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February 22, 2019 The Week that was… 18th February to 22nd February

2 Indian Economy • Foreign direct investment (FDI) into shrank 7% to $33.49 billion during Apr-Dec in FY19, according to commerce and industry ministry data. Foreign fund inflows during Apr- Dec FY18 stood at $35.94 billion. The sectors that received the maximum foreign investment during in the nine months of the fiscal are services ($5.91 billion), computer software and hardware ($4.75 billion), telecommunications ($2.29 billion), trading ($2.33 billion), chemicals ($6.05 billion), and the automobile industry ($1.81 billion). Singapore was the largest source of FDI during Apr-Dec FY19 with $12.97 billion inflow, followed by Mauritius ($6 billion), the Netherlands ($2.95 billion), Japan ($2.21 billion), U.S. ($2.34 billion), and the U.K. ($1.05 billion). • According to a major global credit rating agency, Indian corporate entities might witness a slowdown in revenue growth over the next 12-24 months. The rating agency is of the view that the pending general elections might give rise to additional risks for the Indian corporates as a change in administration may trigger an increase in government spending which may push up borrowing costs and result in an increase in domestic inflationary pressures. • According to media reports, the Ministry of Finance will infuse Rs. 48,239 crore in 12 state- run in this fiscal. The objective of the move is to help the banks maintain regulatory capital requirements and finance growth plans. The total amount of capital infusion with this funding will thus increase to Rs. 1,00,958 crore of the planned recapitalisation of Rs 1.06 lakh crore for the state run banks in this fiscal.

3 Indian Equity Market Domestic Equity Market Indices • Indian equity markets fell on escalating geo-political tensions, rising crude oil Indices 22-Feb-19 1 Week Return YTD Return prices and concerns over slower global S&P BSE Sensex 35,871.48 0.17% -0.55% growth. Uncertainty ahead of the Nifty 50 10,791.65 0.63% -0.65% general elections further kept investors S&P BSE Mid-Cap 14,169.74 1.64% -8.22% cautious. Meanwhile, investors S&P BSE Small-Cap 13,517.71 2.00% -8.08% remained watchful on U.S.-China trade Source: MFI Explorer talks as initially China blamed U.S. of spreading cyber security fears and S&P BSE S&P BSE S&P BSE Ratios Nifty 50 maligning its leading technology Sensex Mid Cap Small Cap company. Although, later positive P/E 22.92 26.32 30.31 -97.68 developments were witnessed as the P/B 2.99 3.41 2.43 2.00 Dividend Yield 1.20 1.25 1.04 0.96 U.S. President hinted that the truce Source: BSE, NSE Value as on Feb 22, 2019 between them could be extended and U.S. might postpone the increase in NSE Advance/Decline Ratio tariffs if the trade talks continue to Date Advances Declines Advance/Decline Ratio progress. 18-Feb-19 583 1216 0.48 19-Feb-19 1024 753 1.36 • Further, investors became worried over 20-Feb-19 1119 676 1.66 21-Feb-19 1218 571 2.13 the Reserve of India’s (RBI) 22-Feb-19 1226 589 2.08 meeting minutes showing Monetary Source: NSE Policy Committee (MPC) members are concerned about growth in the country.

4 Indian Equity Market (contd.) • On the BSE sectoral front, most of the Sectoral Indices Last Returns (in %) indices closed in the green barring S&P BSE Indices Closing* 1-Wk 1-Mth IT (-1.74%) and S&P BSE Teck (-0.95%) and S&P BSE Auto 18,608.14 1.89% -4.73% S&P BSE FMCG (-0.13%). S&P BSE Metal S&P BSE Bankex 30,091.92 0.40% -2.14% (6.55%) stood as the major gainer followed S&P BSE CD 21,282.27 0.90% 0.62% by S&P BSE Realty (4.46%) and S&P BSE S&P BSE CG 16,815.07 2.46% -4.16% S&P BSE FMCG 11,344.28 -0.13% -4.24% Oil & Gas (4.29%). S&P BSE HC 13,585.80 1.14% -2.99% • Banking sector got some support as media S&P BSE IT 15,110.63 -1.74% 2.31% S&P BSE Metal 10,669.97 6.55% -1.13% reports suggested that the Ministry of S&P BSE Oil & Gas 13,634.56 4.29% -0.69% Finance will infuse Rs. 48,239 crore in 12 S&P BSE Teck 18,608.14 1.89% -4.73% state-run banks in the fiscal. The objective of S&P BSE Power 30,091.92 0.40% -2.14% the move is to help banks maintain regulatory Source: Thomson Reuters Eikon *Value as on Feb 22, 2019 capital requirements and finance growth Indian Derivatives Market Review plans. • Nifty Feb 2019 Futures were at 10,808.80, a premium of 17.15 points, over the spot closing of 10,791.65. The total turnover on NSE’s Futures and Options segment for the week stood at Rs. 44.09 lakh crore as against Rs. 44.27 lakh crore for the week to Feb 15. • The Put-Call ratio stood at 0.88 compared with the previous week’s close of 0.96. • The Nifty Put-Call ratio stood at 1.37 against the previous week’s close of 1.30.

5 Domestic Debt Market • Bond yields fell initially after the Debt Indicators Current 1-Wk 1-Mth 6-Mth (%) Value Ago Ago Ago central bank announced to transfer an amount of Rs. 280 billion as an Call Rate 6.34 6.24 6.43 6.42 interim surplus to bridge the fiscal 91 Day T-Bill 6.43 6.37 6.56 6.81 deficit. This was a positive surprise 7.80% 2021, (5 Yr GOI) 6.76 6.75 7.02 7.69 for the market, which helped in 7.17% 2028, (10 Yr GOI) 7.60 7.58 7.53 7.83 bringing down the yield.

Value as on Feb 22, 2019 Source: Thomson Reuters Eikon • However, the trend reversed due to feeble demand at the auction. 10 -Yr Benchmark Bond ( % ) Concerns over widening fiscal deficit 7.62 and heavy borrowing plan of Rs. 7.10 trillion by the government for the next financial year continued to weigh on 7.56 market sentiment. Minutes of the Yield in % Yield latest monetary policy meeting released by the central bank hinted at 7.50 rate cut in Apr 2019 and were in line 18-Feb 20-Feb 21-Feb 22-Feb with expectations. Source: CCIL • Yields on the 10-year benchmark paper (7.17% GS 2028) rose 2 bps to close at 7.60% from the last week’s 6 close at 7.58%. Domestic Debt Market (Spread Analysis) • Yields on gilt securities increased across the maturities by up to 7 bps barring 3-, 12- and 13-year papers that fell by up to G-Sec Yield Corporate Yield Spread Maturity (%) (%) bps 2 bps. • Corporate bond yields rose across the 1 Year 6.67 8.28 161 maturities in the range of 2 bps to 7 bps barring 1-year paper that closed steady. 3 Year 6.88 8.36 148 • Difference in spread between AAA 5 Year 7.32 8.51 119 corporate bond and gilt contracted on 1- and 15-year papers by 2 bps each. 10 Year 7.75 8.73 98 Spread expanded across the remaining Source: Thomson Reuters Eikon Value as on Feb 22, 2019 maturities by up to 8 bps barring 4- and 5-year papers that closed steady.

India Yield Curve Shift (%) (W-o-W) Change 8.00 8 in bps in % 7.10 4

Yield 6.20 0 3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs Source: Thomson Reuters Eikon Change in bps 22-Feb-19 15-Feb-19

7 Regulatory Updates in India • According to media reports, the Reserve will pay an interim dividend of Rs. 28,000 crore to the government. There is a perception that the move that will help the central government to keep fiscal deficit in check. It needs to be noted that this is the second successive year that the will be transferring an interim surplus. • The Union Cabinet has approved the National Electronics Policy. The policy aims at domestic production of electronics goods to touch $400 billion by 2025 against around $80 billion now. The policy has proposed interest subvention scheme under which an interest subsidy of 4% will be provided on loans of up to Rs. 1,000 crore on plant and machinery. In case of a larger loan, subsidy will be limited to Rs. 1,000 crore. • According to media reports, the government plans to address taxation-related pain points and reduce the number of tax litigations, while focusing on some of the major issues that may lead to revenue generation. The Central Board of Direct Taxes (CBDT) has made a four-member committee, in the leadership of income tax commissioner to examine the matter and submit its final report and recommendations by middle of Mar 2019. The committee is looking to tackle the issue in a two-prong way — addressing some current pain points and recommending some steps borrowed from international best practices, the report said.

8 Regulatory Updates in India (contd..)

• According to media reports, the government has eased angel tax norms for start up companies. The government has increased the investment limit to Rs. 25 crore for availing income tax concessions by start up entities from the present limit of Rs. 10 crore. In addition, the government has also broadened the definition of a start up entity. According to the new norm, an entity will be considered as a start up entity when has been operating for a time period of ten years from its date of incorporation or registration, instead of the current seven years. Furthermore, an entity will be treated as a start up entity if its turnover for any of the financial years since incorporation and registration has not exceeded Rs 100 crore from the present limit of Rs. 25 crore. The move is of significant importance given the fact that many start up entities has expressed concerns regarding the fact that they were given angel tax notices which had adversely impacted their business. • A section of the GST Council is worried that the need to give tax relief to the housing sector to boost demand could lead to large scale tax evasion by builders. Thus, it wants to ensure that relief should be structured in such a way that revenue leakage is taken care of. The proposed GST rate cut with denial of input tax credit to builders would come with a condition that builders must ensure 80% of the inputs are procured from GST-registered dealers. Kerala finance minister feels that including capital goods as inputs would enable developers to meet the condition easily and opening up a window for them to procure other building materials from unregistered dealers. This could result in lower revenue collection for the government, and facilitate more evasion.

9 Global News/Economy • As per the minutes of the U.S. Federal Reserve's latest policy meeting, "a patient approach would have the added benefit of giving policymakers an opportunity to judge the response of economic activity and inflation to the recent steps taken to normalize the stance of monetary policy". The minute stated that additional data would help policymakers gauge the trajectory of business and consumer sentiment and the impact of the financial tightening on aggregate demand. • The Commerce Department showed a significant increase in U.S. durable goods orders in Dec 2018. The report said durable goods orders increased 1.2% in Dec after jumping 1.0% in Nov 2018. • U.K. employment hit a record high in Dec 2018 and wages grew at their fastest pace in a decade. Employment rose by 167,000 to a record high of 32.60 million in the three months to December. • Preliminary survey data from IHS Markit showed that eurozone's private sector expanded at the fastest pace in three months in Feb 2019, led by stronger growth in services, while manufacturing contracted. The flash Composite Purchasing Managers' Index grew to 51.4 from 51 in Jan 2019. • Overall nationwide consumer prices in Japan increased 0.2% YoY in Jan 2018. This was in line with expectations and less than 0.3% in Dec 2018. Core consumer prices, which excludes volatile food prices, increased 0.8% Yo Y, matching forecasts and up from 0.7% in the previous month.

10 Global Equity Markets U.S. • U.S. markets witnessed buying spree, Global Indices led by optimism over positive 1-Week YTD Indices 22-Feb-19 breakthrough of talks between U.S. and Return Return Dow Jones 26,031.81 0.57% 11.59% China over the trade deal. Recently, the Nasdaq 100 7,090.63 0.50% 12.02% U.S. President suggested that he could FTSE 100 7,178.60 -0.80% 6.70% postpone the increase of tariffs, set to DAX Index 11,457.70 1.40% 8.51% take effect after the deadline of Mar 1, Nikkei Average 21,425.51 2.51% 7.05% 2019, in case the trade talks show signs Straits Times 3,269.90 0.93% 6.55% of progress. Source: Thomson Reuters Eikon Value as on Feb 22, 2019 Europe • Majority of the European markets drew positive cues from optimism over the upcoming round of talks between the U.S. and Chinese officials. Investors are expecting that the two nations will take steps closer toward achieving a trade deal in the foreseeable future. Market participants also closely followed developments over Brexit. Asia • Asian markets reflected gains in global peers. Buying interest was impacted by the minutes of the U.S. Federal Reserve’s latest meeting that indicated a patient approach to raising interest rates in the future. Japanese markets rose on optimism over U.S.-China trade talks, which helped investors shrug off weak manufacturing data, as revealed in preliminary reading of a private survey.

11 Global Debt (U.S.) • Yields on the 10-year U.S. Treasuries fell 1 bps to close at 2.66% from the US 10-Year Treasury Yield Movement previous close of 2.67%. 2.74 • U.S. Treasury prices grew ahead of the release of U.S. Federal Reserve's (Fed) Jan 2019 policy meeting minutes. Fed 2.69 had indicated patience in raising interest rates in the policy meeting. Weak U.S. economic data amid federal government 2.65 shutdown added to the gains. Preliminary data for U.S Markit

2.60 Manufacturing PMI showed that it fell 19-Feb 20-Feb 21-Feb 22-Feb more than market expectations for Feb

Source: Thomson Reuters Eikon 2019. • However, reports of progress in U.S. and China trade talks, restricted the gains. According to media reports, leaders from U.S. and China have begun framing commitments in principle on the major issues, thereby marking the most significant progress so far.

12 Commodities Market Gold • Gold prices grew amid Brexit Rebased to 10 Global Commodity Movement uncertainties and political unrest in U.S. 11.50 pertaining to the controversial U.S.- 2.14% 11.00 Mexico border. The bullion’s price was also supported by the cautious stance 10.50 0.89% 0.51% taken by Bank of Japan on its monetary 10.00 Commodity Prices policy amid rising global risks. Concerns over U.S.-China trade negotiations also 9.50

Global 23-Jan-19 2-Feb-19 12-Feb-19 22-Feb-19 led to the gains. The two economies recently held talks in Beijing to resolve Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl) Source: Thomson Reuters Eikon their trade differences. Performance of various commodities Brent Crude Commodities Last Closing* 1-Week Ago • Brent crude prices surged due to the Brent Crude($/Barrel) 67.45 66.04 OPEC-led production cut to tighten the Gold ($/Oz) 1327.71 1321.01 oil market. Besides, the U.S. sanction Gold (Rs/10 gm) 33252 33193 on Venezuela also raised supply Silver ($/Oz) 15.92 15.78 concerns, thereby adding to the gains. Silver (Rs/Kg) 40121 39767 Baltic Dry Index Source: Thomson Reuters Eikon *Value as on Feb 22, 2019 • The Baltic Dry Index fell on the back of lower capesize and panamax activities. 13 Currencies Markets Rupee Rebased to 10 • The rupee inched up against the Currency Movement greenback amid gains in the domestic 10.30 equity market and on hopes that the 10.20 ongoing trade tussle between U.S. and 1.75% 10.10 China might soon be resolved. in terms of INR) 10.00 -0.05% Euro

Prices ( Prices 9.90 0.42% • The euro rose against the greenback on 9.80 -0.40% hopes that the ongoing trade tussle

Currency Currency 9.70 between U.S. and China might soon 23-Jan-19 2-Feb-19 12-Feb-19 22-Feb-19 come to an end. USD GBP Euro JPY Source: RBI Pound • The pound rose against the greenback Movement of Rupee vs Other Currencies on hopes that the British Prime Minister Currency Last Closing* 1-Wk Ago would be able to come out with a revised US Dollar 71.22 71.25 Brexit deal with the European Union. Pound Sterling 92.83 91.23 Yen EURO 80.75 80.42 • The yen weakened against the JPY(per 100 Yen) 64.29 64.55 greenback on concerns of another rate Source: RBI Figures in INR , *Value as on Feb 22, 2019 hike in U.S. following the release of U.S. Fed’s policy meeting minutes of Jan 2019. 14 The Week that was… 18th February to 22nd February

15 The Week that was (Feb 18 – Feb 22) Present Previous Date Events Value Value Monday, • U.K. Rightmove House Prices (YoY) (Feb) 0.2% 0.4% February 18, 2019 • Eurozone ZEW Survey (Economic Sentiment) (Feb) -16.6 -20.9 Tuesday, • German ZEW Survey Expectations (Feb) -13.0 -15.0 February 19, 2019 • U.K. Employment Change 3M/3M (Dec) 167k 141k • Japan Trade Balance (Jan) -¥1452.2b -¥56.7b Wednesday, • U.S. MBA Mortgage Applications (Feb 15) 3.6% -6.9% February 20, 2019 • Eurozone Consumer Confidence (Feb A) -7.4 -7.9 • Japan National Consumer Price Index (YoY) (Jan) 0.2% 0.3% • U.S. Durable Goods Orders (Dec P) 1.2% 1.0% • Japan All Industry Activity Index (MoM) (Dec) -0.4% -0.5% • Germany Consumer Price Index (YoY) (Jan F) 1.4% 1.4% Thursday, February 21, 2019 • Germany Markit/BME Composite PMI (Feb P) 52.7 52.1 • Eurozone Markit Composite PMI (Feb P) 51.4 51.0 • U.S. Existing Home Sales (MoM) (Jan) -1.2% -4.0% • U.K. Public Sector Net Borrowing (Jan) -15.8b 2.14b • U.S. Leading Index (Jan) -0.1% -0.1% Friday, • Germany Gross Domestic Product (YoY) (4Q F) 0.9% 0.6% February 22, 2019 • Eurozone Consumer Price Index (YoY) (Jan F) 1.4% 1.6%

16 The Week Ahead 25th February to 01st March

17 The Week Ahead

Day Event Monday, • U.S. Retail Sales Advance (MoM) (Jan) February 25, 2019

Tuesday, • German GfK Consumer Confidence (Mar) • U.S. Housing Starts (MoM) (Dec) February 26, 2019 • U.S. Consumer Confidence Index (Feb)

Wednesday, • German Retail Sales (YoY) (Jan) • U.S. Advance Goods Trade Balance (Dec) February 27, 2019 • Japan Industrial Production (YoY) (Jan P) • U.K. GfK Consumer Confidence (Feb) Thursday, • German Consumer Price Index (YoY) (Feb P) • U.S. Gross Domestic Product Annualized (GDP) (QoQ) (4Q A) February 28, 2019 • India GDP Estimate Q3FY19 • India Index of Eight Core Industries (Jan) • Eurozone Consumer Price Index Estimate (YoY) (Feb) Friday, • U.S. Personal Consumption Expenditure Core (YoY) (Dec) March 01, 2019 • U.S. ISM Manufacturing (Feb) • India Nikkei Manufacturing PMI (Feb)

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