July 2014 | srei
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July 2014

Key Features of Budget 2014-2015

  • Fiscal deficit target retained at 4.1% of GDP for FY15; road map for fiscal consolidation outlines a target of 3.6% for FY16 and 3% for FY17.
  • Plan expenditure pegged at Rs 5.75 lakh cr and non-plan at Rs 12.19 lakh cr.
  • Gross borrowings pegged at Rs 6 lakh cr and disinvestment target fixed at Rs 58,425 cr.
  • Aims for sustained growth of 7-8% in the next three-four years.
  • To focus on achieving 4% growth per year in agriculture; sets farm credit target at Rs 8 lakh cr for FY15.

Tax proposals

  • Tax slab on personal income unchanged.
  • Income tax exemption limit raised by Rs 50,000 to Rs 2.5 lakhs and for senior citizens to Rs 3 lakhs.
  • Exemption limit for investment in financial instruments under Section 80C raised to Rs 1.5 lakh from Rs 1 lakh.
  • Investment limit in PPF raised to Rs 1.5 lakhs from Rs 1 lakh.
  • Deduction limit on interest on loan for self-occupied house raised to Rs 2 lakhs from Rs 1.5 lakhs.
  • Extends 10-year tax holiday for power generation companies.
  • To provide investment allowance at 15% for three years to manufacturing firms which invest more than Rs 25 cr in plant and machinery.

Savings

  • Kisan Vikas Patra to be reintroduced.
  • National Savings Certificate with insurance cover to be launched.
  • Special small savings schemes for education and marriage of girls.
  • Long-term capital gain tax for mutual funds doubled to 20%; lock-in period increased to three years.
  • Mandatory wage ceiling of subscription to EPS (Employee Pension Scheme) raised from Rs 6,500 to Rs 15,000.
  • EPFO to launch the “Uniform Account Number” Service for contributing members.
  • Minimum pension increased to Rs 1,000 per month.

Initiatives

  • FDI cap in defence and insurance sectors raised to 49%.
  • Requirement of the built-up area and capital conditions for FDI reduced to 20,000 square metres and $5 mn, respectively, for development of smart cities.
  • Government to retain majority stake in PSU lenders; centre states that PSU banks require an equity infusion of Rs 2.4 lakh cr by 2018 to conform with Basel-III norms, and plans to meet this requirement by increasing the public shareholding in PSUs.
  • Government announces a series of measures to encourage entrepreneurship, including a Rs 10000 cr fund to back early stage companies.
  • Centre gives nod to Real Estate Investment Trusts and permits complete pass through for taxation purposes; also approves Infrastructure Investment Trusts.
  • Rs 4,000 cr set aside to increase flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.
  • Earmarks Rs 7,060 cr to create 100 “smart cities”.
  • Indian companies to move to new accounting standards by FY15.
  • Introduction of one single operating demat account.

Highlights of RBI’s bi-monthly monetary policy review

  • Statutory liquidity ratio (SLR) of scheduled commercial banks reduced by 50 basis points (bps) to 22% of their net demand and time liabilities (NDTL) with effect from the fortnight beginning August 9.
  • Ceiling on debt that must be held to maturity (HTM) cut by 50 bps to 24%.
  • Repo rate under liquidity adjustment facility unchanged at 8%. Consequently, reverse repo rate unchanged at 7% and marginal standing facility rate and bank rate at 9.0%.
  • Cash reserve ratio unchanged at 4%.
  • Liquidity provided by overnight repos at 0.25% of bank-wise NDTL and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system to continue.

Indian Economy Review

Hopes of economic reforms raise growth prospects

Expectations of economic reforms from the new government led to the Asian Development Bank (ADB) upgrading India's economic growth forecast to 6.3% in 2015-16 on hopes of a speedy reform process, but retained growth forecast of 5.5% this year. The International Monetary Fund (IMF) has retained its forecast of 5.4% growth in the Indian economy in 2015 and 6.4% growth next year. The government in its maiden budget estimated 5.4-5.9% growth during 2014-15, and aimed for sustained growth of 7-8% in the next three-four years. Meanwhile, to help the country return to a higher growth path, the World Bank has offered India up to $18 bn in financial support over the next three years.

Domestic GDP Growth

 

Inflation declines in June

India’s retail inflation measured by the Consumer Price Index fell to 7.31% in June from 8.28% in May, while the wholesale inflation measured by the Wholesale Price Index fell to 5.43% in June from 6.01% in May. Retail inflation for industrial workers also fell to 6.19% in June from 7.2% in May on account of softening of prices of food items.

Government begins work on divestment to meet its budget target

The government raised the divestment target for the current fiscal to Rs 58,425 cr compared with the actual disinvestment amount of Rs 25,841 cr garnered in the previous fiscal. Meanwhile, to meet its target, the divestment process gathered steam with the Ministry of Finance opting for the Offer for Sale (OFS) route to sell its stake in state-owned companies, starting with SAIL in September. The government also approved the sale of its residual stakes in Hindustan Zinc Ltd and Bharat Aluminium Co (BALCO). It plans to sell a 5-10% stake in ONGC in a deal that could fetch it as much as Rs 35,000 cr at the current market price. It also plans to sell a 10% stake in Hindustan Aeronautics Ltd this fiscal. It has communicated that there is no proposal to dilute its ownership in public sector banks (PSBs) below 50%.

Other major developments in the month

  • India refused to sign the trade facilitation pact with the World Trade Organization and pushed for finding a long-term solution to the food security issue in the country.
  • India got the Presidency of the BRICS' $100 bn New Development Bank for six years, with headquarters in China, which will become operational in about two years.
  • Further, the government has decided to set up a credit guarantee fund to support its over Rs 40,000 cr new Financial Inclusion Mission.
  • The government launched a new online platform ‘mygov.nic.in’ to encourage governance ideas from citizens.
  • It also decided to launch web-based clearance system for issues pertaining to environment, mining and coal linkages of stalled projects from September this year.
  • Further, it said that it will not levy any tax with retrospective effect that creates an additional burden and that existing anomalies in this regard will be corrected.
  • It extended the validity period of industrial licence to three years with a provision for further extension of two years to improve the ease of doing business in India.

Major regulatory developments in the month

  • The Cabinet approved the bill to effectively empower SEBI to crack down on ponzi schemes and investment frauds.
  • The RBI restored the limit on Indian corporates’ overseas direct investments under the automatic route to 400% of networth compared with the earlier limit of 100%.
  • The central bank decided to recognise partly-paid equity shares and warrants issued by local companies as eligible instruments for the purpose of foreign direct investment (FDI) and foreign portfolio investments.
  • Further, it revised norms for equity share sales by non-resident investors in unlisted domestic companies, mandating that such transactions must be priced under "internationally accepted pricing methodology."
  • The RBI said that individuals can also use funds under Liberalised Remittances Scheme (LRS) to buy immovable property abroad. SEBI released draft guidelines for Infrastructure Investment Trusts (InvITs) which will enable the creation of a new investment product for arranging long-term financing for infrastructure projects.
  • Telecom Regulatory Authority of India (TRAI) released guidelines on sharing of spectrum among telecom operators, permitting sharing of airwaves in all spectrum bands.
  • It reduced the ceiling rates of domestic bandwidth by up to 60%.
  • It also came up with recommendations for a new Direct-to-Home (DTH) licensing regime, including increasing the DTH licence period to 20 years from 10 years, and reducing the licence fee from 10% of gross revenues to 8% of adjusted gross revenue.
  • The Income Tax Department allowed profit-linked tax deductions to new SEZ units upon transfer of technical manpower up to 20% from an existing unit.
  • It also said that alternative investment funds (AIF) with unknown beneficial interest would not be given pass-through status and the income will be taxed in the hands of the trust.
  • Directorate General of Civil Aviation (DGCA) cleared objections against Tata-Singapore Airlines, paving the way for grant of an air operator's permit to the latter to start greenfield operations in the country.

Among key economic indicators released in the month,

India’s Index of Industrial Production (IIP) for May came in at 4.7% versus 3.4% in April. India’s core sector growth accelerated to 7.3% in June, following 2.3% expansion in May. Trade deficit rose to an 11-month high of $11.76 bn in June from $11.23 bn in May and $11.28 bn in the same month last year, driven by a surge in gold imports; exports rose 10.22% on year to $26.48 bn in June and imports climbed 8.33% annually to $38.24 bn in the same month. India's fiscal deficit in the first quarter of FY2014-15 touched Rs 2.98 lakh cr or 56.1% of the full-year target. The government’s indirect tax collections in April-June were Rs 1.14 lakh cr, up 4.5% from Rs 1.09 lakh cr collected during the same period last year. The government informed the parliament that a rise in NRI deposits pushed up India's per capita external debt by 17.55% to Rs 21,493 in the one-year period ending March 2014. According to data from the Department of Industrial Policy and Promotion, FDI flows into India more than doubled to $3.60 bn in May, the highest in the last eight months. According to government figures, India received a total of Rs 10.75 lakh cr in FDI in the last 14 years out of which Rs 1.39 lakh cr came from 10-nation ASEAN grouping. India’s HSBC manufacturing PMI rose marginally from 51.4 in May to 51.5 in June, while services PMI rose to a 17-month peak of 54.4 in June from 50.2 in May.

Indicators Current Previous
Monthly WPI Inflation 5.43% (June 2014) 6.01% (May 2014)
Industrial Growth 4.7% (May 2014) 3.4% (April 2014)
Exports $80.11bn (April-June 2014) $73.29bn (April-June 2013)
Imports $113.20bn (April-June 2014) $121.62bn (April-June 2013)
Trade Deficit -$33.08bn (April-June 2014) -$48.33bn (April-June 2013)
Gross Tax Collections Rs 1,83,028cr (April-June 2014) Rs 1,77,066cr (April-June 2013)

IIP Growth

IIP Growth

  • India’s Index of Industrial Production (IIP) for May came in at 4.7% versus 3.4% in April.

IIP-Core Sector Growth 
Core IIP Growth

  • India’s core sector growth accelerated to 7.3% in June, following 2.3% expansion in May.

Fiscal Deficit

Fiscal Deficit

  • Fiscal deficit in the first two months of the financial year touched Rs 2.41 lakh cr, or 45.6% of the full-year target.

Global Economy Review

IMF lowers global economic outlook

The World Bank has forecast a gloomy outlook for the global economy for 2014 due to downbeat events in the first quarter of the year – a cold winter in the US and the Russian-Ukraine crisis. It has lowered the 2014 global growth forecast to 2.8% from 3.2%.

Bad weather takes a toll on the US economy

The International Monetary Fund (IMF) has trimmed the global economic growth forecast to 3.4% in 2014 from April’s forecast of 3.7%, citing weaker growth in the US and China. The IMF has warned that rising interest rates in developed economies and emerging market slowdown are potential risks to the global economy.

The US economy posts strong growth in Q2

Sharp weather-related contraction in Q1 2014 prompted the IMF to cut the US growth forecast for 2014 to 1.7% from the earlier projection of 2.8%. However, in Q2 2014 the US economy expanded at an annualised growth rate of 4% against an upwardly revised contraction of 2.1% in Q1 2014. Acknowledging improving labour market conditions and rising inflation, the US Federal Reserve (Fed) lowered its monthly asset purchases to $25 bn from $35 bn, but reiterated that it would likely keep rates near zero for a considerable time after its bond buying ends and it restates that an accommodative policy is needed.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 4.0% Q2 2014 -2.1% Q1 2014 US Fed Funds Rate 0-0.25%
US unemployment 6.2% July 2014 6.1% June 2014 Bank of England 0.50%
UK GDP 3.1% Q2 2014 3.0% Q1 2014 European Central Bank 0.15%
Euro Zone GDP 0.9% Q1 2014 0.5% Q4 2013 Japan Benchmark Rate 0-0.10%
Japan GDP 6.7% Q1 2014 0.3% Q4 2013    
China GDP 7.5% Q2 2014 7.4% Q1 2014    
Singapore’s GDP 2.1% Q2 2014 4.7% Q1 2014    

Key US economic indicators

  • The trade deficit narrowed 5.6% in May to $44.4 bn after hitting a two-year high of $47 bn in April.
  • Industrial production rose 0.2% in June compared with May's revised increase of 0.5%; capacity utilisation came in at 79.1% in June, in line with May.
  • Personal income rose 0.4% in June after climbing 0.4% in May.
  • Non-farm payrolls rose by a seasonally adjusted 209,000 in July, following an upwardly revised 298,000 in the previous month; the unemployment rate ticked up to a seasonally adjusted 6.2% in July from 6.1% in June.
  • Annual inflation in the US increased 2.1% in June, in line with the consumer price growth in May.
  • Retail sales rose 0.2% in June after an upwardly revised 0.5% advance in May.
  • On the housing front, pending home sales declined by a seasonally adjusted 1.1% in June after rising 6.1% in May, while new home sales fell 8.1% in June to a seasonally adjusted annual rate of 406,000 compared with a downwardly revised 442,000 in May.

EURO ZONE

Interest rates to remain low in the Eurozone; inflation skids to danger zone

European Central Bank (ECB) President Mario Draghi stated that euro area interest rates are set to remain low amid low inflation and the liquidity measures announced in June are expected to boost lending to the real economy. Fears of deflation were heightened after July’s inflation fell to the lowest level in almost five years to 0.4% from 0.5% in June. The ECB considers that an inflation rate of below 1% poses a risk of deflation. Meanwhile, in an important development, the European Union imposed comprehensive economic sanctions against Russia and banned the export of military goods and sensitive technologies in the energy sector for its failure to de-escalate the conflict in eastern Ukraine.

Key Eurozone economic indicators:

  • Trade balance stood at a surplus of 15.4 bn pounds in May, in line with the surplus in April.
  • Industrial production fell 1.1% month-on-month in May, the biggest drop since September 2012, and reversed the 0.7% rise in April.
  • The unemployment rate fell to a 22-month low of 11.5% in June compared with 11.6% in May.
  • Retail sales showed no growth in May following a revised fall of 0.2% in April.

The UK economy gathers momentum

The UK economy expanded 3.1% on an annualised basis in Q2 2014, the fastest pace since the end of 2007, following 3% GDP growth in the previous quarter. In its latest monetary policy meeting, Bank of England’s (BoE’s) nine-member Monetary Policy Committee agreed to leave the main interest rate at a low of 0.5% and the size of its bond portfolio at 375 bn pounds. The IMF, in its report, said that the interest rates in the UK should stay low for now, but the BoE policymakers must be ready to raise them should other measures fail to keep the housing market in check.

Key UK economic indicators:

  • Visible trade deficit widened to 9.2 bn pounds from 8.8 bn pounds in April.
  • Industrial production declined by a seasonally adjusted 0.7% in May, after rising 0.3% in April.
  • Annual inflation was 1.9% in June, up from 1.5% in May. Month-on-month inflation rose 0.2% in June vs a 0.1% fall in May.
  • The unemployment rate fell to 6.5% in the three months through May, the lowest since the fourth quarter of 2008, from 6.6% in the three months through April.
  • The jobless claims fell by a seasonally adjusted 36,300 in June against an upwardly revised drop of 32,800 in May.
  • Retail sales volume rose 0.1% in June after a 0.5% fall in May.

ASIA

Southeast Asia’s growth prospects dampen

The Asian Development Bank cut Southeast Asia’s 2014 growth forecast to 4.7% from its 5% forecast in April citing political tensions in Thailand and Vietnam, and Indonesia’s mineral exports. For 2015, ADB expects Southeast Asia to grow around 5.4%.

Key Chinese economic indicators

China’s economy grows 7.5% in Q2 2014

China’s economy expanded 7.5% annually in Q2 2014, a tad up from 7.4% in the previous quarter. Chinese Premier Li Keqiang said that economic growth of slightly higher or lower than 7.5% in 2014 would be acceptable as long as there is higher employment and wages. However, the IMF warned that China's growth rate could weaken in the coming years unless the government speeds up the pace of its economic reforms. The IMF also said that China should set an economic growth target of 6.5-7% for 2015 and refrain from stimulus measures unless the economy threatens to slow down sharply from that level.

Key Chinese economic indicators

  • Industrial production expanded 9.2% in June against 8.8% growth in May.
  • China attracted FDI of $14.42bn in June, up 0.2% from a year earlier.
  • Exports rose 7.2% year-on-year in June to $186.8 bn compared with a 7% rise in May, while imports gained 5.5% in June to $155.2bn compared with a 1.6% fall in May; the monthly trade surplus soared 16.4% to $31.6bn, down from $35.92 bn in May.
  • The CPI inflation rose 2.3% in June from a year earlier compared with a 2.5% rise in May.
  • Retail sales came in at 12.4% on year in June, slightly lower than 12.5% in May.

Japan trims economic growth outlook

Japan lowered its economic growth outlook for the current fiscal year to 1.2% from the earlier estimate of 1.4% due to weak exports and the impact of April's sales tax hike on consumer spending and business confidence. Bank of Japan also revised down the nation’s economic growth outlook to 1% for the current financial year from its April forecast of 1.1%. The IMF urged Japanese government for more economic reforms and said that given very high levels of public debt, implementation of the second consumption tax increase is critical to establish a track record of fiscal discipline.

Key Japanese economic indicators:

  • The current account surplus came in at 522.8 bn yen in May compared with a surplus of 187.4 bn yen in April.
  • Japan posted a merchandise trade deficit of 822.2 bn yen in June compared with 910.8 bn yen deficit in May.
  • Industrial production fell 3.3% month-on-month in June after a 0.7% rise in May.
  • Japan's unemployment rate rose 0.2% from the previous month to 3.7% in June.
  • Retail sales fell 0.6% year-on-year in June compared with a 0.4% decline in May.
  • The CPI inflation rose 3.3% from a year earlier in June compared with a 3.4% gain in May.

Singapore economy weakens in Q2

Singapore’s economic growth slowed to 2.1% (annual) in Q2 following 4.7% expansion in the previous quarter due to weakness in manufacturing activities. However, the Monetary Authority of Singapore (MAS) said that Singapore's economy is still expected to grow by a targeted 2-4% in 2014 despite slowdown in the first half, helped by factors such as improving global demand. Among key indicators, industrial production rose to an annual rate of 0.4% in June from -1.9% in the preceding month, while the CPI inflation rose 1.8% in June from a year ago compared with a 2.7% rise in May.

Domestic Fixed Income Review

Domestic G-Sec Yield

6-Month Libor

The interbank call money rates moved in the broad range of 7.00-9.00% during the month. Rates were on the higher side earlier amid strong demand for funds from banks to meet excise and service tax outflows and reserve requirements. Call money rates also rose as the liquidity deficit widened due to outflows towards payment of gilts purchased during a gilt sale. The interbank rates increased further on tracking sporadic rise in CBLO rates. The surge in the rates was, however, aborted after the RBI conducted a series of term repo auctions especially in the second half of the month. Month-end government spending also improved the liquidity condition, thereby pulling down the rates.

Indian government bond prices (gilts) ended slightly higher in the month amid volatility, with the yield on the 10-year benchmark paper 8.83%, 2023 falling to 8.72% on July 31 compared with 8.74% on June 30. Sentiments were boosted earlier on the expectation that the government will introduce fiscally prudent and non-populist reforms in the budget to shore up public finances and reduce inflationary pressure. Quarter-end buying by participants, a fall in June’s CPI inflation and the RBI reshuffling the foreign institutional investors (FIIs) debt investment limits also augured well for bonds. In an important development during the month, the central bank auctioned a new 10-year paper during the month and set a coupon rate of 8.40% for the same. The yield on the new paper ended at 8.50% on July 31, 2014.

However, further rise in gilts was curbed on doubts about the government’s fiscal deficit target of 4.1% for the current financial year. A marginal increase in domestic core WPI-based inflation numbers and geo-political tensions in Ukraine and Gaza also cut some gains for G-secs. Sentiment was hit further after the government announced tax relief for a short period for debt mutual funds, but refused to reduce the rate on long-term capital gains tax to 10%. Gilts were also affected after the RBI unexpectedly announced that it would reissue the new 10-year paper in the last week of the month.

Among major developments in the month,, The RBI readjusted the investment limit in government debt securities of various kinds of foreign investors, allowing medium-term investors to invest an additional $5 bn while reducing by the same quantum the limit for long-term investors. The central bank permitted long-term bonds raised by banks for infrastructure lending to be exempted from mandatory reserve requirements. RBI Deputy Governor R Gandhi clarified that banks will not be allowed to trade bonds issued by other lenders for infrastructure lending that would be exempted from mandatory reserve requirements under the guidelines issued last week. The RBI issued draft guidelines for setting up payment banks and small banks aimed at expanding banking services to small businesses and poor households. It has set minimum capital requirement for both banks at Rs 100 cr, out of which promoters’ minimum contribution will be 40%. It also announced a new framework for identifying and dealing with large banks in the country, termed domestic systemically important banks (D-SIB). The RBI has relaxed norms for loans that banks can sanction against the pledging of gold ornaments and jewellery. It also proposed a Trade Receivables Discounting System (TReDS), which would be a scheme for setting up and operating the institutional mechanism for facilitating the financing of trade receivables of Micro, Small & Medium Enterprises (MSMEs). The RBI has asked non-banking finance companies (NBFCs) to not charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers with immediate effect.

 

Fixed Income Indicators

Rates & Liquidity

  31-Jul-14 1 Week Ago 1 Month Ago
Repo 8.00 8.00 8.00
Reverse Repo 7.00 7.00 7.00
CRR 4.00 4.00 4.00
LAF o/s Repo (Rscr) 18,061 22,589 21,349
LAF o/s Rev Repo (Rscr) 7,977 644 2,165
 

Overnight                                                   Rate(%)

  31-Jul-14 1 Week Ago 1 Month Ago
Mibor 8.12 9.02 9.02
Call 8.00 9.00 8.70
CBLO 8.04 9.07 9.08
OIS 1Y 8.39 8.41 8.37
OIS 5Y 7.91 7.88 7.90
     

CDs                                                                       Yield(%)

  31-Jul-14 1 Week Ago 1 Month Ago
1-Month 8.38 8.66 8.55
3-Month 8.79 8.75 8.50
6-Month 8.93 8.92 8.72
1-Year 9.04 9.05 8.91
 

CPs                                                   Yield(%)

  31-JuL-14 1 Week Ago 1 Month Ago
1-Month 8.55 8.85 8.70
3-Month 9.03 9.02 8.69
6-Month 9.30 9.28 9.05
1-Year 9.46 9.48 9.26
     

Short Term Bonds                                                       Yield(%)

  31-JuL-14 1 Week Ago 1 Month Ago
1 Y G-Sec 8.64 8.66 8.30
1 Y AAA 9.00 8.90 9.03
1 Y AA 9.51 9.41 9.54
2 Y G-Sec 8.32 8.06 8.32
2 Y AAA 9.15 9.11 9.11
2 Y AA 9.64 9.60 9.60
 

Long Term Bonds                                                   Yield(%)

  31-Jul-14 1 Week Ago 1 Month Ago
5 Y G-Sec 8.45 8.42 8.62
5 Y AAA 9.30 9.21 9.17
5 Y AA 9.95 9.86 9.82
10 Y G-Sec 8.72 8.65 8.74
10 Y AAA 9.28 9.21 9.14
10 Y AA 10.09 10.02 9.95
     

Top 5 Graded G-Secs                                         Yield(%)

  31-Jul-14 1 Week Ago 1 Month Ago
8.83% CGL 2023 8.72 8.73 8.74
08.28% CGL 2027 8.64 8.65 8.65
08.24% CGL 2027 8.50 8.51 N.A.
08.12 GS 2020 8.61 8.63 8.74
08.35% CGL 2022 8.50 8.52 8.60
 

Currency

  31-Jul-14 1 Week Ago 1 Month Ago
USD/INR 60.55

60.12

60.17

EURO/INR 80.70 80.68 82.01
GBP/INR 101.92 102.19

102.33

100 JPY/INR 58.61 59.12 59.28
USD/EURO 0.75 0.74 0.73
 

 

10 Year G-Sec movement

 

Corporate Bond Yield

 

Corp. AAA, AA Bond Spreads

Economic Events Calendar

August 11, 2014
  • Japan’s Producer Price Index, July
August 28, 2014
  • US GDP, Q2 2014 (preliminary)
  • US Pending Home Sales Index, July
  • Euro zone Economic Sentiment, August
  • Japan’s Industrial Production, July
  • Japan’s Consumer Price Index, July
  • Japan’s Unemployment Rate, July
  • Japan’s PMI Mfg Index, August
August 12, 2014
  • US Treasury Budget, July
  • Bank of Japan Monetary Policy Minutes
  • Japan’s GDP, Q2 2014
  • India’s Index of Industrial Production, June
  • India’s CPI for Combined, Rural, and Urban, July
August 29, 2014
  • US Personal Income and Outlays, July
  • US’ University of Michigan Consumer Sentiment, August - Final
  • Euro zone Consumer Price Index, August
  • Euro zone Unemployment Rate, July
  • India’s GDP estimate, April-June
  • India’s CPI for industrial workers, July
  • India’s Government Finances, April-July
  • India’s Core sector growth, July
August 13, 2014
  • US Retail Sales, July
  • US Business Inventories, June
  • Euro zone Industrial Production, June
  • Bank of England inflation report, August
  • UK Labour Market Report, July
  • China’s Industrial Production, July
  • China’s Retail Sales, July
September 1, 2014
  • Euro zone PMI Manufacturing Index, August
  • UK CIPS/PMI Manufacturing Index, August
  • China’s Manufacturing PMI, August
  • India’s HSBC Manufacturing PMI, August
August 14, 2014
  • US Import and Export Prices, July
  • Euro zone GDP Flash, Q2 2014
  • Euro zone Consumer Price Index, July
  • India’s Wholesale Price Index, July
September 2, 2014
  • US ISM Mfg Index, August
  • US Construction Spending, July
  • Euro zone Producer Price Index, July
  • Japan’s PMI Composite, August
  • China’s PMI Composite, August
August 15, 2014
  • US Producer Price Index (Final Demand), July
  • US Industrial Production, July
  • US’ University of Michigan Consumer Sentiment, August
  • US Empire State Manufacturing (Mfg) Survey, August
  • UK GDP, Q2 2014 (Revised)
September 3, 2014
  • US ADP Employment Report, August
  • US Factory Orders, July
  • US Beige Book
  • US Motor Vehicle Sales, August
  • Euro zone GDP, Q2 2014 (Preliminary)
  • Euro zone PMI Composite, August
  • Euro zone Retail Sales, July
  • UK CIPS/PMI Services Index, August
  • Bank of Japan Monetary Policy Review
August 18, 2014
  • US Housing Market Index, August
  • Euro zone Merchandise Trade Balance, June
September 4, 2014
  • US Productivity and Costs, Q2 2014 (Revised)
  • US ISM Non-Mfg Index, August
  • US International Trade, July
  • European Central Bank Monetary Policy Review
  • Bank of England Monetary Policy Review
August 19, 2014
  • US Housing Starts, July
  • UK Consumer Price Index, July
  • UK Producer Price Index, July
  • Japan’s Merchandise Trade Balance, July
September 5, 2014
  • US Employment Situation, August
August 20, 2014
  • US Federal Open Market Committee Meeting Minutes
  • Bank of England Monetary Policy Meeting Minutes, August
  • China’s PMI Flash Mfg Index, August
  • Japan’s PMI Manufacturing Index Flash, August
  • India’s CPI for rural and farm labourers, June
September 8, 2014
  • US Consumer Credit, July
  • Bank of Japan Minutes of Monetary Policy
  • Japan’s GDP, Q2 2014 - revised
August 21, 2014
  • US Existing Home Sales, July
  • US Leading Indicators, July
  • US PMI Mfg Index Flash, August
  • US Philadelphia Fed Survey, August
  • Euro zone PMI Composite Flash, August
  • Euro zone Consumer Confidence Flash, August
  • UK Retail Sales, July
September 9, 2014
  • UK Industrial Production, July
  • UK Merchandise Trade, July
  • Japan’s Producer Price Index, August
August 25, 2014
  • US New Home Sales, July
  • US Dallas Fed Mfg Survey, August
  • US Chicago Fed National Activity Index, July
  • US PMI Services Flash, August
September 10, 2014
  • US Wholesale Trade, July
  • China’s Consumer Price Index, August
  • China’s Producer Price Index, August
August 26, 2014
  • US Durable Goods Orders, July
  • US S&P Case-Shiller HPI, June
  • US Consumer Confidence, August
   

US Fixed Income Markets - Overview

The US Treasury prices erased their earlier gains in the month to end marginally lower as upbeat economic cues from US jobs and housing sector dented demand for safe-haven Treasuries. Strong domestic and Chinese manufacturing activity data further hurt the sentiment for Treasuries. However, benign US inflation data supported the Fed’s move to continue with a dovish policy stance and limited losses. Global cues, including violence between Russia-Ukraine and Israel-Gaza, spurred safe-buying and boosted Treasury prices. Anticipation that the ECB might announce more stimulus measures to help its struggling economy boosted Treasuries. Bond prices further rose after reports showed that Portuguese bank Banco Espírito Santo had missed payments on some of its short-term debts which renewed worries about stress in the Eurozone banking sector. The yield on the 10-year benchmark bond rose to 2.56% on July 31 from 2.52% on June 30.

US 10-Year Govt. Bond Yield

Learning Centre– Liquid Funds

Bank fixed deposits (FDs) and savings accounts are considered safe investment options by most investors in India. However, FDs typically have a lock-in period, preventing investors from accessing funds for a stipulated period. Savings accounts, on the other hand, offer returns that are lower than the prevailing rate of inflation in India. Investors can kill two birds with one stone by investing in liquid mutual funds.

Compared with FDs, liquid schemes permit investors to exit the scheme prior to its maturity. In addition, they offer higher returns than savings accounts.

Composition of a liquid fund

A liquid fund, as the name suggests, invests in assets that can be sold easily so it can disburse funds to investors even at a short notice. Investors need to wait only 24 hours after a redemption request to receive the funds.

The corpus is invested in instruments of a short maturity to protect the portfolio from market fluctuations. Thus, liquid funds typically invest in short-term debt and money market instruments that have a tenor of 91 days or less, namely Treasury bills, certificates of deposit and commercial papers.

Summing up

Liquid funds are ideal when faced with an unexpected demand for funds. The no-load structure of such funds is an added advantage. However, when selecting a particular liquid fund scheme, the past return should not be the only factor for consideration. Factors such as size of the fund, credit quality of underlying securities and track record of the fund house should also be analysed.

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