Apr 14, 2014
Money Markets:
  • The week ending on 11th April 14, witnessed a surge in average daily net borrowing under LAF at Rs.17,646 cr as compared to previous week’s average of Rs.14,511 cr. The average MSF borrowing stood at Rs.5,535 cr. Total liquidity shortfall at Rs.23,181 cr. is within the comfort zone.
  • Money market rates remained elevated during the week; with call rates ending at 8.10% as against 8.15% in the previous week. The CBLO rates ended at 8.10%, from previous week’s 6.50%.
G-Sec Market:
  • RBI conducted auction for the securities 7.80% GS 2020, 8.83% GS 2023, 8.32% GS 2032 and 8.30% GS 2042 for a total notified amount of Rs.16,000 cr The cut-offs for the securities came in at 9.19%, 9.02%, 9.33% and 9.32% respectively. All the 4 securities were fully subscribed. The bid-cover ratio was at 2.43 as compared to 2.41 in the previous auction. 
  • The benchmark 10-yr security 8.83% GS 2023 closed at 8.94% 13 bps lower w-o-w. The g-sec market opened weak as the 10-yr yields touched 9.10% on the back of higher Government borrowing (62%) in the H1 2014-15. However value buying above 9% levels witnessed a sharp rally in the g-sec and the 10-yr bond posted its biggest weekly gain in last 3 months. 
  • The OIS curve witnessed receiving across tenors. The 5-yr OIS closed at 8.52%, 11 bps lower from previous week levels; while the 1-yr OIS closed at 8.61%; 6 bps lower from previous week levels. The 1 – 5 yr spread narrowed on a weekly basis by 5 bps to end at -9 bps levels. The OIS curve is likely to witness further paying as the market sentiment continues to be interest rate negative.
Corporate Bonds 
  •  The corporate debt market too witnessed some buying at higher yields. The 10-yr AAA bond traded at a yield of 9.70%, 5 bps lower from its previous week closing levels of 9.75%. The yield on 1-yr AAA bond ended at 9.35%, 5 bps higher from its previous week levels of 9.30%. 
  • There were no major corporate debt issuances during the week.
  • In the overseas market Oil India issued 3.875% (5yr UST + 222 bps) (semi-annual) 5-yr bond and 5.375% (10-yr UST + 272 bps) (semi-annual) 10-yr bond to raise $1 bn ($500 mn from each issuance). This was the first issuance by an Indian non-banking company under Reg S.
  • SBI issued 3.622% 5-yr bond (5-yr UST + 205 bps) to raiser $750 mn and 4.875% 10-yr bond (10-yr UST + 225 bps) to raise $500 mn. The issuance was partly under Reg S and partly under 144A.
  • RBI has restricted further investments in debt by all types on foreign investors including Registered Foreign Portfolio Investors to dated government securities with residual maturity higher than one year. The existing investment is short term Treasury bill will be redeemed on maturity.
Macro Indicators
  • India’s Mar 2014 Exports fell by 3.15% to $29.58 bn while Imports declined by 2.11% to $40.09 bn as the trade deficit posted $10.51 bn against $8.13 bn in the earlier month.
  • India’s Feb 2014 IIP (Index of Industrial Production) declined by -1.9% against 0.1% expansion in the previous month and expectations of 0.9% growth. 
  • RBI notified the new category of NOFHC (Non-Operative Financial Holding Company) required for setting up a bank as per the new bank license guidelines.
  • RBI has allowed resident individuals and firms to book their actual and anticipated foreign exchange remittances (both inward/ outward) up to a limit of $250,000, through a simple declaration and without any documentation. The limit was earlier capped at $100,000. 
  • RBI released the Draft report of working group headed by Anand Sinha on pricing of credit. 
  • RBI has maintained the all in cost ceiling on ECB borrowings further till 30th June 2014.
  • Monthly WPI inflation stood at 4.68% in February 2014, as against 5.05% in January 2014.
Global Markets
  • FOMC 18th-19th Mar 2014, minutes of the meeting showed that the participants expressed concerns that the rise in forecasts may be misconstrued as shift in the policy stance.
  • US Retail Sales rose by 1.10% in Mar 2014 as against 0.70% rise in Feb 2014. The surge is retail sales was the largest seen in last 18 months.
  • ECB President Draghi warned that the Euro economy required further monetary stimulus. Draghi further mentioned that the exchange rate doesn’t fall under the purview of monetary policy however it is important for price stability and growth. 
  • BoE kept its interest rate unchanged at a record-low 0.5% and maintained the size of its asset purchase facility at GBP 375 bn, broadly in-line with market expectations.
  • The UK Industrial production surprisingly jumped to 0.90% in Feb 2014 from 0.30% in the previous month.
  • Nigeria overtook South Africa as the largest African economy after a long overdue correction in the calculation of its GDP.
  • IMF revised the world GDP growth forecast to 3.60% for 2014 from 3.70% in Jan 2014. IMF expects the US GDP to drive the world growth and is likely to make up for the weaker growth in emerging countries like Brazil and Russia.

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