monthly markets update (india) - july 2011

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Monthly review of key market segments within India including Equity (Domestic and International), Fixed Income, Currency, Economic Indicators, Mutual Funds & Recommended Portfolios (India).

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  • 1.July 2011Prepared by: iFAST Research Team

2. Monthly Markets Update - India July 2011 Key Points The Federal Reserve also lowered its growth forecast for the US economy between 2.7% and2.9% in 2011, down from 3.1% to 3.3%. The Bank of Japan has maintained its optimistic stance on economic recovery. Rising Inflation is fast becoming a problem especially for the emerging markets and for thecentral banks in the emerging world have resorted to tight monetary policy. Indian markets bounced in the last few days of the month on the back of positive global andlocal factors. On the Fixed Income side, we remain positive on the shorter end of the curve and suggestinvestments in FMPs, Ultra Short term fund and Short Term funds. Indian Mutual Fund Industrys average assets under management increased by Rs 43,799 croreto Rs.7,47,479 crores in the second quarter of 2011 as compared to the first quarter of 2011. Index funds were the best performing funds as a category in India for June. Large-cap Fundsoutperformed multi cap and midcap funds; however they underperformed Sensex and NiftyReturns. 3. Monthly Markets Update - India July 2011Equity Markets UpdateInternational Markets (As at June 2011 end)EarningsEarnings 2011 20112010 P/E P/EP/EGrowthGrowth MTDYTD Return (%) Yr 2011Yr 2012Yr 2013 2011 (%)2012 (%)Asia ex Japan (MSCI Asia ex Japan) -2.69%0.32%17.00% 12.310.6 9.6 16.10%15.50% Emerging Markets (MSCI EM)-1.86%0.04%16.40% 10.59.28.2 23.50%15.10% Europe (Stoxx 600)-2.92%-1.50% 8.60%10.89.58.7 10.30%13.10%Japan (Nikkei 225) 1.26% -4.04% -3.00% 16.013.711.2 6.20% 16.60% USA (S&P 500) -1.83%4.99%12.80% 13.111.510.4 16.10%13.50% Australia (S&P/ASX 200) -2.13%-3.81% -2.60% 13.111.210.4 16.60% 7.90% Brazil (IBOV) -3.43%-9.96% 1.00%10.08.77.8 17.40%14.90% China (HS Mainland 100) -4.72%0.29%2.20%11.19.78.5 20.60%14.90% Hong Kong (HSI) -5.43%-2.61% 5.30%12.010.5 9.3 14.60%14.50% India (SENSEX)1.85% -7.57% 17.40% 15.012.711.5 17.00%17.70%Indonesia (JCI)1.34% 5.00%46.10% 15.112.711.1 25.30%18.60% Malaysia (KLCI) 1.33% 3.96%19.30% 15.513.712.4 7.10% 13.00%Russia (RTSI$) 0.96% 7.71%22.50%5.75.45.5 57.80% 5.80% Singapore (STI) -1.25%-2.86% 10.10% 14.012.711.2 6.30% 10.90% South Korea (KOSPI) -1.95%2.42%21.90% 10.39.28.1 17.10%12.30% Taiwan (Taiwan Weighted)-3.74%-2.87% 9.60%13.411.510.6 6.10% 16.20% Technology Heavy (NASDAQ 100) -2.00%4.46%19.20% 14.312.611.3 21.90%13.50% Thailand (SET Index)-3.01%0.84%40.60% 11.39.89.2 27.60%14.90%Source: Bloomberg, iFAST Compilations All returns are in respective local currency terms and MSCI Index returns are in USD 4. Monthly Markets Update - IndiaJuly 2011Global Market PerformanceGroup 7 Countries Global Indices- G7 (MTD Returns)2.00%0.00%USA (S&P 500)Germany (DAX)UK (FTSE 100)Canada (S&P/TSX)France (CAC-40) Italy (FTSE MIB)Japan (Nikkei 225) -2.00% -4.00% -6.00%Events US Unemployment rate rose to 9.1% in May 11, up from 9.0% in Apr 11 US 1Q 11 GDP at 1.9% q-o-q annualised, compared to 3.1% growth in 4Q 10 US Leading indicators rose 0.8% m-o-m in May 11, after a revised 0.4% decrease in Apr 11 US Business inventories rose 0.8% m-o-m in Apr 11, after an upward-revised 1.3% increase in Mar 11 German Industrial production fell 0.6% m-o-m in Apr 11, after an upward-revised 1.2% gain in Mar 11 French Industrial production fell 0.3% m-o-m in Apr 11, after a downward-revised 1.1% decline in Mar 11 UK Industrial production fell 1.7% m-o-m in Apr 11, down from a downward-revised 0.2% gain in Mar 11 Bank of Japan (BOJ) held its target rate unchanged at a range of 0% to 0.1% in Jun 11 Japans Industrial production dropped by 13.6% y-o-y in Apr 11 following a decrease of 14% in Mar 11Market OutlookIn the June 2011 Federal Open Market Committee (FOMC) meeting, the Fed Funds Target Rate was heldat between 0 and 0.25%. The Federal Reserve also lowered its growth forecast for the US economybetween 2.7% and 2.9% in 2011, down from 3.1% to 3.3%. While we do not expect further quantitative 5. Monthly Markets Update - IndiaJuly 2011easing, we expect short term interest rates to remain low given the fragile nature of the US economy,and the Feds extended period of low interest rates will probably span well into 2012.The European Central Bank will next decide the monetary policy on 7 July, which we expect benchmarkrate to remain unchanged unless there is an influx of higher than expected growth surprises during theinterim.The Bank of Japan has maintained its optimistic stance that the economy will return to a moderaterecovery path from the second half of fiscal 2011. It also raised its monthly economic assessment forthe first time since February 2011. In our view, the BOJ will not push another round of QE programme inany time soon. 6. Monthly Markets Update - India July 2011 Asia Pacific (Ex Japan)2.00% Global Indices- Asia Pacific (Ex Japan)1.00%(MTD Returns)0.00%Australia (S&P/ASX 200) Hong Kong (HSI)Thailand (SET Index) Taiwan (Taiwan Weighted) Singapore (STI) Indonesia (JCI) Malaysia (KLCI) South Korea (KOSPI) -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% Events Taiwanese Industrial production expanded 7.8% y-o-y in May 11, compared to an upwardly revised 7.2% y-o-y gain in Apr 11 The Bank of Korea (BOK) raised its benchmark 7-day repo rate by 25bps to 3.25% in Jun 11 Thailand Manufacturing production fell 3.9% y-o-y in May 11, up from a downward-revised 8.1% decline in Apr 11 Indonesian Inflation rate decelerated to 5.98% y-o-y in May 11 Malaysian Industrial Production Index contracted 2.2% y-o-y in Apr 11, due to the 0.4% contraction in manufacturing outputs and 6.9% contraction in mining outputs Singapore Industrial production for May 11 contracted 3.8% m-o-m, after a downward-revised 18.7% contraction in Apr 11 Hong Kong CPI rose 5.2% y-o-y in May 11, compared to 4.6% in Apr 11 Australian Trade balance fell to AUD 1597 mil surplus in Apr 11 from AUD 1691 mil surplus in Mar 11Market OutlookThe Bank of Korea (BoK) has raised its benchmark 7-day repo rate from 3% to 3.25% in June 2011. Themove surprised markets as the bank was widely believed to freeze the interest rate until signs ofeconomic acceleration increased. The banks governor warned that low borrowing costs are fuellinghousehold debt which should be checked. We remain with our view that the Bank of Korea (BoK) wouldraise its benchmark 7-day repo rate to 3.50% by end of this year. 7. Monthly Markets Update - IndiaJuly 2011Supply chain disruptions following Japans earthquake and tsunami appear to have had some impact onSingapores economy in May. The contraction of industrial production in May marks a secondconsecutive monthly decline, and on a year-on-year basis, Mays reading was 9.5% lower, a strongindication that Singapores economy will likely contract in 2Q 11. Industrial production was weigheddown by the biomedical manufacturing clusterHong Kong inflationary pressures are building up on the back of higher imported prices and theimposition of minimum wages, with headline inflation hitting 5.2% in May, higher than medianestimates of 5%. The Chief Financial Secretary earlier had expressed that Hong Kongs exchange rate peghas made the policymakers unable to use interest rate as a tool to combat inflation. 8. Monthly Markets Update - IndiaJuly 2011 BRIC (Ex India) Countries 4.00% Global Indices- BRIC (Ex-India)- (MTD Returns) 0.00%China (HS Mainland Brazil (IBOV) Russia (RTSI$)-4.00% 100)-8.00%Events Chinese CPI rose 5.5% y-o-y in May 11 as compared with a 5.3% rise in Apr 11 Chinese Industrial production grew y-o-y by 13.3% in May 11 as compared with 13.4% increase y-o-y in Apr 11 Chinese Exports increased 19.4% y-o-y in May 11 as compared with a 29.9% increase y-o-y in Apr 11 Brazils Sovereign debt rating upgraded by Moodys to Baa2 with a positive outlook Brazils Selic rate raised to 12.25%, a 25 bps increase from a previous rate of 12.00% Brazils IPCA Inflation rose to 6.6% y-o-y in May 11, up from 6.5% in Apr 11 Russias Industrial production expanded 4.1% y-o-y in May 11, after a 4.5% y-o-y increase in Apr 11 Russias Consumer Prices gained 9.6% y-o-y in May 11, same as Apr 11 Russias Unemployment rate was 6.4% in May 11, down from 7.2% in Apr 11Market OutlookChinas Headline inflation has stayed above 5% for three straight months. Mays figure hit 5.5% year-on-year which is the highest in 34 months. In response, the Chinese central bank raised reserverequirement ratios by 50 basis points to 21.5% so as to drain liquidity from the monetary system. Inanticipation of heightened inflation, the Chinese equity market has seen a PE contraction amid strongearnings. We think such discount is unlikely to reverse unless inflation peaks or is expected to peak.On the Chinese economic front, more signs reveal that the growth of the worlds second largesteconomy has slowed. Manufacturing PMI posted a two-straight month decrease to 52.0 points in May. 9. Monthly Markets Update - India July 2011Brazils rate hike cycle combined with other macro-prudent measures aimed at combating inflation saweconomic activity slow. We expect economic activity to further slow in the near future as the effects ofthe rate hike cycle and the various macro-prudent measures become more pronounced.Inflation continued to remain above the governments target of 4.5% (plus/minus 2%), registering agrowth of 6.55% year-on-year in May, not much different from Aprils 6.51% rise. We maintain our beliefthat inflation is close to peaking in the Latin AmericanRussias Headline CPI growth remained stable at 9.6% year-on-year due to easing food prices whileconsumer prices have risen 4.8% since year-to-date. Meanwhile, its too early to conclude that theinflation has peaked as Russia has often been hit by drought and bad weather in summer. 10. Monthly Markets Update - India July 2011INDIAEquity Market Outlook 11. Monthly Markets Update - India July 2011 India-EquityIndia Indices (MTD Returns) Sectoral Indices (MTD 2.00%Returns) 1.50%8.00% 1.00%6.00% 0