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Monthly India Treasury Update
Monday, 1 April 2013
 
Defeat ― I do not recognise the meaning of the word! ~ Margaret Thatcher
 
This report must be read with the disclosures at the conclusion of the report.
 
Domestic Markets
 
Rupee ended marginally higher on continued dollar selling by foreign institutional investors and year end dollar supply
Bullet March Closing Rate – 54.31/54.32 (previous month close – 54.37/54.38)
Bullet After touching a high of 55.1500 at the start of the month, rupee strengthened against USD in the first half of March and remained range bound thereafter. Year end dollar supply from exporters hit the market, directing the spot move lower which was further supported by continued investment by FIIs in the Indian equities. Better than expected trade data also supported the move
 
Indian Equity Markets ended flat amidst political uncertainties and local fund redemption pressure
Bullet BSE index March closing– 18,835.77 (down 0.13% from Feb close)
Bullet Indian Equity Markets closed almost flat over the last month’s closing, as the local redemption pressure led to domestic mutual funds divesting equities and political uncertainties over the survival of the central government gave jitters to the investors. The FII buying interest continued, supporting the local equities. The central bank delivered a rate cut of 0.25% providing further support to the equities
Bullet FII Equity flows March: Net USD +1912.52 MIO investment
 
Indian Bonds Market ended lower on political uncertainties and reduced expectations of future easing by the central bank
Bullet 8.15 percent Government bond 2022 yield – 7.9500 percent (Up 8 bps over previous month close of 7.9100 percent)
Bullet Indian Bonds broke the streak of three month rally to end the month lower, as political uncertainties over survival of central government, after a key ally took away their support, spooked the investors. The RBI also gave a very cautious commentary in their monetary policy announcement, reducing future expectations of easing. However, a 25 bps point cut in the key policy rate kept the bond prices supported
Bullet FII Debt flows March: Net USD +923.92 MIO investment
 
Key Local Policy Initiatives and Government Actions
Bullet RBI delivered a 25 bps rate cut in the key policy rate
Bullet Finance ministry announced rationalisation of the FII debt limits wherein:
1. The existing debt limit are merged in the two broad categories; Government securities of US$ 25 billion and Corporate bonds of US$ 51 billion
2. The entire limit in both the Government securities and Corporate bonds categories will be made available to all eligible classes of foreign investors, including FIIs, QFIs, and long-term investors such as Sovereign Wealth Funds (SWFs), Pension Funds, Foreign Central Banks, etc.
3. Out of USD 25 billion limit for Government Securities, a sub limit of US$ 5.5 billion has been provided for investment in short-term papers such as treasury bills. Similarly, in case of USD 51 billion limit for corporate bonds, a sub limit of US$ 3.5 billion has been provided for investment in short-term papers such as commercial papers
 
Snapshot from HSBC Currency Outlook
Source: HSBC March 2013 Currency Outlook
India - Temporary disappointment?
Bullet Contrary to market expectations, the Indian government's Union Budget was not able to cheer the market as it lacked enough incentives to attract capital flows. However, only a few announcements were made that could be important, for example, the reduction of the withholding tax on long-term infrastructure bonds and allowing FII participation in currency derivatives
Bullet The recent appreciation in the INR has been more tactical than fundamental due to FII bond inflows. However, the large current account deficit and high inflation remains a challenge, which might prevent the RBI from cutting rates sharply
Bullet USD-INR has been trading slightly lower after the budget announcement. However, should there be a better commitment towards improving either the twin deficits or increasing investment flows, the INR would benefit to a more significant degree
Currency Forecast
  2012       2013      
Currency Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f
USD/INR 50.90 55.50 52.90 55.00 54.40 54.00 53.00 52.00
EUR/USD 1.33 1.27 1.29 1.32 1.30 1.32 1.34 1.35
GBP/USD 1.6 1.57 1.61 1.63 1.48 1.48 1.48 1.48
Source: HSBC March 2013 Currency Outlook
 
Indicative Rates
Indian Rupee As of Mar. end As of Feb. end Change Asian Indices As of
Mar. end		 As of
Feb. end		 Change
USD/INR 54.31 54.37 -0.11% BSE Sensex 18835.77 18861.54 -0.14%
EUR/INR 69.57 71.03 -2.06% US Treasuries        
JPY/INR 0.5759 0.5871 -1.91% 1 year 0.129 0.1529 -15.63%
GBP/INR 82.53 82.45 0.10% 5 years 0.7691 0.766 0.40%
CHF/INR 57.16 58.03 -1.50% 10 years 1.8521 1.8808 -1.53%
AUD/INR 56.43 55.53 1.62% Commodity         
Global Indices          Gold 1596.17 1579 1.09%
Dow Jones Index 14578.54 14054.49 3.73% Silver 28.26 28.51 -0.88%
GOI Bonds          Crude Oil 110.02 111.38 -1.22%
1 year 7.82 7.85 -0.38% USD/INR  Forwards        
5 years 7.96 7.92 0.51% 6 months (%) 7.23% 7.27% -0.59%
10 years 7.95 7.87 1.02% 1 year (%) 6.70% 6.61% 1.33%
6 Months LIBOR                 
USD 0.4449 0.4569 -2.63%        
Source: Bloomberg/Reuters
 
Indian Macro-economic Indicators Released (period 1 March 2013 to
31 March 2013)
Date Time Indicator Period Actual Forecast Prior
01-Mar-2013 10:30 India Feb HSBC Markit Manufacturing PMI Feb 54.20 - 53.70
05-Mar-2013 10:30 India Feb HSBC Markit Services PMI Feb 54.20 - 57.50
11-Mar-2013 11:00 Exports Y-O-Y% Feb 4.2% - 0.8%
11-Mar-2013 11:00 Imports Y-O-Y% Feb 2.6% - 6.1%
12-Mar-2013 11:00 Industrial Production Y-O-Y Jan 2.4% 1.3% -0.6%
12-Mar-2013 11:00 CPI Y-O-Y% Feb 10.91% 10.60% 10.79%
14-Mar- 2013 11:00 WPI Y-O-Y% Feb 6.84% 6.59% 6.62%
19 Mar-2013 11:00 Repo Rate - 7.50% 7.50% 7.75%
Source: Bloomberg/Reuters
   
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