November 2014 | srei

November 2014

November, 2014

Highlights of RBI’s fifth bi-monthly monetary policy statement 2014-15

  • Repo rate under the liquidity adjustment facility (LAF) unchanged at 8%.
  • Consequently, reverse repo rate under LAF unchanged at 7% and the marginal standing facility (MSF) rate and the bank rate at 9%.
  • Cash reserve ratio (CRR) unchanged at 4%.
  • Continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system through auctions.
  • Continue with daily one-day term repos and reverse repos to smooth liquidity.
  • Projects retail inflation at 6% by March 2015-end.
  • Hints at lowering policy rate early next year, if fiscal, inflation conditions improve.
  • GDP growth for current fiscal estimated at 5.5%.

Indian Economy Review

Domestic economic growth slips a tad in the second quarter

The Indian economic growth slowed down marginally to 5.3% during July to September from the previous quarter’s growth of 5.7%. Major institutions and officials have offered mixed views about the country’s growth prospects. The Organisation for Economic Cooperation and Development (OECD) says the Indian economy is showing signs of a turnaround, but also that a further boost would depend on the government’s reform plans. It expects the Indian economy to grow at 5.4% this fiscal, 6.6% next fiscal, and 6.8% in 2016-17. The Minister of State for Finance Jayant Sinha expressed confidence that India will cross 6% GDP growth in 2015-16. In contrast, National Council of Applied Economic Research (NCAER) has lowered India’s GDP growth forecast to 5% in the current fiscal on weak economical fundamentals and uncertainties in growth prospects. India Ratings also expects India’s GDP to expand 5.6% in the current fiscal, down from 5.7% it had estimated earlier. Meanwhile, Moody’s said that India’s sovereign outlook remains stable at Baa3, but future rating trends depend on the reform measures taken by the government. A CRISIL report said the recent slowdown in the economy is on account of policy uncertainty and sluggish domestic demand, and a cut in repo rate is unlikely to spur investments.

Domestic GDP Growth

Inflation touches multi-year low

Slower rise in food and fuel prices resulted in fall in inflation to multi-year year low levels. Retail inflation dipped to 5.52% in October from 6.46% in September, while WPI-based inflation plunged to an over five-year low of 1.77% in October from 2.38% in the previous month. Reserve Bank of India (RBI) Executive Director Deepak Mohanty said that India is well on track to meet the central bank's inflation target of 8% by January 2015 and 6% a year later.

Stepping forward in infrastructure development

As a sign of its seriousness to address the issue of infrastructure development, India has agreed to set up an infrastructure collaboration platform with the US. The government sought investments from both public and private sector companies in the Arab region in areas such as infrastructure and railways to further boost economic ties between the regions. Shanghai Entrepreneur Association (SEA) has set up a $5 bn China India Development Fund for infrastructure projects in India. The Ministry of Finance (MoF) has asked the RBI to provide greater flexibility to banks funding stalled infrastructure projects. Meanwhile, the Planning Commission informed the prime minister that additional funds of Rs 5.7 lakh cr will be required to complete 738 central projects in various infrastructure sectors.

Government’s divestment plan gains momentum

The government plans to raise about Rs 89,120 cr ($14.4 bn) by reducing its stakes in state-run banks to 52%. It has also approved revival of seven sick central public sector units (PSUs), including HMT Machine Tools and Tyre Corporation, through disinvestment or joint venture. The government brought in a fresh draft recommending listing of Airports Authority of India and chopper firm Pawan Hans on the stock exchanges, and steps to beef up Air India operations. Meanwhile, the MoF has put on hold the sale of stakes in blue chip companies held by the Specified Undertaking of Unit Trust of India, as it is calculating this will not be needed to meet the government's fiscal deficit target.

Important developments

India reached an agreement with the US on public stockpiling of food, paving the way for the implementation of a global trade facilitation deal. A tax information exchange pact was also signed with Saint Kitts & Nevis, a Caribbean country. India announced a $75 mn line of credit for Fiji for a co-generation power plant and upgrading the sugar industry and also a $5 mn fund to develop its villages. The country inked an agreement with Nepal to construct a $1 bn hydro power plant on Arun river to generate 900 MW of electricity in the Himalayan nation. The Centre announced e-Visa list for 43 nations and also decided to provide business visa for three-five years and immediate medical visa for people from SAARC countries.

The MoF notified a scheme under which Indian corporates, both listed and unlisted, would be able to raise money through depository receipts in 34 foreign jurisdictions from December 15; it turned down a proposal to remove Minimum Alternate Tax and Dividend Distribution Tax for Special Economic Zones. The ministry cleared 15 FDI proposals and recommended HDFC Bank’s proposal to hike foreign holding to the Cabinet for consideration. It also revived a proposal to set up a holding company for public sector banks. The government said that public sector banks would get autonomy in selection and appointment of statutory central auditors from the next fiscal.

The government has fixed an export target of $340 bn for the current fiscal. It agreed to include compensation to be paid to states for Goods and Services Tax (GST) rollout as part of the Constitutional Amendment Bill. It re-launched the Kisan Vikas Patra scheme; and said there will be no requirement of Permanent Account Number for investing in the instrument, and added that there will be no upper limit on investment. It notified mandatory standards for fifteen electronic products. The Cabinet approved the Rs 32,600 cr Integrated Power Development Scheme (IPDS). The government has set up a Rs 2,000 cr corpus for NABARD to help lend to food processing units at a lower interest rate. Further, it has set aside a Rs 1000 cr budget to boost the country’s cyber perimeter. PM Narendra Modi launched ‘Jeevan Pramaan’, an Aadhaar-based digital self-certification system for pensioners. The government launched the 'Swachh Bharat Kosh', a fund that will be utilised to build toilets in schools, rural and urban areas to achieve the objective of cleanliness across the country; it also raised the target for opening of accounts under Pradhan Mantri Jan Dhan Yojana (PMJDY) from 7.5 cr to 10 cr by January 26, 2015.

Micro, Small & Medium Enterprises (MSME) Ministry signed a pact with International Labour Organization (ILO) to create more jobs and give a fillip to the PM’s 'Make in India' campaign. The government raised the excise duty on petrol and diesel by Rs 1.50 per litre. The MoF has extended government cash assistance of Rs 6,000 cr to oil marketers to boost their financial health. The government decided to launch the modified version of the Direct Benefit Transfer scheme (DBT) for liquefied petroleum gas (LPG) in 54 districts across the country. The government said the auction of first lot of coal blocks, whose allotment was cancelled by the Supreme Court, will start on February 11 and mines will be allotted only to specified end users. The Coal Ministry released draft guidelines for allocation of 74 coal blocks; later it added 18 more blocks to be offered in the first round of allotment, taking the total to 92. The Health Ministry has accepted the recommendation of an internal panel that urges ban on unpackaged cigarettes. The government has advanced the deadline for rolling out national optical fibre network (NOFN) by a quarter to December 2016. The telecom department plans to sell 3G and 4G airwaves by May 2015.

Major regulatory developments in the month

  • The RBI has scrapped the gold 80:20 norm for gold imports with immediate effect.
  • SEBI has proposed allowing foreign venture capital investors (FVCIs) in core investment companies (CICs) for infrastructure sector to help attract overseas funds in this space.
  • Comptroller and Auditor General (CAG) has asked the Oil Ministry to let national interest and energy security determine its approach towards commercial discoveries.
  • Competition Commission of India (CCI) received a complaint against online retailers including home-grown giant Flipkart for alleged unfair business practices and will soon take a call on probing the matter. CCI has cleared Coca-Cola Company’s proposed deal with US-based Monster Beverage Corp in the energy drinks market.
  • Department of Telecom (DoT) gave its approval to the introduction of full mobile number portability and has asked mobile operators to implement it by May 3, 2015. It also decided to allow telecom companies with broadband spectrum to pay 1% of their annual revenues as spectrum charges. Telecom Regulatory Authority of India (TRAI) recommended increasing the reserve price of CDMA airwaves to Rs 3,104 cr per unit, 15% higher than its proposal in February.
  • The Central Board of Direct Taxes issued a set of instructions for avoidance of baseless assessment and disposal of grievances within a stipulated time period.
  • The Bombay High Court ruled in favour of Shell in a transfer pricing tax dispute.
  • The Enforcement Directorate issued a Rs 660 cr show cause notice to Videocon Group on charges of violation of foreign exchange laws. It also attached 2,631 bank accounts of the Rose Valley group containing Rs 295 cr under provisions of the anti-money laundering law.

Among key economic indicators released in the month,

India's industrial growth for September came in at 2.5% vs a revised 0.4% in August. India’s core sector grew at 6.3% in October, against a growth of 1.9% in September, led by coal and electricity. Fiscal deficit was Rs 4.76 lakh cr ($76.77 bn) during April-October, or 89.6% of the budget estimate, compared to 84.4% for the same period in the last fiscal. Trade deficit was $13.35 bn in October 2014 compared to $10.59 bn in the same month last year, but narrowed from the deficit of $14.25 bn last month. Exports fell 5.04% from last year to $26.09 bn in October, while imports rose 3.62% to $39.45bn. India’s services exports rose 5.3% to $12.94 bn in September this year compared to the same month last year. India’s indirect tax collections rose 5.6% in the April-October period to Rs 2.85 lakh cr. According to RBI data, India’s public debt increased to Rs 49.6 lakh cr at the end of the July-September quarter, up 2.8% over the previous quarter. India’s HSBC Manufacturing Purchasing Managers’ Index (PMI) came in at 51.6 in October, rebounding from September’s nine-month low of 51, while services PMI fell from 51.6 in September to 50 in October.

India’s HSBC manufacturing Purchasing Managers' Index (PMI) eased to a nine-month low of 51 in September from 52.4 in August while services PMI rose to 51.6 in September from 50.6 in August, reversing a slowdown seen in the previous two months.

Indicators Current Previous
Monthly WPI Inflation 1.77% (October 2014) 2.38% (September 2014)
Industrial Growth 2.50% (September 2014) 0.40% (August 2014)
Exports $189.80bn (April-October 2014) $181.23bn (April-October 2013)
Imports $273.55bn (April-October 2014) $268.55bn (April-October 2013)
Trade Deficit -$83.76bn (April-October 2014) -$87.32bn (April-October 2013)
Gross Tax Collections Rs 5,63,598cr (April-October 2014) Rs 5,32,221cr (April-October 2013)

IIP Growth

IIP Growth

  • India's industrial growth for September came in at 2.5% vs a revised 0.4% in August.

IIP-Core Sector Growth 

Core IIP Growth

  • India’s core sector grew at 6.3% in October, against a growth of 1.9% in September, led by coal and electricity.

Fiscal Deficit

Fiscal Deficit

  • India's fiscal deficit was Rs 4.76 lakh cr ($76.77 billion) during April-October, or 89.6% of the Budget Estimate, compared to 84.4% for the same period in the last fiscal.

Global Economy Review

Global economy to see moderate growth

Strong economic recovery remains a distant dream as the global economy is expected to grow moderately in the next couple of years. The Organization for Economic Cooperation and Development (OECD) has forecasted a moderate expansion of global output in the next two years as risks and vulnerabilities persist in the Eurozone and Japan. It has projected the global economy to grow 3.3% this year, 3.7% in 2015 and 3.9% in 2016. Among some major developments, the leaders of G-20 nations finalised a plan to boost global growth by more than $2 trillion over five years , while the World Trade Organization adopted the first worldwide trade reform in its history by approving a framework for implementation of a global pact for easing customs norms.

The US grows at a faster rate in Q3 2014

The US economy expanded at a faster rate of 3.9% (annual) in Q3 against the earlier estimate of 3.5%. The minutes from the US Federal Reserve’s (Fed’s) October policy-setting meeting showed that some policymakers favoured eliminating a pledge to keep interest rates near zero for a considerable time but others worried that such a move could prompt financial markets to push up rates prematurely. Meanwhile, the US government ran a budget deficit of $122 bn in October, 34% more than in the same month a year ago.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 3.9% Q3 2014 4.6% Q2 2014 US Fed Funds Rate 0-0.25%
US unemployment 5.8% Nov 2014 5.8% Oct 2014 Bank of England 0.50%
UK GDP 3% Q3 2014 3.2% Q2 2014 European Central Bank 0.05%
Euro Zone GDP 0.8% Q3 2014 0.8% Q2 2014 Japan Benchmark Rate 0-0.10%
Japan GDP -1.9% Q3 2014 -7.1% Q2 2014    
China GDP 7.3% Q3 2014 7.5% Q2 2014    
Singapore’s GDP 2.8% Q3 2014 2.3% Q2 2014    

Key US economic indicators

  • The trade deficit rose to $43 bn in September (the first increase in four months) following a revised deficit of $40 bn in August.
  • Industrial production inched up 0.2% in October compared to a revised gain of 0.2% a month ago; capacity utilisation dipped to 78.9% in October from 79.2% a month ago.
  • Non-farm payrolls rose to a seasonally adjusted 321,000 in November from an revised 243,000 in the previous month.
  • Retail sales expanded 0.3% in October after falling 0.3% in September.
  • Annual inflation increased 1.7% in October after growing by the same rate in the previous month.
  • In the housing sector, new home sales gained 0.7% to a seasonally adjusted annual rate of 458,000 units in October, following a revised 455,000 units in September while existing home sales increased 1.5% in October to a seasonally adjusted annual rate of 5.26 mn compared to September’s revised figure of 5.18 mn.

EURO ZONE

Deflation worries continue to haunt the Eurozone

The bloc is struggling to come back on the growth path despite the European Central Bank (ECB) taking up various measures in recent times. The European Commission has lowered the bloc’s growth forecasts for 2014 to 0.8% from 1.2% and to 1.1% from 1.7% for 2015, before picking up to 1.7% in 2016. ECB President Mario Draghi has said that the central bank may expand its quantitative easing programme to rescue the Eurozone economy. He added that excessively low inflation has to be raised quickly by whatever means necessary. The European Union has proposed a plan to boost investment in the region’s economy by 315 bn euros by attracting private investors with guarantees and seed money.

Key Eurozone economic indicators:

  • Trade surplus was 18.5 bn euros in September compared with a surplus of 10.8 bn euros in the same month last year and 9.6 bn euros a month earlier.
  • Annual inflation was 0.3% in November compared to 0.4% in October.
  • The unemployment rate was 11.5% in October, stable compared with September.
  • Retail sales fell 1.3% month-on-month in September vs a revised 0.9% rise in August.

Inflation to drop below 1% in the UK

The Bank of England (BoE) warned that inflation could drop below 1% in the next six months and does not expect inflation to reach the targeted rate of 2% for three years. The BoE also lowered its prediction for the UK’s economic growth in 2015 to 2.9% from 3%. Further, the central bank has decided to hold its key interest rates at a record low of 0.5% and left its stimulus program unchanged at 375 bn pounds. Meanwhile, the country’s economy expanded 3% annually in Q3, unchanged from the previous estimate, and following 3.2% growth in the previous quarter.

Key UK economic indicators:

  • The trade gap rose to 9.8 bn pounds in September from 9 bn pounds in August.
  • Industrial production rose 0.6% in September after shrinking a revised 0.1% in August.
  • Annual inflation grew 1.3% in October 2014, up from 1.2% in September.
  • Retail sales rose 4.3% in October after rising 2.3% in September.
  • The number of people employed in the UK increased by 112,000 to 30.79 mn in the September quarter, compared to the June quarter.

ASIA

China initiates stimulus measures to counter slowdown

In order to revive the slowing economy, China cut its one-year benchmark lending rates by 40 bps to 5.6% and also lowered its one-year deposit rate for the first time since 2012 to 2.75% from 3.0%. Chinese President Xi Jinping said that China’s economy is shifting to a “new normal” of slower but more stable growth and has the resiliency to overcome any bumps on the road. Among other reform measures, the Chinese government issued draft regulations to introduce a bank deposit insurance system. Meanwhile, the country attracted foreign direct investments (FDI) worth $95.9 bn in the first 10 months of 2014, down 1.2% from a year earlier.

Key Chinese economic indicators

  • Exports rose 11.6% in October from a year earlier, slowing from a 15.3% jump in September, while imports rose 4.6 % in October vs a 7% rise in September, resulting in a trade surplus of $45.41 bn.
  • Industrial production increased 7.7% in October compared to 8% growth in September.
  • Annual consumer inflation remained at a near five-year low in October at 1.6%.
  • Retail sales expanded 11.5% in October against 11.6% growth in September.
  • The official Purchasing Managers’ Index (PMI) fell to 50.8 in October from 51.1 in September.

Japanese economy slips into recession

Japanese economy fell into recession after the country’s GDP shrank 1.9% on an annualised basis in the third quarter compared with a 7.3% contraction in the second quarter. The Bank of Japan’s minutes of the latest meeting showed that some board members are concerned that expanding the central bank's quantitative easing could increase the risk that it will be seen as financing the government deficit.

Key Japanese economic indicators:

  • The merchandise trade deficit in October was 710 bn yen, following the revised 960.6 bn yen deficit in September; exports were up 9.6% year on year to 6.688 trillion yen in October, while imports gained just 2.7% to 7.398 trillion yen.
  • Industrial production rose 2.9% in September, after a 2.7% rise in August; capacity utilisation rose 3.6%.
  • The core consumer inflation came in at 2.9% in October from a year earlier compared with 3% in September.
  • Retail sales rose 1.4% in October from a year earlier following a 2.3% growth in September.
  • The jobless rate fell to 3.5% in October from 3.6% in September.

Singapore's economy grew 2.8% in Q3

Singapore’s economy grew 2.8% (annual) in Q3 2014 following 2.3% growth in the previous quarter. The Ministry of Trade and Industry said it expects the economy to grow by around 3% in 2014, and between 2-4% in 2015. Among key indicators, the industrial production rose to an annual rate of 0.2% from -1% in the preceding month. The non-oil domestic exports fell 1.5% on year in October compared with 0.9% growth in the previous month. Annual CPI inflation rose 0.1% year-on-year in October, lower than 0.6% in September.

Domestic Fixed Income Review

Domestic G-sec Yield

6-month LIBOR

Interbank call money rates broadly hovered in the range of 7-9% during the month. Rates were on the lower side earlier on the back of comfortable liquidity conditions. Taking note of the condition, the RBI conducted series of repo and reverse repo auctions and sold bonds to the tune of Rs 10,000 cr through the open market. Rates, however, spiked as banks borrowed heavily to meet reserve requirements ahead of a one-day strike by public sector bank employees who called for a wage revision. Outflows towards payment of cash management bills and state development bonds put liquidity under stress, thereby pushing up the rates. However, some month-end inflows from the government kept the call money rates from rising further.

Indian government bond prices (gilts) advanced in the month with the yield on the 10-year benchmark paper 8.40% 2024 ending at 8.09% on November 28 as against 8.28% on October 31. Gilts were buoyed primarily on expectations of a softer policy stance from the RBI amid plunging global crude oil prices and moderating domestic inflation. Appetite for bonds improved following Finance Minister Arun Jaitley’s comments that lower interest rates will boost the economy. Further, he expressed hope that the Centre could achieve its divestment target set for the fiscal. These remarks were viewed positively as they indicated that the government might meet its fiscal deficit target. Sporadic buying support from foreign investors and public sector banks also supported gilts. Strong appetite for gilts witnessed at the RBI’s Rs 10,000 cr OMO bond sale further added to the gains.

However, further rise in the prices was checked by sporadic profit sales, caution ahead of the US non-farm payroll data and on the Centre’s decision to hike excise duty on petrol and diesel to shore up finances. Sentiment was also dented slightly after RBI Executive Director Deepak Mohanty said domestic inflation expectations continued to remain high. Gains in gilts were restricted further by the rupee’s intermittent weakness against the dollar and trimming of positions in response to the RBI’s OMO bond sale announcement worth Rs 12,000 cr on December 1.

Among major developments in the month,, RBI Deputy Governor S.S. Mundra said the government needs to infuse Rs 2.4 lakh cr into state-owned banks by end-March 2019 to meet different kinds of capital requirements. The RBI has issued final guidelines for companies seeking to set up payment banks and small finance banks in a bid to expand banking services to more people and small businesses. The central bank permitted banks to use long-term bonds issued to finance infrastructure and affordable housing projects as collateral to lend to individuals. It also issued final norms for tools used in monitoring intra-day liquidity and its management. Further, the RBI asked banks to alert account holders by phone call and contact the base branch in case of non-home cheques before clearing high value payments. It also asked banks to inform their customers about fall in minimum balance well in advance and said that penal charges should be levied only to the extent of shortfall in such balances. The RBI reduced the time by which exporters can repatriate the full value of goods and services to nine months from 12 from the date of export and also permitted external commercial borrowings to be parked with banks in the country as term deposits for up to six months pending their utilisation.

The RBI has introduced new regulations for non-banking finance companies (NBFCs) that would clear anomalies and align them closer to bank rules. RBI Deputy Governor R Gandhi said the central bank is considering more measures for NBFCs, including more oversight and bringing state-owned firms under central bank supervision.

 

Fixed Income Indicators

Rates & Liquidity

  28-Nov-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) 12871 5709 17100
LAF o/s Rev Repo (Rscr) 8414 508 11074
 

Overnight                                                   Rate(%)

  28-Nov-14 1 Week Ago 1 Month Ago
Mibor 8.02 7.83 8.25
Call 7.90 8.00 7.15
CBLO 7.95 7.85 8.14
OIS 1Y 7.75 7.95 8.07
OIS 5Y 7.15 7.36 7.53
     

CDs                                                                       Yield(%)

  28-Nov-14 1 Week Ago 1 Month Ago
1-Month 8.19 8.13 8.34
3-Month 8.33 8.34 8.51
6-Month 8.47 8.48 8.69
1-Year 8.64 8.63 8.79
 

CPs                                                   Yield(%)

  28-Nov-14 1 Week Ago 1 Month Ago
1-Month 8.35 8.33 8.45
3-Month 8.50 8.50 8.73
6-Month 8.80 8.87 9.18
1-Year 8.94 8.96 9.27
     

Short Term Bonds                                                       Yield(%)

  28-Nov-14 1 Week Ago 1 Month Ago
1 Y G-Sec 8.29 8.32 8.37
1 Y AAA 8.43 8.56 8.78
1 Y AA 8.95 9.08 9.30
2 Y G-Sec 8.04 8.13 8.18
2 Y AAA 8.43 8.49 8.71
2 Y AA 8.90 8.96 9.18
 

Long Term Bonds                                                   Yield(%)

  28-Nov-14 1 Week Ago 1 Month Ago
5 Y G-Sec 8.13 8.15 8.33
5 Y AAA 8.56 8.61 8.88
5 Y AA 9.21 9.26 9.53
10 Y G-Sec 8.09 8.17 8.32
10 Y AAA 8.53 8.60 8.90
10 Y AA 9.35 9.42 9.72
     

Top 5 Graded G-Secs                                         Yield(%)

  28-Nov-14 1 Week Ago 1 Month Ago
08.60% CGL 2028 8.15 8.21 8.43
08.40% CGL 2024 8.09 8.15 8.32
08.83% CGL 2023 8.18 8.23 8.38
08.27% CGL 2020 8.19 8.25 8.47
08.28% CGL 2027 8.22 8.26 8.42
 

Currency

  28-Nov-14 1 Week Ago 1 Month Ago
USD/INR 62.03

61.77

61.34
EURO/INR 77.16 77.62 98.93
GBP/INR 97.37 97.01 77.92
100 JPY/INR 52.45 52.53 56.89
USD/EURO 0.80 0.81 0.78
 

 

10 Year G-sec Movement

 

Corporate Bond Yield

 

Corporate AAA, AA Bond Spreads

Economic Events Calendar

December 11, 2014
  • US Retail Sales, November
  • US Import and Export Prices, November
  • US Business Inventories, October
December 25, 2014
  • Japan’s Consumer Price Index, November
  • Japan’s Industrial Production, November
  • Japan’s Unemployment Rate, November
December 12, 2014
  • US Producer Price Index (PPI) – Final Demand, November
  • US University of Michigan's Consumer Sentiment, December
  • Euro zone Industrial Production, October
  • China’s Industrial Production, November
  • China’s Retail Sales, November
  • India’s Index of Industrial Production, October
  • India’s Consumer Price Index for Combined, Rural, and Urban, November
December 29, 2014
  • US Dallas Fed Mfg Survey, December
December 15, 2014
  • US Industrial Production, November
  • US Housing Market Index, December
  • US Empire State Manufacturing (Mfg) Survey, December
  • US Treasury International Capital, October
  • China’s PMI Flash Mfg Index, December
  • Japan’s PMI Manufacturing Index Flash, December
  • India’s WPI Inflation, November
December 30, 2014
  • US Consumer Confidence, December
  • US S&P Case-Shiller HPI, October
December 16, 2014
  • US Housing Starts, November
  • US PMI Manufacturing Index Flash, December
  • Euro zone PMI Composite Flash, December
  • Euro zone Merchandise Trade, October
  • UK Consumer Price Index, November
  • UK Producer Price Index, November
  • Japan’s Merchandise Trade, November
December 31, 2014
  • India’s RBI Balance of payments, July-September
  • India’s CPI for Industrial Workers, November
  • India’s Government finances, April-November
December 17, 2014
  • US FOMC Meeting Announcement, Forecasts
  • US Consumer Price Index, November
  • Euro zone Consumer Price Index, November
  • Bank of England Monetary Policy Minutes, December
  • UK Labour Market Report, November
January 2, 2015
  • US ISM Mfg Index, December
  • US Manufacturing PMI Index, December
  • US Construction Spending, November
  • Euro zone Markit Manufacturing PMI, December
  • UK Consumer Credit, November
  • UK Markit Manufacturing PMI, December
  • China’s HSBC China Manufacturing PMI, December
  • India’s HSBC Manufacturing PMI, December
December 18, 2014
  • US Philadelphia Fed Survey, December
  • US Leading Indicators, November
  • US PMI Services Flash, December
  • UK Retail Sales, November
  • Bank of Japan Monetary Policy Review
  • Japan’s All Industry Index, October
January 5, 2015
  • US Motor Vehicle Sales, December
  • Euro zone Sentix Investor Confidence, January
  • UK Markit/CIPS Construction PMI, December
  • Japan’s Vehicle sales, December
  • India’s HSBC Services PMI, December
December 19, 2014
  • India’s CPI for Rural and Farm Labourers, November
January 6, 2015
  • US ISM Non-Mfg Index, December
  • US Factory Orders, November
  • Euro zone Markit Services, Composite PMI, December
  • UK Markit/CIPS Services, Composite PMI
  • China’s HSBC Composite, Services PMI, December
  • China’s Trade Balance, December
December 22, 2014
  • US Existing Home Sales, November
  • US Chicago Fed National Activity Index, November
  • Euro zone Consumer Confidence Flash, December
January 7, 2015
  • US FOMC Minutes
  • US ADP Employment Report, December
  • US International Trade, November
  • Euro zone Markit Retail PMI, December
  • Euro zone Unemployment Rate, November
  • Euro zone Consumer Price Index, November
December 23, 2014
  • US GDP, Q3 2014 (Final)
  • US Personal Income and Outlays, November
  • US Durable Goods Orders, November
  • US New Home Sales, November
  • US Consumer Sentiment, December
  • UK GDP, Q3 2014 (Final)
January 8, 2015
  • US Consumer Credit, November
  • Euro zone Producer Price index, November
  • Euro zone Retail Sales, November
  • Euro zone Economic Sentiment, December
  • Euro zone Consumer Confidence, December
  • Bank of England Monetary Policy Review
December 24, 2014
  • Bank of Japan Monetary Policy Minutes, November
January 9, 2015
  • US Employment Situation, December
  • US Wholesale Trade, November
  • UK NIESR GDP Estimate, Q4 2014
  • UK Visible Trade Balance, November
  • UK Industrial Production, November
  • China’s Producer Price Index, December
  • China’s Consumer Price Index, December
  • Japan’s Coincident Index, November
  • Japan’s Leading Index, November

US Fixed Income Markets - Overview

The US Treasuries rose in November. The yield of the 10-year benchmark bond fell to 2.19% on November 28 as against 2.34% on October 31. At the start of the month, Treasuries were put under pressure as Japan decided to expand stimulus measures and after Republicans took control of Congress in the US mid-term elections. However, further losses were capped as weak cues from the domestic jobs sector prompted Treasury purchases. Among overseas cues, concerns of reigniting tensions between Russia and Ukraine boosted the safe-haven appeal of Treasuries. Weak manufacturing PMI and an unexpected interest rate cut from China and the European Central Bank’s commitment to do more to stimulate the sluggish Eurozone economy helped Treasuries extend gains. Some gains were cut due to some encouraging data from the domestic housing sector. An upward revision of third quarter domestic GDP data and a lack of clarity about interest rates from the US Federal Reserve’s latest minutes also dented sentiment.

US 10 Year Govt. Bond Yield

Learning Centre– Capital Protection Funds

The government’s initiatives to attract investment in various sectors have been one of the factors contributing to the rise of Indian equities in recent months. The Reserve Bank of India (RBI) has also supported the government’s commitment to reforms and improved sentiment for equities by arresting rising inflation. Equities offer the highest growth potential among all asset classes in the long run, but are volatile. Risk-averse investors, for whom capital safety is paramount, tend to minimise their exposure to equities or avoid the asset class altogether for this reason. Capital protection funds are a good investment choice from the mutual fund universe for such investors

What are capital protection funds?

Capital protection funds are close-ended funds with a typical maturity of three-five years. The primary objective of this class of funds is to ensure that investors do not lose more than the amount initially invested. To achieve this goal, capital protection funds invest a percentage of assets in fixed income instruments such as bonds, certificates of deposit (CDs), and T-bills. The selection of securities that form the debt component is such that investors will, at a minimum, recover their initial investment at maturity. The equity component of the scheme is intended for capital appreciation, and enables investors to earn returns higher than traditional fixed income instruments like fixed deposits. The debt-equity allocation is a function of the yield on the debt and the tenure of the scheme.

As an illustrative example, consider an investment of Rs 100 in a capital protection fund which invests around 87% of the amount in debt instruments and the remaining in equities. To ensure capital safety, the fund manager invests in debt that grows by around 15% during the tenure of the scheme. Return in excess of the invested capital can be provided by the equity component.

It is mandatory for capital protection funds to be rated by credit rating agencies such as CRISIL. The top rating for capital protection funds is AAA. Investors should, however, note that capital protection offered is only assured and not guaranteed by the fund house.

Summing up

Capital protection funds are ideal for risk-averse investors in the current market scenario. The debt component provides capital safety and the equity component offers growth opportunities. They are slightly more volatile than fixed deposits because of the equity component and require investors to stay invested over a medium term because of their close-ended nature. Investors are advised to take into consideration their investment goals and risk-return profile before investing.

Disclaimer
CRISIL Research, a Division of CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is not liable for investment decisions which may be based on the views expressed in this Report. CRISIL especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL Research operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division, which may, in its regular operations, obtain information of a confidential nature which is not available to CRISIL Research. No part of this Report may be published / reproduced in any form without CRISIL’s prior written approval.