Jul 21, 2014
Money Markets:
  •  The week ending on 18th July 14, witnessed an average daily net borrowing under LAF at Rs.20,769 cr as compared to previous week’s average of Rs.19,840 cr. The average MSF borrowing stood at Rs.1,451 cr. Total overnight liquidity shortfall stood at Rs.22,220 cr. RBI injected another Rs.42,090 cr from 3-day, 4-day & 7-day term repo.
  • Money market rates remained elevated during the week; with call rates ending at 8.00% as against 8.70% in the previous week. The CBLO rates ended at 8.15%, from previous week’s 8.20%.
G-Sec Market:
  • RBI conducted the weekly auction for securities 8.35% GS 2022, 8.60% GS 2028, 9.20% GS 2030 and 9.23% GS 2043 for a total notified amount of Rs.14,000 cr. The cut-offs for the securities came in at 8.77%, 8.62%, 8.75% and 8.76% respectively. All the four securities were fully subscribed. The bid-cover ratio was at 2.49 as compared to 2.37 in the previous auction.
  • The benchmark 10-yr security 8.83% GS 2023 closed at 8.77% unchanged w-o-w. The g-sec market traded range bound during , the week. The lower numbers for both WPI and CPI inflation failed to trigger any substantial buying interest in the G-sec market. The spike in the global crude prices following the Malaysian plane tragedy kept the yields elevated.
  • The OIS traded flat during the week. The 5-yr OIS closed at 7.90%, 1 bp higher from previous week levels; while the 1-yr OIS closed at 8.41%; unchanged from previous week levels. The 1 – 5 yr spread was widened on a weekly basis by 1 bp to end at -51 bps levels. The OIS curve may witness range bound movement as the market factors are balanced out.
Corporate Bonds
  • The corporate debt market witnessed some sell-off during the week. The 10-yr AAA bond traded at a yield of 9.25%, 8 bps higher from its previous week levels of 9.17%. The yield on 1-yr AAA bond ended at 8.90%, 7 bps lower from its previous week levels of 8.97%.
  • In the primary corporate bond market: Rural Electrification Corp (REC Ltd) issued 9.40% 7-yr bonds to raise Rs.1,515 cr. Sundaram Finance issued 9.42% 2-yr debt paper to rise Rs.100 cr.
  • NSE will auction Rs.2,512 cr worth of FII limit in Government Securities on Monday 21st July 14. The total FII investment in G-sec stands at Rs.97,025 cr which is about 97.50% of the eligible limit.
  • RBI released the guidelines for banks raising infrastructure funding. RBI has removed the quantum cap on infrastructure-bonds and has allowed exemption from NDTL and thus CRR and SLR requirements for the issuing bank. The minimum maturity for the infrastructure bonds has been fixed at 7-yrs and they are not permitted to have call and put options.
  • RBI has allowed banks extending affordable housing loans to float infrastructure bonds with minimum maturity of 7 years. Such bonds will be exempt from SLR, CRR and priority sector lending target calculation.
Macro Indicators
  • India’s trade deficit rose to $to $11.76 bn in June 2014 as compared to $11.23 bn in May 2014. Exports fell by 5.40% to $26.48 bn and imports fell by 2.40% to $38.24 bn in June 2014.,
  • FDI flows in India more than doubled to $3.60 bn in May 14, highest in last 8 months. In May 2013, the FDI flow stood at $1.63 bn.
  • RBI hiked the limit under Liberalised Remittance Scheme for resident individuals to $125,000 from $75,000.
  • RBI released further revised pricing guidelines for issue/ transfer of shares or convertible debentures for FDI investment in India.
  • RBI released the draft guidelines for licensing of Payments banks and small banks.
  • RBI has released a working paper on ‘Debt Sustainability at State Level in India’ to asses the impact of state level debt in the light of recent global slowdown and financial market volatility.
  • India’s CPI inflation stood at 7.31% in June 2014 as against 8.28% in May 2014.
  • Monthly WPI inflation stood at 5.43% in June 2014, as against 6.01% in May 2014.

Global Markets.
  • Fed Chairperson Janet Yellen in her semi-annual testimony in the US Senate said that the weak job market warrants monetary stimulus. Yellen cited low wages as a sign of slack in the labour market. However she agreed that the US economy is giving mixed signals.
  • US Retail sales rose by 0.20% in June 2014 as against 0.50% rise in May 2014.
  • Euro ZEW Economic Sentiment survey for the Euro-zone plunged to a level of 48.1 in July 14 from previous month's 58.4. The German economic sentiment fell to a 19-month low level of 27.1 in July 14 from 29.8 June 14.
  • UK CPI inflation rose to 1.90% in June 2014, up from 1.50% in May 2014 as per the Office of National Statistics. Unemployment rate fell to 6.50% in the 3-month period Mar – May 2014 as compared to 6.60% in Feb – Apr 2014.
  • BRICS nations agreed to set up a $50 bn development bank which is to be headquartered in China and will have an Indian as its first rotating President. The group also agreed to set up a $100 bn crisis fund.
  • Geo-political tensions escalated after suspected pro-Russian rebels shot down a Malaysian Airlines flight flying over Ukraine, thus killing the 295 passengers.

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