Data released
• India registered a BoP deficit of USD 12.8 bn in FY2012 as
against a surplus of USD 13.1 bn in FY2011. The current
account deficit rose to 4.2% of GDP, far beyond the RBI
comfort level of 3.0%
• India’s manufacturing PMI rose to 55.0 in June from 54.8 in
the previous month.
• India’s service PMI for June slipped to 54.3 in June from
54.7 in May.
• India’s external debt at end-March 2012 is up by USD 40 bn
for the year. Long term debt increased by 11.1% YoY while
short-term debt rose by 20.3% YoY.
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Global update
• In the EU summit held last week, leaders agreed to form a single supervisory body for banks and allow them to be
recapitalized directly using the bailout funds. EU leaders allowed the use of rescue funds to be used to support peripheral
bonds so as to bring down their borrowing costs. According to Finnish Government sources, Finland and Netherlands
have opposed the EU summit’s decision to allow ESM to buy bonds of peripheral countries. European Union sanctions on
Iran became effective with full force since July 1, after the world powers and Iran remained deadlocked on Tehran’s
nuclear programme.
• The major Central Banks across the globe offered policy stimulus to support economic growth. Both the European Central
Bank and People’s Bank of China cut their benchmark policy rate by 25 bps to 0.75% and 3.0% respectively while the Bank
of England expanded the size of the asset purchase programme by GBP 50 bn to GBP 375 bn
India Update
• India’s auction of additional FII debt limit met with tepid demand with foreign investors bidding INR 204.69 bn for long
term Government bonds as against INR 284.96 bn limit offered.
MARKET UPDATE
Global Markets Overview
• US stocks ended last week in the green, as risk
appetite remained supported following European
Council President’s upbeat comments on EU bank
recapitalization. US stocks ended mixed, as concerns
over economic recovery following weak US
manufacturing data were offset by speculation over
further monetary easing by the Fed. The policy
stimulus by Central Banks failed to buoy risk appetite
and markets remained cautious over global growth
concerns. Dow Jones closed flat for the week.
• View -The implementation of some of the key measures decided in the EU summit might take time, thereby dampening
sentiment that has been buoyed on short-term fixes. While the EU rescue funds were allowed to stabilize the debtmarkets there are concerns if the funds themselves are well equipped to recapitalize banks and buy peripheral bonds.
Thus markets might choose to wait and watch for actual fructification of the measures
• Asian stocks opened the week in the green tracking gains on the Wall Street. During the week, market sentiment
remained firm amidst expectation that major Central Banks across the globe would provide policy support to boost the
global growth. However, Asian stocks receded partly tracking overnight losses on the Wall Street post policy stimulus by
Central Banks as growth concerns continue to weigh on market sentiment, closing 1%-3% positive for the week.
Domestic Equity Market Overview
Sensex closed 0.52% positive for the week. Indian stock markets opened the
week flat and moved into negative territory as India's trade-deficit figures
came out weak. FMCG stocks were the primary laggards amidst news of
weak progress of India’s monsoon. In the week, Metal stocks were the major
gainers amidst news that the government might lift ore mining ban in
Karnataka this month. Retail companies’ gained amidst news that the
Government might allow FDI in multi-brand retail post the Presidential
elections scheduled later this month. Expectation that major Central Banks
across the globe will take policy easing measures to boost the world
economy provided some support to market sentiment throughout the week.
Gains in European stock indices also provided some support to Indian
equities. However, gains were capped as investors remained cautious ahead
of the Q2 2012 corporate earning scheduled next week onwards. Sensex
continued to trade lower due to weak global cues even after central banks
like ECB and the People's Bank of China cut interest rates.
Fixed Income
Indian Government bonds opened the week range bound as investors
awaited further cues on RBI’s bond purchases through open market
operations at the start of the week. Indian Government bonds traded firm as
the USD 5 bn auction of additional FII limit in G-Sec supported sentiment.
However, gains were limited in Indian Government owing to lack lustre
demand in the auction of additional FII debt limit. Sentiment also remained
cautious ahead of the INR 150 bn auction of dated securities on the last day
of the week. Absence of open market operations this week coupled with rise in global crude oil prices also weighed on the gilts.
Oil
Crude Oil prices opened the week lower on the back of a stronger dollar. Weaker than expected economic data from US, Euro zone
and China weighed on the oil prices. However, losses in crude oil are likely to be limited amidst supply concerns owing to the
European Union’s sanctions on Iran, which became effective since July 1. Crude oil prices rose amidst supply concerns, as news
emerged that Norway’s largest oil producer was preparing to halt production due to the ongoing strike by platform workers. Later in
the week supply concerns eased as Iranian and European officials met to settle the dispute over Tehran’s nuclear programme.
Markets await the American Petroleum Institute oil inventory data for further cues on crude stockpiles. Despite interest rate cuts in
Europe and China, Oil dropped after the announcements. Investors are concerned about the moderation in global economy and
therefore weak demand for crude. Brent Crude is currently trading at USD 99.75 (15:00 IST), up close to 2% for the week.
USD-INR
The currency was also supported by the announcement that the
Government would not impose retrospective tax on FIIs and release
of the draft guidelines on GAAR that provided some clarification on
the issue. The Indian Rupee opened the week firm buoyed by rise in
foreign flows coupled with Dollar sales by exporters. Further,
squaring of long Dollar positions ahead of the FII auctions also
supported the currency. Reports that India might remove
withholding tax on bonds provided some support to the currency.
Weakness and strength in the currency was alternated owing to lack lustre trade in Indian equities and gains in the stock market.
The USD/INR pair closed at seven-week high of 54.38 in the week, currently trading at 55.51 (15:00 IST) with around 0.85%
appreciation in the week. Gold
Gold prices edged lower on the back of a stronger Dollar closing
in the negative territory for the week. The bullion also
witnessed limited safe haven flows amidst the recent
improvement in market sentiment. However, losses were
capped as increased optimism over favourable policy action by
the ECB and BoE tomorrow aided gains in the broad commodity
space.
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