monthly markets update (india) - october 2011
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DESCRIPTIONMonthly review of key market segments within India including Equity (Domestic and International), Fixed Income, Currency, Economic Indicators, Mutual Funds & Recommended Portfolios (India).
- 1.October 2011Prepared by: iFAST Research Team
2. Monthly Markets Update - IndiaOctober 2011Key PointsDespite the volatility witnessed, we continue to remain positive on the US equities for the nextthree years.As for the Chinese economy, although inflation continues to be a threat, yet we are of theopinion that the country will loosen its monetary stance in the second half of the year.We believe that the Indian market will remain range bound on account of the negative short-term macro parameters and the continuing gloomy atmosphere in the global environment.On the Fixed Income side, we are expecting some more rate hikes in the current fiscal itselfbefore the central bank presses the pause button on rates.The Indian mutual fund industry saw a decrease in its assets (average assets undermanagement) by 4.06% to Rs. 7, 17,129 crores in the third quarter (July September) of 2011 incomparison to the second quarter (April June) of 2011.A look at the performance of funds shows that all the Equity oriented categories have deliverednegative returns while the debt focused categories are in the positive territory in the month ofSeptember. 3. Monthly Markets Update - India October 2011Equity Markets Update International Markets (As at September 2011 end) Earnings Earnings 20112011 2010 P/EP/E P/E Growth Growth MTD YTDReturn (%) Yr 2011 Yr 2012 Yr 2013 2011 (%)2012 (%) Asia ex Japan (MSCI Asia ex Japan) -13.39% -21.33% 17.00% 10.8 9.5 8.47.40%14.00% Emerging Markets (MSCI EM) -14.78% -23.16% 16.40%9.5 8.6 7.78.90%11.30%Europe (Stoxx 600)-4.74%-18.35% 8.60% 9.6 8.6 7.96.70%11.30%Japan (Nikkei 225)-2.85%-14.94% -3.00% 13.912.210.37.00%14.40%USA (S&P 500) -7.18%-10.05% 12.80% 11.710.5 9.4 16.40%11.70%Australia (S&P/ASX 200) -6.70%-16.32% -2.60% 10.7 9.7 8.99.90%11.10% Brazil (IBOV)-7.38%-24.50% 1.00% 9.2 8.2 7.19.00%12.10% China (HS Mainland 100)-16.98% -24.79% 2.20% 8.6 7.5 6.7 22.60%13.60% Hong Kong (HSI)-14.33% -23.51% 5.30% 9.6 8.6 7.7 17.30%11.70% India (SENSEX) -1.34%-19.30% 17.40% 22.214.171.124 11.60%15.90%Indonesia (JCI) -7.62%-4.17%46.10% 13.911.510.0 23.80%20.10%Malaysia (KLCI) -4.16%-8.68%19.30% 13.412.211.2 10.00% 9.50%Russia (RTSI$)-21.22% -24.24% 22.50%5.1 5.2 4.7 31.20%-1.70%Singapore (STI) -7.28%-16.73% 10.10% 12.411.510.16.60% 8.30% South Korea (KOSPI)-5.88%-13.72% 21.90%9.1 8.0 7.1 13.10%13.80% Taiwan (Taiwan Weighted) -6.67%-18.89% 9.60%13.111.0 9.6-7.50% 19.00%Technology Heavy (NASDAQ 100) -4.54%-3.89%19.20% 13.311.610.4 26.20%14.10% Thailand (SET Index) -14.38% -11.29% 40.60% 10.5 9.2 8.3 25.90%14.10%Source: Bloomberg, iFAST Compilations All returns are in respective local currency terms and MSCI Index returns are in USD 4. Monthly Markets Update - India October 2011Global Market Performance Group 7 CountriesGlobal Indices- G7 (MTD Returns) 0.00% Germany (DAX) USA (S&P 500) UK (FTSE 100)Italy (FTSE MIB) Canada (S&P/TSX) France (CAC-40)-2.00%Japan (Nikkei 225)-4.00%-6.00%-8.00% -10.00%Events Factory orders in the US rose 2.4% m-o-m in Jul 11, after a better-than-expected 0.4% decline in Jun 11 US Unemployment rate remained at 9.1% in Aug 11, unchanged from Jul 11 New home sales fell 2.3% m-o-m in Aug 11, after a better-than-expected 0.3% decline in Jul 11 Industrial production of Germany rose 4.0% m-o-m in Jul 11, after an upward-revised -1.0% decline in Jun 11 Euro-zone retail sales contracted -0.2% y-o-y in Jul 11, after a downward-revised -0.7% contraction in Jun 11 UKs Industrial production fell by -0.2% on a m-o-m basis in Aug 11, after a 0% growth rate in Jul 11 Bank of Japan (BOJ) held its target rate unchanged at a range between 0% to 0.1% in Sep 11 The Industrial production of Japan dropped 3% y-o-y in Jul 11 following a decrease of 2.8% in Jun 11Market OutlookUS markets continued to remain volatile in the month of September as well on account of Euro Zonedebt worries the mixed data of the US economy released, and the Feds weak assessment of the USeconomy. We are expecting the Fed to further lower the economic growth forecasts for the USeconomy, the Fed still expects 2.8% full year growth while our own forecast is 1.6% expansion for 2011.A better idea of the extent of the impact of Euro zones woes on corporate profitability will be known 5. Monthly Markets Update - India October 2011only once the result season starts this month. We continue to be positive on US equities for the nextthree years as the market re-rates to a higher multiple of earnings. On the other hand, the on-goingdebt crisis is having a negative impact on the sentiments and confidence of countries like Germany andthe Euro Zone in general. Finally, as far as the Japanese economy is concerned, the impact of theearthquake along with the problems in US and Europe are having a negative impact on their exports. Wecontinue to stick to our view that the Japanese economy will recover at a slower pace as compared toother regions and countries. 6. Monthly Markets Update - IndiaOctober 2011Asia Pacific (Ex Japan)Global Indices- Asia Pacific (Ex Japan)(MTD Returns)0.00%South Korea (KOSPI)Indonesia (JCI)Australia (S&P/ASX 200)Hong Kong (HSI) Thailand (SET Index)Taiwan (Taiwan Weighted)Singapore (STI)Malaysia (KLCI) -2.00% -4.00% -6.00% -8.00%-10.00%-12.00%-14.00%-16.00%Events Singapores CPI for Aug 11 rose 5.7% y-o-y, after rising 5.4% y-o-y in Jul 11 Industrial production of Singapore for Aug 11 increased by 3.9% m-o-m, after an upward-revised 0.4% gain in Jul 11 CPI of Malaysia decelerated to 3.3% y-o-y in Aug 11 BNM maintained Overnight Policy Rate at 3.0% on 9 Sep 11 Bank Indonesia reference rate is unchanged for seventh months at 6.75% Headline inflation of Indonesia in Aug rose to 4.8% y-o-y compared to 4.6% in Jul The Bank of Korea (BOK) held its benchmark 7-day repo rate unchanged at 3.25% in Sep 11 Koreas Consumer Price Index (CPI) grew at 5.3% y-o-y in Aug 11 compared to a 4.7% increase in Jul 11Market OutlookThe earnings estimate for Singapore has been downgraded on account of the gloomy conditionsprevailing in the international markets. However, we still believe that Singapore equities will delivermore than 20% annualized returns by the end of 2013. Inflation has come down for countries likeMalaysia and Indonesia and is expected to be on a downward trend on account of the easing ofcommodity prices. However, inflation continues to remain sticky for Thailand, as a result of which theCentral Bank hiked the interest rate in the month of August as well which was 9 times since theborrowing cost increased since June 2010. 7. Monthly Markets Update - IndiaOctober 2011BRIC (Ex India) Countries Global Indices- BRIC (Ex-India)- (MTD Returns)0.00%Brazil (IBOV) China (HS Mainland 100) -5.00% Russia (RTSI$)-10.00%-15.00%-20.00%-25.00%Events IPCA Inflation rose to 7.2% y-o-y in Aug 11, up from 6.9% in Jul 11 Brazils Consumer confidence fell to 114.7 in Sep 11, 118.7 in Aug 11 Industrial production of Russia expanded 6.2% y-o-y in Aug 11, after a 5.2% y-o-y increase in Jul 11 Russias Consumer Prices gained 8.2% y-o-y in Aug 11, down from 9.0% in Jul 11 CPI of China rose 6.2% y-o-y in Aug 11 as compared with a 6.5% rise in Jul 11 Chinas Industrial production grew by 13.5% y-o-y in Aug 11 as compared with a 14.0% y-o-y increase in Jul 11Market OutlookThe economic activity in the Brazilian economy decelerated on account of the uncertainties in the globaleconomies. Inflation continued to remain above the governments estimate of 4.5% (Plus/minus 2%). Inspite of this, the Central Bank cut its benchmark Selic rate by 50 bps to reach 12% on the back ofdeterioration in the global economy. Brazils index has been affected by the global panic, European debtcrisis, slowdown in the US economy and the volatility in commodity prices. As for the Russian markets, itwas affected due to global panic and equity market sell-off along with the fears that the Europeandemand for oil will come down. Finally, for the Chinese economy, inflation continues to remain a threatand control in credit growth continues. We are of the view that China will loosen its monetary stance inthe second half of the year due to the ongoing crisis in Euro Zone. We believe that currently valuationsare attractive and we are positive on both Chinese A shares and Hong-Kong listed Chinese equities overthe next 3 years. 8. Monthly Markets Update - India October 2011INDIAEquity Market Outlook 9. Monthly Markets Update - IndiaOctober 2011 India-Equity India Indices (MTD Sectoral Indices (MTDReturns)Returns)0.00% 4.00%Nifty IndexBSE MID CAPBSE SMALL CAP BSE Sensex-0.50%2.00%-1.00%0.00% BSE IT BSE-HC BSE CDBSE FMCG BSE CG BSE METAL BSE Oil & GasBSE Realty BSE BankexBSE AUTOBSE Power-1.50% -2.00%-2.00% -4.00%-2.50% -6.00%-3.00% -8.00%-3.50%-10.00%-4.00%-12.00%Events Indias Manufacturing Purchasing Managers Index was at 52.6 in Aug 11 as compared to 53.6 in Jul 11 Production at factories, utilities and mines rose 3.3% y-o-y in Jul 11, after an 8.8% gain in Jun 11 WPI inflation for Aug 11 was at 9.78% compared to 9.22% in Jul 11 RBI raised the Repo rate by 25 basis points on 16 September from 8% to 8.25%. In addition to this, Reverse Repo rate was automatically adjusted to 7.25% and the marginal standing facility rate to 9.25% The earnings growth for 2011-12 and 2012-2013 are 8.28% and 16.07% which translate to a forward P/E of 13.97X and 12.03X respectivelyMarket OutlookThe Indian markets ended in red by registering a negative return of 1.34% and 1.15% respectively. Someof the macro-economic numbers that came out during the month along with the uncertainties in theglobal markets contributed to the muted growth. Year-on-year growth in the index of IndustrialProduction for July 2011 came in at 3.3% against the Bloomberg consensus expectation of 6.2%. As perthe use-based classification, the Capital Goods and Intermediate Goods sectors contracted by 15.2% and1.1% respectively, while Basic Goods grew at 10.1%. On the other hand, the Consumer Durables andConsumer non-