make or break month for markets
UP exit polls hint at significant gains for SP
Budget expectations: What’s inside the Pandora’s box?
Liquidity blues: CRR cut on board; rate cuts still some time away
Cement: States go after cement industry
Telecom: Battle for subscribers to get aggressive
Crucial events lined up; a make or break month for markets
After a splendid run in January, Nifty took a breather in February. Q3FY12 earnings
season has just concluded. Analysis suggests that the earnings growth is showing
signs of cooling off. Come March and it would be one of the most crucial months as
far the Indian markets are concerned. The month has many important events lined
up like the Union budget, Reserve Bank of India policy review and above all the
outcome of Uttar Pradesh (UP) and other state elections. It can be a make or break
month that can set the tone for the rest of the year.
Talking of the UP elections, several of the exit polls are suggesting a better-thanexpected
performance for SP (at No.1 position) and disappointment for Congress
(lagging at No. 4). Indications are that SP may gain large number of seats, enough
to form the government in state even without Congress’ support. Such an outcome
will be disappointing for the markets that have all along expected an SP-Congress
alliance (implying SP will sideline TMC as Congress’ key ally at the Centre).
At the central bank policy review later this month, we don’t expect rate cuts.
However, taking into account the stiff liquidity in the system, the central bank is
likely to continue with the reduction in the cash reserve ratio to the extent of
50bps. There is a perceptible risk of imported inflation from rising crude prices
hence the RBI would exercise caution before embarking on the rate cut cycle.
Political tensions between Iran and Israel made the crude boil. Brent scaled to ~USD 125/bbl levels. Escalation of a full scale war
between these two countries is still within the realms of possibility. Now, an interesting fact worth noting is that in rupee terms,
the value of Brent crude is at its all time high. Thanks to a weak rupee and firm crude, the absolute realizations are at an all time
high. As we had stated in the last month’s issue of “hEDGE-Feb-12-EDEL”, the risk of imported inflation still remains a grave
concern. As we head into the final month of FY2011-12, the market is evenly poised for a strong move in either direction as we
await the outcomes of important events. From the current levels (5280), the upside seems restricted at 5630 for this month as
short-term momentum oscillators have rolled bearish.
UP exit polls hint at significant gains for SP
With polling over across five states in assembly elections, several media houses have come out with exit polls/ post poll results.
While exit polls are not necessarily a final say on the results – in fact, they have largely missed dominant trend on some occasions
(e.g. 2007 UP assembly elections) - they are considered a good indicator of what one can expect from actual results (to be
announced on 6th March 2012). As U.P elections are the most important from national politics point of view, we focus on UP exit
polls and their likely impact.
Two trends visible in most exit polls
SP performing better-than-expected and the party most likely to form the govt.
Congress performance though better from 2007 seems to be below expectations and therefore may or may not be a part of
the government formation in the state. Earlier expectations were that it would play a key role in government formation.
Markets may be disappointed
Over the past few months, markets have been anticipating both SP and Congress to gain significantly in the elections and to form
the government in the state. This, as believed, will mean that SP will support UPA at the Centre (sidelining TMC) and will help kick
start the reform process. While this is still a possibility, it is less likely as majority of exit polls are showing large gains for SP
instead, meaning that SP could form the government without Congress support. If this happens, Congress will be on the back
foot; its allies within UPA as well as opposition parties will raise their pitch against Congress, thereby making governance even
more difficult. This will be an unfavourable outcome for the economy and financial markets.
Budget expectations: What’s inside the Pandora’s box?
The announcement of Union Budget will be another important event that the market will look forward to this month. The Budget
is likely to focus on increasing the revenue sources. This is likely to materialise through duty hikes and increasing the ambit of
services under the tax bracket. Despite a lackluster year, disinvestment should be on the agenda. 2G spectrum auctioning should
return this year as well. Partial implementation of the proposed Direct Tax Code can also be expected in the Budget.
Withdrawal of fiscal stimulus by raising excise and service tax rates across the board by 200bps and widening service tax net.
On the Services side front, we are expecting that the tax base may expand with the inclusion of new items. Currently, we
have 125-130 services under the tax bracket.
On the non-tax front, to mop up more money, markets can look at telecom sector for re-auctioning of spectrum.
We are expecting fiscal consolidation through subsidy rationalization (increase of INR 3 per liter on diesel is a healthy
possibility), and a partial decontrol of urea prices (decreasing raw material prices strengthen the case for the same).
Food subsidy, however, may be raised as government introduces Food Security Bill.
Socialisation of personal tax structure – by raising maximum income tax exemption limit, reintroducing personal tax
surcharge on high tax bracket assessees and doubling of corporate tax surcharge.
This may probably be the last opportunity for the Finance Minister to present an economic budget in the current term of UPA,
as FY14 union budget (being the last full-fledged budget before general elections in 2014) will likely be guided by the
imperatives of a populist agenda driving the end motives.
Liquidity blues: CRR cut on board; rate cuts still some time away
Liquidity conditions in the economy have been tough and we have not seen such tightness in the recent past. The amount
borrowed under the liquidity adjustment facility (LAF) window of the Reserve Bank of India touched an all time high of INR 1.92tn
in the first week of March. It must also be noted that banks have resorted to the Marginal Standing Facility window (borrowing at
9.50%) for addressing the liquidity strain. Moreover, the overnight call money market rates are at elevated levels of ~9.50%. The
market expectation on the pricing of the open market operations is also muted. We would like to re-emphasize our view of a cut
in reserve ratios. However, on the backdrop of impending fuel price hikes post election results and the escalating crude oil prices,
the central bank may well keep it (reducing the key rates) short. The primary and secondary equity market activities have also
contributed their bit in drying up the systemic liquidity
February marked the revival of the dormant primary market. The issue from the Multi Commodity Exchange received a very
healthy response from the investors. Overall, the issue was subscribed by ~54x with the qualified institutional buyers bidding for
~49x of the size reserved for the QIB portion. The retail portion was subscribed to the extent of ~24x. An issue with a size of ~INR
6bn attracted applications worth ~INR 320bn. HDFC’s stake worth ~INR 102bn - sold off by Citigroup in the secondary market -
also saw a very good response from both domestic as well as foreign investors. Also, the ONGC share auction worth ~INR 122bn
(for ~42cr shares at the floor price of INR 290) now concluded also kept the market guessing on the liquidity front.
Over optimism leads to interim correction; Nifty drops more than 6%
The liquidity stress in the system has played its part in helping the Nifty basis expand to record highs of 110bps vs average of 50-
60bps. During the course of the February expiry week, the cost of rolling long Nifty futures position expanded to ~75bps. Similarly,
the roll cost levels in stock futures expanded to ~95-100bps. Nifty cost of carry (annualized) had touched ~14.2% at the start of
the March series. We believe that such high levels of carry in the derivatives can be attributed be the rising borrowing costs.
However, a point worth noting is that such irrational expansion in the cost of carry has often been a pre-cursor to market
corrections. We have witnessed Nifty correcting by more than 6% since the February expiry week when optimism was at its peak
and roll cost levels were more than 100 bps.
Long term re-financing operations (LTRO)-2: Another lifeline
Post the first long-term re-financing operation (LTRO) last December by the European Central Bank (ECB), on 29 February, 2012,
the ECB offered another unlimited 3-year LTRO at a cost of 1% to European banks. In this operation, banks raised Euro 529.5bn, a
small increase compared to the first LTRO of Euro 489bn. Around 800 banks received this cheap funding, much more than 523
banks registered in the first round. On one hand, this may exaggerate the real financing needs as banks, especially Spanish and
Italian ones, significant participants in LTRO II, will be able to raise funds in the market. Moreover, banks are not only borrowing
for this years funding but also to utilize these funds for the next three years. Banks still has an option to return the money after
one year. Spanish and Italian banks appear to have increased the assets allocation in their own sovereign bonds through this
cheap funding.
Cement: States go after cement industry (Our cement analyst – Navin Sahadeo)
One after another, several states seem to be going after the cement industry, demanding a drop in the current prices. First it was
Himachal Pradesh, where the state govt. forced companies to reduce prices by INR 25/bag. Then it was Chhattisgarh, wherein
local politicians demanded lower prices. And now, if media articles are to be believed, there are protests emerging against high
cement prices in Chandrapur (Maharashtra) and Guwahati (Assam). Going by the success in Himachal Pradesh, it definitely sets a
negative trend for other states. Our biggest concern is the South region where despite a low industry utilisation of ~55%, cement
prices are at an all time high. We believe it as a negative development for the industry.
Telecom: Battle for subscribers to get aggressive (Our telecom analyst – Ganesh Duvvuri)
GSM subscriber additions in Jan-12 improved with the net additions of 8.44mn (+12% MoM). Bharti added an impressive ~1.3mn
of subscribers - the highest since July 2011. During the Q3FY12 results call, Bharti had expressed frustration that its competitors
namely Idea continued to offer freebies although it joined the leaders in raising prepaid tariffs by 20% in July 2011. Bharti has also
indicated that it would start focusing on the market share and might get aggressive. The higher monthly additions suggest the
same. Bharti remains our top pick due to low expectations, reasonable valuations and strong business model. Vodafone
continued with its focus of growing revenues through a mix of volume growth and improvement in yields. It added 0.86mn
subscribers compared to 0.91mn in Dec 2011.
Idea added 1.75mn subscribers in Jan 2012 compared to over 2mn in each of the previous (two) months. Idea’s monthly
subscriber additions have fluctuated but it has remained in the top two in terms of incremental subscriber market share. Idea had
lower additions in five of its top seven circles including key circles of Maharashtra and M.P. which constitute 26% of revenues.
Uninor continued with its focus on filling up capacity, adding 2.5mn subscribers. With the cancellation of its licenses by the
Supreme Court, we believe Uninor has become more aggressive hence expect it to sustain industry leading additions. We believe
that subscriber addition numbers would continue to lose its relevance with factors like usage and RPM increasing in importance
as growth drivers. On those aspects, we believe that incumbent GSM operators should continue to score well.
Technical view: Choppy sessions to test trader’s strength (Our technical analyst -Tejas J Shah)
After a stellar start to the year 2012, Nifty went on to extend the rally into February as it managed to break past the 50%
retracement level of 5435 and thereafter, nearly tested the crucial 61.8% retracement level of 5650. The index hit the peak in
mid-February and saw a strong reversal thereafter as the persistent overbought state and the ominous negative divergence
played out with the Nifty losing ~4.3% of its gains from the peak. As we head into the final month of FY2011-12, the market is
evenly poised for a strong move in either direction as we await the outcomes of important events (UP and other state elections/
RBI Monetary Policy and the Union Budget).
Technically, the breakout of the 14-month trend channel remains intact as long as the index manages to stay afloat 5210 along
with the presence of a cluster of support between 5180-5170 (200 DMA), thus giving the left out bulls to seek an entry with
minimal risk. From the current levels (5280), the upside seems restricted at 5630 for this month as short-term momentum
oscillators have rolled bearish. On the other hand, intermediate term momentum indicators continue to gain strength after a buy
crossover i.e. the weekly MACD has moved above the zero line in a positive territory, screaming out the bullish outlook. It is most
likely that the index may test lower levels in the first half and recover back above 5400 in the latter half to resume the uptrend
that began at the onset of this year
Sectorally, the high beta names that rallied hard in the past seven-weeks have started to roll over, giving the mantle to defensive
sectors like FMCG, IT and Pharma. The top performing Realty, Metals and Banking are likely to remain volatile in the first half of
the month and one can look to buy the declines here. Cap goods and cement are expected to stay stable in the month whereas IT
is likely to gain some ground after two months of underperformance. Broader markets are yet to feel the brunt of the decline,
and risk underperforming the frontline index before settling down
Global events
The ECB announced the second tranche of its long term refinancing operations (LTRO), with 800 banks tapping ~EUR529bn of
3 year funds. With EUR489bn borrowed in LTRO
‐
1 (December 2011), the ECB has pumped in an aggregate ~EUR1trn into the
banking system.
US economy grew a bit faster than first thought in the last few months of 2011, as unemployment rate has come off
significantly with businesses hiring more workers and incomes growing. Overall, the economic output expanded at a 3%
annual rate in the October-December period, its fastest growth in a year-and-a-half as compared to government’s
expectations of 2.8%. Ben Bernanke also told congressional committee that the government's financial forecasts expected the
US economy to advance by 2.25%, at the same pace of H2 of 2011.
Performance of emerging markets was positive across; TAIEX (up ~8.0%), SET (up ~7.1%), and Shanghai (up ~5.9%) followed
developed markets closely.
In continuation with January’s trends, Nifty and Sensex gave positive returns of ~3.6% and ~3.3% respectively.
Nikkei (up 10.5%) was the biggest gainer amidst all major markets, leading the chart.
Among developed markets, Hang Seng (up ~6.3%) was the second biggest gainer followed by Nasdaq (up ~5.4%) and CAC 40
(up ~4.7%).
FII flows remain upbeat
FIIs were net buyers in India (cash + futures) in February. Taiwan, among emerging markets (ex-India), posted the highest
FII inflow of ~USD2.21bn.
In India, FIIs were net buyers of ~USD4.47bn (cash + futures) in February. In the cash segment, FIIs bought ~USD5.13bn
while in futures; they were net sellers of ~USD0.66bn
Domestic funds continue to sell
In continuation with last month’s trend, domestic mutual funds were net sellers in February.
They were net sellers of ~USD353.6mn of Indian equities in February.
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