monthly treasury report june 12-18-0106120639

7/31/2019 Monthly Treasury Report June 12-18-0106120639

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1Copyright Aditya Birla Money Mart Limited 2010 For Private Circulation onlyCopyright Aditya Birla Money Mart Limited 2010 For Private Circulation only

June, 2012


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2Copyright Aditya Birla Money Mart Limited 2010 For Private Circulation only

Macro concerns still linger on


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Where are we now?


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Exports & Imports Deficit narrows in April

India's exports grew by 3.2% to USD 24.5 billion in first month of the new fiscal emerging out ofthe negative zone it slipped into last month

Meanwhile growth in imports slowed down to 3.8% to USD 37.9 billion, reducing pressure on thecountry's balance of payments

Trade deficit narrows down to USD 13.4 billion, due to fall in imports of gold and crude


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Investments Literally at a standstill

New project investments have slowed down drastically

Investments for Q1 2012 is down by 27% as compared to Q1 of 2011

For 2011, total investments made was INR 11.63 lac crs as compared to INR 18.05 lac crs

in 2010


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GDP Q4 Shocker

Q4 GDP of FY 12 has come in at 5.30% as against the market expectations of 6.10%, its the

lowest quarterly growth in 9 years

GDP for FY12 as a whole is around 6.50%, which is way below the 6.90% projection of RBI and

the Government


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Rupee Continues to remain weak

FIIs has invested around USD 12.31 bn YTD till 31st May 2012

Rupee has been weakening since March as higher imports and trade deficit take its toll

RBI sold USD 20.2 bn since Sept 2011 to stem the rupee fall and going forward such large scalesupport seems unlikely due to Balance of Payment going into negative and falling FX reserves andhave estimated to have sold around USD 6 bn in April & May

RBI may stage limited intervention when required


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GDP downgraded domestically..

For India 2012-13E Previous 2012-13E Latest

Goldman Sachs 7.2 6.6

BoFAML 6.8 6.5

Morgan Stanley 7.5 6.8

CARE Rating 7.3 7.0

OECD* 8.2 7.1

IMF* 7.0 6.9

* For CY 2012



Global Markets Most markets underperform



Global Markets

Argentina is the top performer for themonth

US ,China & India are the top performersYTD

US continues to be resilient on the back of

strong and positive data

France and Spain fell the most during themonth due to rising risk aversion



Spain : Uncomfortably exposed at the centre of renewed Euro

Crisis

10 Year Bond Yields Yield % 1M % 3M

Germany 1.39 -18.2 -23.6

UK 1.76 -17.1 -11.6

France 2.55 -15.0 -11.4

Italy 5.79 2.6 11.6

Spain 6.51 10.8 30.6

The spread between Germany and Spanish yield stands at ~500bps, signalling continued pressure on Spanish economy in

meeting its debt obligations. S&P cuts ratings on five Spanish banks while Moodys lowered debt rating at 16 banks citing a

recession and mounting loan losses. EU summit yielded little new policy announcement but Italy PM said majority of

country of the regions leaders support a joint bond to fight the debt crisis in Europe. Germany, UK and France bonds have

rallied indicating risk-off



Changing times.news flow

Domestic Factors Rupee rebounded from new low (56.38) after

RBI intervention and few policy noises from

GoI

Petrol price hike - steepest ever. Markets

awaiting nod on the Diesel front as this alone

accounts for ~50% of the under-recovery WPI Inflation rose to 7.23% on higher food

prices and higher manufacturing inflation

Monsoon to set over Kerala coast on June 1:

IMD. It has arrived at Andamans slightly behind

sched

Monthly Trade deficit for Apr at $13.4bn GAAR application deferred by an year

IIP turned negative in March, -3.5% YoY v/s

4.1% in Feb12

June 17 re-elections to decide Greece fate in

Euro Zone

Euro Zone PMI for April 2012 at 45.9 against

47.2 in Mar 2012, which is one of the sharpest

decline in recent times. Spanish yield remain

under pressure Moodys downgrade 16 Spanish banks. Spain

would require recapitalization of lot of banks

sooner than later

FOMC Minutes more easing could be needed

if economy slows

China cuts reserve ratio requirement by 50bps

Global Factors



FII.India and other Regional markets

India has not seen a meaningful sell-off when compared with countries like South Korea, Taiwan, Indonesia and Thailand.

FII flows across regional markets

(630)

161

8586.5

622.8 767.1

6138.5

496.82259.6

(473)

(3,435)(3,511)

(177)

(8,000)

(4,000)

0

4,000

8,000

12,000

India Indonesia Philippines S. Korea Taiwan Thailand

May Net (Mn US$) YTD Net (Mn US$)


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FDI Inflows Strongest Inflows in March

India received USD 8.1 billion in foreign direct investment in March, showing an increase of 800 percent

compared to March 2011 (1.07bn USD) April to Mar period has seen cumulative inflows of USD 36.03 bn against a 19.43 bn in the same period

in FY 11

FY 12 inflows have been strong and for FY 13, reforms will be the key



Crude : Any Fall is positive

Crude prices have corrected by more than 15% from its high of USD 129 per barrel inMarch

Price correction was mainly due to slowdown in global economy, fears of Greece exitingEU and China facing a significant slowdown thereby bringing down the demand for theblack gold

Talks of dialogue with Iran on its nuclear programme bought down the Premium

Strengthening of the USD impacted most commodities



Gold Imports Fatigue sets in

Gold imports constitute a major portion of our trade deficit (around 30%)

Q1 of 2012 saw imports falling by 29% compared to last year as higherimport tariffs and jewelers strike reduced demand

Q2 may see imports falling by 30% as high prices deter consumers andinternational prices continue to fall

Even a fall in imports to 500-600 tonnes for the year will reduce the currentaccount deficit significantly



Falling commodity...good for India??

Crude Oil, Gold, Coal, Fertilser and Palm Oil

(these contribute ~53% of Indian imports) are

critical commodities from trade deficit standpoint

whereas Coal and Steel are critical from

Infrastructure perspective.

Palm Oil $/mt

950

1050

1150

1250

Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12

Coal Thermal $/t

85

95

105

115

125

135

Apr -11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr -12

HRC Steel $/t

660

680

700

720

740

760

780

800

Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12



Product Preferences



Net Liquidity in May averaged around (-)INR 99,000 crs as against (-)INR 100,500 crs in April

1 Year CP touched a high of 11.60% and CD rates at 10.90% in March and has dropped tocurrent 10.42% and 9.85%

RBI may counter any future liquidity tightness by cutting CRR and OMOs going ahead

OMOs of INR 32,000 crs in May to infuse liquidity and keep the yields in check

Liquidity tightness eases



Credit to Deposit Ratio: All time highs

High credit to deposit ratio in recent months have contributed to liquidity tightness

Current ratio is at 76.7, which is close to its all time highs

Deposits growth has to be above 17% to bring liquidity under control

Rates may move down if it comes below 71.5


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10 Year Yields Upward Pressure remains

10 Yr yield have broken the 8.45 pivot levels to current 8.51 per cent

Higher government borrowing in FY 13 have caused the yields to spike up

Yields can move till 8.7 to 8.90 per cent due to higher borrowing in the H1 of FY13

Future OMOs along with CRR cut is necessary to plug the liquidity deficit and keep the

yields in check


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Rate Cut- Transmission at the short end

Impact of RBI repo cut of 50 bps was seen in the short end rather than the long end

Current 1 year CP & CD rates are at 10.50 % & 10 %

Short term funds have performed well and is still recommended


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Inflation moderates but risks remain

WPI for the month of April was 7.23% as compared to 6.89% in March and CPI forApril was at 10.36% as against 9.47% in Feb

Core inflation continues to remain flat, thereby giving comfort to RBI

RBI has targeted 7% inflation for FY 13

Upwards risks to inflation remain with rising crude prices, weak or bad monsoon and

core inflation rising


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With liquidity tightness and CP & CD rates being very high, short term fundsare an attractive proposition now for 6 months to 1 yr horizon

Conservative investors looking to lock in funds should look at Fixed MaturityPlans and Fixed Deposits as the short term rates are still at elevated levels

Investment into duration products is recommended for aggressive investors.However, the investment should be staggered over the next two to threemonths as there is regular Gilts supply and the liquidity conditions is expectedto remain tight

Tax Free Bonds from the previous financial year (HUDCO, PFC, IRFC etc)because of fixed attractive rates for long term (10-15yrs) along with capitalgains opportunities once rates start coming down

What do we suggest for June 2012?


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Product Preference Matrix


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Risk Disclosure and Disclaimer

Aditya Birla Money Mart Limited has prepared this document on the basis of publicly available information and other sources believed to be reliable. Whilst no

action has been taken based upon this information, ABMML makes no representation or warranty expressed or implied, as to the accuracy; completeness orreliability of any information compiled herein and hereby disclaims any liability with regard to the same. This is intended for general information purpose only anddoes not constitute any recommendation or solicitation of an offer, to subscribe to the securities or products. Investment decision if any shall be at your solediscretion. You may obtain your own legal, tax and financial advice before making an investment decision. Aditya Birla Money Mart Limited (ABMML) is anassociate / group Company of Birla Sun Life Asset Management Company Limited /Birla Sun Life Mutual Fund (BSLMF). Mutual Fund investments are subject tomarket risks, read all scheme related documents carefully. The Macro/Micro economic views, market trends, business, sectoral or financial outlook is solely of theauthor and should not be construed as any guidelines or recommendation on any course of action to be followed by the reader. The views and opinionsexpressed herein by the author are his own and do not reflect the views of Aditya Birla Money Mart Limited or any of its associate or group companies. Theinformation, opinion or views contained in this document are as per prevailing conditions and are subject to change from time to time. Forward looking statementsare not predictions and may change without notice.

Aditya Birla Money Mart Limited, One India Bulls Centre, tower 1, Jupiter Mill Compound, 841, Senapati Bapat Marg, Elphinstone Road, Mumbai 400 013. Tel:

022-4356 8300 Fax: 022 43568310

(This presentation is for private circulation only)

monthly treasury report june 12-18-0106120639

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