Mar 02, 2015
Money Markets:

  • The week ending on 27th February 15, witnessed an average daily net liquidity shortfall under LAF at Rs. 8,948 cr as compared to previous week’s average liquidity shortfall of Rs. 14,580 cr. The average MSF borrowing stood at Rs.137 cr. Total overnight liquidity shortfall stood at Rs. 9,085 cr.
  • Money markets moreover remained subdued for the week. Call rates registered close of 7.69% for the week against 7.72 earlier while in contrast CBLO rates stood unchanged at to register close of 7.66%. 

G-Sec Market:

  • After closing around 7.70% during the start of the week, benchmark 10-yr security 8.40% GS 2024 surged to register close of 7.72% on the week end. Majority of the move was observed due to Fiscal Deficit target expectations in anticipation of the budget.
  • As observed in recent times, range bound movement was breached as we inched closer to Budget 2015-16. The 5-yr OIS surged to 6.98% from previous week levels of 6.91%; while the 1-yr OIS closed at 7.68%; 5.5 bps higher from previous week levels. The 1 – 5 yr spread remained unchanged at -73 bps levels.

Corporate Bonds


  • IndusInd Bank would raise an issue of Long term Infrastructure Bonds or Non-Convertible Debentures on private placement basis about Rs. 2000 Cr. Debt raised would be categorized as both Tier I and Tier II capital with maturity bucket of seven years. While the proceeds from the same would be utilized to finance incremental lending in Infrastructure and Housing.
  • Yes Bank would raise Rs. 1000 Cr. against targeted Rs. 500 Cr. by issuing Green Infrastructure Bond. The above would be used to fund 5000 MW of Non-Renewable Energy Projects in Solar along with Wind Biomass and Small Hydel Plants. Demand from insurance, pension and provident fund, and foreign portfolio investors resulted in Greenshoe Option being utilized.
  • Union Bank is planning to raise Rs. 2000 Cr. which is followed by Canara Bank and Dena Bank to raise Rs. 1500 Cr. and Rs. 1000 Cr. respectively. A combined sum of Rs. 4500 Cr. through Perpetual Bond is expected to be raised by three State Run Banks in order to boost their capital.
  • Double-A-rated Union Bank of India is planning to raise Perpetual Bonds up to Rs 2,000 crore out of which they plan to keep up to Rs 1,000 crore, if the issue is oversubscribed under the green-shoe option.
  • Canara Bank is planning to raise Rs 1,500-crore issue followed by Dena Bank, rated AA-negative, raising Rs 1,000 crore. Both the above bond issues are perpetual bonds have no maturity dates. 

Macro Indicators

  • FII’s increased exposure to corporate bonds by 12% investing almost Rs 276 billion in less than 30 days. It has increased total exposure to Rs1736 crores almost 70% of the total limit laid down.
  • The ordinances on insurance, coal mines and the motor vehicles act will not be tabled in the joint session of parliament, on account of the opposition from the Rajya Sabha where the current government does not have a majority.
  • CRISIL reveals further capital investment by corporates, especially private corporates is not forthcoming in the next year. Infact the report is based on a survey of 192 companies, shows that India’s capex could actually fall by 4% in the next fiscal.
  • The Rail Budget tabled by Suresh Prabhu avoided populist measures and was intepreted by experts as solid. Some of the salient points were-
  • no increase in passenger fares warranted by lower input costs, namely lower diesal prices
  • Freight costs for coal, iron ore and steel which could see inflation tick up. Frieght costs will also be up for urea and grains upto 10%.
  • An amount of Rs 159 crore allocated to improving passenger amenities at stations and in trains
  • An amount of Rs 8.5 lakh crore allocated to be spent over a period of 5 years on upgrading infrastructure but fine print on the same awaited.

 

  • Budget Highlights

  • With Current Fiscal Deficit target of 4.1% yet to be marked, government posted Fiscal Deficit target of 3.9% for next Financial Year. In short to sum up Budget, high proposals are placed in the fields of Infrastructure, Banking, GST Implementation and Manufacturing. The budget was more off a road map for the coming years.
  • Merger is proposed for FMC and SEBI which remains a major news for Commodities markets.
  • Setup of Public Debt Management Agency (PDMA)
  • Development of Sovereign Gold Bonds as an alternative to purchase of Metal
  • No distinction between FDI and FPI which led to rally in banking stocks on budget day.
  • Projected government receipts at Rs. 12.21 Lakh Cr. of which tax revnues form dominant source of receipts
  • Projected expenditure is marked around 5.7% of current year which stands at Rs. 13.12 Lakh Cr.

 Global Markets.

  • US Richmond manufacturing Index registered at 0 for the month of February against 6 earlier. Shipment and new orders were unchanged while backlog of orders declined.
  • US consumer confidence marked at 96.4 for the month of February against its previous reading of 103.8. The confidence dipped from the highs of January 2015 giving an indication that the economy still struggling.
  • US Yellen reiterated in the front of US senate that the rate hike will be considered on meeting by meeting basis and the current economic situation doesn’t want a rate hike for a couple of meetings.
  • The final CPI of Euro zone marked at -0.6% flat against its previous reading. This clearly indicates that the economy is in need of stimulus package which is to start from March 2015.
  • BOE Mark Carney in his inflation hearing reiterated that the inflation is expected to pick up and will bring close to the target of 2%. The inflation is dipping on the back of lower food prices, oil prices and energy prices. Carney gives hope and expects that inflation will accelerate in 2016.
  • MPC member Forbes stated that policy makers should look through current weak inflation and the next move should be increase in interest rate. The current benchmark is at 0.5% which can possibly hike the wage rate in near term.
  • On housing front in US, new home sales marked at 481k for the month of January 2015 against its previous reading of 482k, suggesting that the housing industry is stable and can grow in coming quarter as employment gains can increase the demand for the housing market.
  • During the week, Janet Yellen reiterated that there can be job losses on the back of fall in oil prices. She further added that FED could raise the interest rate later this year if economy continues to strengthen. She threw light on income and spending of Americans.
  • ECB Mario Draghi defended ECB against the criticism that the approach towards Greece bailout plan was not appropriate as ECB was applying its lending rules.
  • UK’s Mortgage Bankers Association stated that its loan request indicator increased by 4.6% in the last week, rising for the first time since June. Mortgage approvals for house purchase rose to 36,394 from 35,816 in December.
  • The Euro came off highs as DXY surged on better than expected data releases and comments from Fed non voting member James Bullard. Bullard opined that the next Fed meeting could result in the words “patience” being dropped from the Fed statement to prepare the ground for mid year rate hikes.
  • US CPI and the durable goods release seem to suggest that all is well with the US economy. While CPI number came in below expectations at -0.7%, core CPI ticked higher at 0.2% against expectations of 0.1%.The durable orders number beat expectations to come in at 2.8% versus expectation 1.7%.

 

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