February 2014 | srei
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February 2014

February, 2014

Highlights of Interim Railway Budget for 2014-15

  • The Indian Railways plans to spend Rs.64305cr in 2014-15 (Apr-Mar) on acquisition of rolling stock, laying of new lines and improving safety, 8.3% less than the revised estimate of Rs.59359cr for the current year.
  • The Indian Railways plans to borrow Rs.13800cr from the market in the next financial year starting Apr 1 to finance its annual plan, down 13.1% from the revised estimate of Rs.15878cr for 2013-14.
  • The government is considering a proposal to enable foreign direct investment to create world class rail infrastructure.
  • Under its programme to promote clean energy by setting up windmill plants and solar power units, the Indian Railways plans to initially cover 200 railways stations, rooftops of 26 buildings, and 2,000 level crossing gates.
  • No increase in rail passenger fares and freight has been proposed.
  • The operating ratio of the Indian Railways is projected to improve to 89.8% in the next financial year starting April from the revised estimate of 90.8% for 2013-14.
  • Indian Railways will implement the "Empty Flow Discount Scheme" to enhance freight traffic.
  • Indian Railways plans to award contracts for construction of a 1,000 km dedicated freight corridor in 2014-15.
  • The Indian Railways plans to implement the dynamic pricing system (in which fare increases with demand) on more routes.

Highlights of the Interim Budget for the Fiscal Year 2014-15

  • Growth in quarters three and four of fiscal year 2013-14 (FY14) is expected to be 5.2%; for FY14, the growth has been estimated at 4.9% compared with 4.5% in FY13. India's economic growth in 2014-15 (FY15) has been pegged at over 6.0%.
  • Agricultural GDP growth for FY14 estimated at 4.6% compared to 4.0% in the last four years.
  • The fiscal deficit for FY14 contained at 4.6% and revenue deficit at 3.3%. Fiscal deficit in FY15 is estimated to be 4.1% and revenue deficit is estimated at 3.0%.
  • The current account deficit projected to be at $45 bn in FY14.
  • The estimated merchandise export is estimated to reach $326 bn in FY14 indicating a growth rate of 6.3% year on year.
  • Foreign exchange reserve to grow by $15 bn in FY14.
  • FY14 divestment target revised to Rs 16,027 cr.
  • FY15 net market borrowings pegged at Rs 4.57 lakh cr and the gross market borrowing at Rs 5.97 lakh cr compared with Rs 4.67 lakh cr and Rs 5.64 lakh cr, respectively, for FY14.
  • Bond buyback or switches for FY15 has been pegged at Rs 50,000 cr.
  • FY15 plan expenditure kept at Rs 5.55 lakh cr.
  • FY15 non-plan expenditure at Rs 12.07 lakh cr.
  • The expenditure on subsidies for food, fertilizer & fuel will be Rs 2.46 lakh cr, slightly higher than the revised estimates of Rs 2.45 lakh cr in FY14.
  • FY15 divestment pegged at Rs 36,925 cr compared with revised Rs 16,027 cr for FY14.
  • Following changes in some indirect tax rates are proposed.
    • Excise duty cut from 12% to 8% for small cars and two-wheelers, from 30% to 24% for SUVs and from 27/24% to 24/20% for large and mid-segment cars.
    • Excise duty cut from 12% to 10% for capital goods and consumer durables.
    • To encourage domestic production of mobile handsets, the excise duties for all categories of mobile handsets is restructured. The rates will be 6% with CENVAT credit or 1% without CENVAT credit.
  • Rs 11,200 cr is proposed to be provided for capital infusion in public sector banks in FY15.
  • The target of Rs 7 lakh cr of agricultural credit for FY14 is likely to be exceeded by the banks; the target for FY15 is Rs 8 lakh cr.
  • Defence allocation up 10% to Rs 2.24 lakh cr for FY15.
  • Budgetary support to railways has been increased to Rs 29,000 cr in FY15.
  • Public Debt Management Agency Bill is ready with the government. It is proposed to establish a non-statutory PDMA that can begin work in FY15.
  • Rs 2,600 cr for education loan moratorium, to benefit nine lakh borrowers for loans taken before March 31, 2009.

Indian Economy Review

Government positive about domestic growth

The Indian government expects the country to grow at 4.9% in the current fiscal compared to 4.5% in the earlier fiscal. At the vote-on-account/interim budget, the finance minister P Chidambaram projected more than 6% growth for FY2014-15 and said that the country can grow at a sustained rate of 8-9% annually over the next 10-30 years; he, however, conceded that inflationary pressure and structural bottlenecks are hurting the growth process. The International Monetary Fund (IMF) suggested strengthening of inflation management policies and doing away with supply bottlenecks for better growth, while the Organisation of Economic Cooperation and Development (OECD) said that India needs to reconsider its stringent labour regulations to return to higher growth trajectory. Meanwhile, latest data from the government showed that India's gross domestic product (GDP) grew at 4.7% for the third quarter (October-December) of the current financial year, as against 4.8% and 4.4% in the previous two quarters.

Deficits reduce

Both fiscal and current account deficits showed some improvement, with fiscal deficit estimated to be 4.6% of GDP in the current financial year, lower than the 4.8% estimated earlier and compared with 4.9% in the previous fiscal. In real terms, however, fiscal deficit touched $85.95 bn during April-January, or 101.6% of the full year target, compared with 89.4% during the year-ago period. Meanwhile, CAD is estimated to be capped at $45 bn, only slightly up from $41 bn in the previous fiscal. The Prime Minister’s Economic Advisory Council’s (PMEAC’s) chairman, Mr. C Rangarajan, said that India's current account deficit (CAD) is expected to be around 2% of GDP during the current fiscal on the back of slack imports and increased shipments. Meanwhile, latest data showed that India’s CAD for October-December 2013 narrowed to $4.2 bn, or 0.9% of GDP, from $31.9 bn a year ago, when it was at 6.5% of GDP.

Inflation continues to spiral downwards

India’s inflation rate measured by the wholesale-price index rose 5.05% in January from a year earlier, and compared with 6.16% in December. Further, retail inflation rate as measured by the Consumer Price Index (CPI) eased to a 24-month low of 8.79% in January (down from 9.87% in December) mainly due to a drop in food prices.

Divestment news

The government kept Power Grid Corporation out of the proposed CPSE Exchange Traded Fund (ETF) as the scrip has a one-year lock-in period since its follow-on public offer in December; the ETF will now consist of 10 companies, including ONGC, Coal India, GAIL and Indian Oil. The government approved the stake sale of Indian Oil Corp and BHEL to other public sector companies, a move that could enable the government to garner over Rs 7,300cr in the current fiscal. However, it said that the residual stake sales in Hindustan Zinc Ltd and Bharat Aluminium (Balco) are not likely to take place this year.

Various efforts to promote growth

The government continued with its measures to promote growth and development in the country. Prime Minister Manmohan Singh outlined research & development projects with an outlay of Rs 9,000 cr and said that at least 2% of GDP must be spent on science & technology. The government allowed 26% foreign investment in insurance-related activities such as broking, third party administrators, and surveyors and has also permitted FIIs and NRIs to invest in insurers within the stipulated cap. The government has approved projects worth Rs 17,630 cr in the port sector to augment the capacity of major ports by about 151 mn tonnes per annum (MTPA). The union cabinet approved the setting up of two electronic chip manufacturing units at an estimated cost of over Rs 63,000cr by Jaiprakash Associates and HSMC Technologies India.

Other major developments during the month

The union government decided to increase the central assistance to state plans by as much as three times to Rs 3.38 lakh cr for 2014-15. The government said that any actions taken by SEBI under the government ordinance against capital market manipulations will remain valid and the consequent effects of the same will continue. It prohibited companies and limited liability partnership firms floated by private entities from using the word 'national' in their names. It approved a proposal of the Food Corporation of India to raise up to Rs 8,000 cr through long-term bonds to meet the working capital requirement. The government said that public sector banks have reported fraud cases of Rs 1 lakh and above amounting to Rs 6175 cr till January during the current fiscal year. Reversing its position on setting up of CNG selling stations, the oil ministry said that only those firms that are authorised by the oil regulator can set up outlets to retail compressed natural gas (CNG) to automobiles. The government cleared Vodafone’s proposal to buy out minority shareholders in its India arm for Rs 10,141 cr. It also cleared Rs 6,400 cr a foreign direct investment (FDI) proposal from the global healthcare company GlaxoSmithKline to acquire additional 24.33% stake in its India arm.

Meanwhile, the government raised dearness allowance to 100% from 90%, benefitting 50 lakh employees and 30 lakh pensioners. The government approved a proposal to ensure Rs 1,000 minimum monthly pension under an Employees Provident Fund Organisation (EPFO) scheme that will immediately benefit 28 lakh pensioners. The finance minister has allowed EPFO to become a member of a stock exchange. The labour ministry has asked the EPFO to provide permanent PF account numbers to its five crore members in a time-bound manner.

Domestic GDP Growth

Domestic GDP Growth

Telecom-related developments

  • The government garnered an estimated Rs 61,162 cr from the auction of 900MHz and 1800MHz spectrum.
  • According to the declared telecom M&A rules, the cap on the market share of a merged entity in a circle has been raised to 50% from 35% earlier, but the clause that requires buyers to pay market-linked price for spectrum that comes with any acquisition has been retained.
  • The government also expressed willingness to restart conciliation talks with Vodafone over the settlement of its Rs 20,000 cr tax dispute.
  • The Telecom Regulatory Authority of India (TRAI) disconnected 14 lakh phones and blacklisted 1.8 lakh unregistered telemarketers for two years for sending pesky communications.
  • Further, it made changes in agreement rules between broadcasters and distribution platform operators to streamline the distribution of television channels and growth of the sector.

Key regulatory developments

  • The cabinet approved the setting up of a regulator for the coal sector through an executive order.
  • The union cabinet approved amendments to the Bill for replacing the Directorate General of Civil Aviation with a financially autonomous Civil Aviation Authority.
  • The RBI has allowed micro and small enterprises (MSEs) who have de-registered their small scale industry status to sell their stake to foreign investors to attract funds.
  • The Ministry of Housing and Urban Poverty Alleviation and the RBI launched a pilot housing start up index covering 27 cities to show trends in the housing sector.
  • The Supreme Court’s probe of bank transaction details revealed that Sahara group companies have transferred roughly Rs 20,000 cr cash to each other, an amount which they claimed to have refunded to investors.
  • The US Food and Drugs Administration (FDA) chief Margaret Hamburg said that Indian pharmaceutical companies must comply with FDA standards if they wish to sell their products in the US; she also announced FDA’s plans to increase the number of its inspection staff in India from 12 to 31.
  • Further, the FDA turned down Ranbaxy Laboratories’ plea to allow them to continue exporting from banned manufacturing facilities while the company takes remedial measures to resolve the issues.
Indicators Current Previous
Monthly WPI Inflation 5.05% (January 2014) 6.16% (December 2013)
Industrial Growth -0.6% (December 2013) -1.3% (November 2013)
Exports $257.09 bn (April 2013-January 2014) $243.19 bn (April 2012-January 2013)
Imports $377.04 bn (April 2013-January 2014) $408.99 bn (April 2012-January 2013)
Trade Deficit -$119.96 bn (April 2013-January 2014) -$165.81 bn (April 2012-January 2013)
Gross tax collection Rs 8,21,329 cr (April 2013-January 2014) Rs 7,46,555 cr (April 2012-January 2013)


IIP Growth

  • India’s factory output measured by the Index of Industrial Production (IIP) fell 0.6% in December from a year earlier, after a revised 1.3% contraction in November.

Core IIP Growth

Core IIP Growth

  • Poor output of coal, petroleum refinery products, and natural gas dragged down India’s core sector growth to 1.6% in January from 8.3% in the same month a year ago.

Fiscal Deficit

Fiscal Deficit


Key economic indicators released during the month

  • India’s factory output measured by the Index of Industrial Production (IIP) fell 0.6% in December from a year earlier, after a revised 1.3% contraction in November.
  • Meanwhile, poor output of coal, petroleum refinery products, and natural gas dragged down India’s core sector growth to 1.6% in January from 8.3% in the same month a year ago.
  • India’s trade deficit shrank to $9.92bn in January from $18.97bn last year and $10.14bn in December; exports grew 3.8% year-on-year to $26.75bn in January while imports declined 18.1% year-on-year to $36.67 bn.
  • The Indian government's total debt increased by 2.6% to over Rs 46 lakh cr in the third quarter ended December, as compared to the previous three months of the current financial year.
  • The government's tax collections in April-January rose 10.0% year-on-year to Rs 8.213 lakh cr. FDI inflows into India rose 0.3% year-on-year to $2.1bn in December from $2.09bn a year ago.
  • India’s HSBC Manufacturing Purchasing Manager Index (PMI) rose to 52.5 in February against 51.4 in January, while Services PMI rose to 50.3 in February from 49.6 in January.

Global Economy Review

G20 join hands to boost global economy

At the recent meet of the finance ministers of the world’s 20 leading economies (also known as the G20), the participants discussed how to bolster the fragile global economy. The group has agreed to implement policies that will boost global gross domestic product (GDP) by $2 trillion over the next five years.

US Fed to continue with stimulus tapering even as slowdown worries resurface

Minutes of the US Federal Reserve’s (Fed’s) January policy meeting disclosed that all officials have agreed to continue withdrawing the stimulus bond-buying program as long as the economy improves. According to Fed Chief Janet Yellen, interest rates will be kept at record lows - close to zero - until the US unemployment recovers to the 6.5% mark; the unemployment rate was 6.6% in January 2014.

Meanwhile, slowdown worries resurfaced after the data showed that the US GDP growth for Q4 2013 was revised down from 3.2% year on year (YoY) to 2.4% due to a slowdown in personal consumption expenditure; the US GDP had grown 4.1% rise in Q3. Janet Yellen said that recent cold weather and storms may have weakened US spending and, while the central bank will monitor it closely, it is difficult to know to what extent the US economic recovery will be weak. Among other key developments, the US House of Representatives approved a one-year extension of federal borrowing authority.

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 2.4% Q4 2013 4.1% Q3 2013 US Fed Funds Rate 0 - 0.25%
US unemployment 6.7% February 2014 6.6% January 2014 Bank of England 0.50%
UK GDP 0.7% Q4 2013 0.8% Q3 2013 European Central Bank 0.25%
Euro Zone GDP 0.3% Q4 2013 0.1% Q3 2013 Japan Benchmark Rate 0-0.10%
Japan GDP 0.2% Q4 2013 0.3% Q3 2013    
China GDP 7.7% Q4 2013 7.8% Q3 2013    
Singapore’s GDP 6.1% Q4 2013 0.3% Q3 2013    

Key US economic indicators

  • The US government posted a budget deficit of $10 bn in January; the deficit for October through January was $184 bn, which is $107 bn lower than the same period a year ago.
  • The Commerce Department reported that US trade deficit increased to $39.1bn in January up 0.3% from December's revised $39bn deficit.
  • The US Treasury International Capital report showed that net foreign Treasury purchases were $17.9 bn in December. Total foreign holdings rose to $5.79 trillion in December, up 1.4% from that in November.
  • Personal consumption rose a seasonally adjusted 0.4% in January compared with a downwardly revised growth rate of 0.1% in December while personal income rose 0.3% in January after being flat in December.
  • The US Labor Department said that employers added 175,000 jobs in February against an upwardly revised 129,000 jobs in January; the unemployment rate rose to 6.7% in February from 6.6% in January.
  • The Consumer Price Index (CPI) inflation rose 0.1% in January after a 0.2% gain in December; on an annual basis, CPI climbed 1.6% in January.
  • Retail sales rose 0.2% in February compared with a 0.4% drop in January.
  • New home sales rose 9.6% in February to hit a seasonally adjusted annual rate of 468,000 units in January compared with revised 427,000 units in December. The Pending Home Sales Index rose 0.1% in January after a 5.8% fall in the previous month.


Eurozone economy picks up pace

The Eurozone economy posted positive growth for the third straight quarter after an 18-month-long recession. In the latest quarter – Q4 2013 – the bloc posted a growth of 0.3% (QoQ) following 0.1% and 0.3% rise in Q3 and Q2 respectively. However, for 2013 as a whole, the GDP fell 0.5%. The European Commission said that economic recovery of the Eurozone is set to gain momentum as domestic demand gradually improves, but unemployment is likely to remain high amid subdued inflation. The region’s central bank, European Central Bank, expressed concerns that with unemployment depressing demand, extremely low inflation could ultimately bring on a debt spiral that hurts borrowers and the already-weak banks. As per the latest numbers, Eurozone’s annual CPI inflation came in at 0.8% in February, the same rate as in January and December. The unemployment rate remained unchanged in February at a near record high of 12% from one month ago. ECB President Mario Draghi said that he is ready to act if the price outlook deteriorates although he sees no fear of deflation in the euro area.

Key Eurozone economic indicators:

  • The trade surplus rose to 13.9 bn euros in December from 9.8 bn euros a year ago.
  • Industrial production fell by 0.7% in December compared with a revised gain of 1.6% in November.
  • Retail sales fell by 1.6% in December compared with a revised gain of 0.9% in November.

Bank of England to keep interest rates at 0.5% until 2015

The Bank of England (BoE) calmed fears by signalling that it will keep interest rates at the historic low of 0.5% for at least another year; it indicated that it would raise interest rates in line with domestic economic recovery. BoE Governor Mark Carney said that the UK recovery is still too fragile to cope with a rise in interest rates. The BoE, however, sharply upgraded it 2014 GDP outlook to 3.4% from 2.8%.

Key UK economic indicators:

  • The UK's public finances, excluding financial sector interventions, showed a 4.718 bn pound surplus in January, down from 6.035 bn pounds a year ago.
  • The total trade deficit narrowed to 1 bn pounds in December compared with 3.6 bn pounds in November.
  • Industrial production grew 0.4% in December vs a fall of 0.1% in November.
  • The CPI inflation grew at 1.9% (YoY) in January 2014, down from 2% growth in December 2013.
  • The number of unemployed in the UK fell by 125,000 to 2.34 mn; in the three months to December the unemployment rate was 7.2% and in the three months to November it was 7.1%.
  • Retail sales fell 1.5% in January compared with a 2.5% rise in December.


China to keep growth within a reasonable range in 2014

According to China’s top governing body, the Politburo, the government will continue with its official policy stance of keeping growth within a reasonable range in 2014. The Politburo said that the Chinese government will also speed up reforms and continue its proactive fiscal policy and prudent monetary policy. It added that the government plans to promote breakthroughs in important areas of reform and accelerate efforts to boost the country's international competitive advantage.

Key Chinese economic indicators:

  • China’s exports unexpectedly fell 18.1% in February following a 10.6% rise in January. Imports rose 10.1% in February, virtually unchanged from one month ago, leaving the country with a trade deficit of $23 bn for the month compared with $31.9 bn in January.
  • China’s official Purchasing Managers’ Index (PMI) fell to 50.2 in February from 50.5 in January.
  • The annual CPI inflation rose 2% in February, following a 2.5% rise in January.

Japan maintains easy monetory policy

With a focus on expanding credit demand in the economy, Bank of Japan (BoJ) extended three special loan facilities by one year to March 2015. Of the three, it doubled funds available to banks under two facilities. The BoJ also maintained its pledge of increasing base money at an annual pace of 60-70 trillion yen. As per the latest numbers available, Japan’s economy grew 0.2% (QoQ) in Q4 following 0.3% growth in Q3.

On the inflation front, the government in its monthly report described consumer prices as "rising moderately" - a sign that the economy is making steady progress towards exiting 15 years of stubborn deflation. Meanwhile, the BoJ’s January meeting minutes revealed that policymakers were worried about the health of emerging economies and most members agreed that the central bank should not end its aggressive easing strictly in two years from April 2013, when it was launched.

Key Japanese economic indicators:

  • Japan posted a record merchandise trade deficit of 2,790 bn yen in January, the 18th consecutive month of trade deficit; in December the deficit was 1,304 bn yen.
  • The current account deficit widened to 638.6 bn yen in December from 592.8 bn yen in November
  • Industrial production grew 7.1% (YoY) in December, much higher than 4.8% rise in November.
  • The CPI inflation rose 1.4% (YoY) in January, following a 1.6% rise in December
  • The unemployment rate in January remained at the previous month’s level of 3.7%.

Singapore grew 6% (QoQ) in Q4 2013

Singapore’s GDP grew 6.1% (QoQ) in Q4 2013 thanks to the improvement in manufacturing activity. The robust performance in Q4 lifted overall GDP growth for 2013 to 4.1%, better than the government's previous forecast of 3.5-4.0% expansion; in 2012, the country had grown 1.3%. Among key economic indicators, Singapore’s non-oil domestic exports fell by 3.3% (YoY) in January against a 6% increase in December. Industrial production grew 3.9% (YoY) in January following a revised 6.4% in December. Retail sales fell 5.5% in December from a year earlier. The CPI inflation rose 1.4% (YoY) in January, almost similar to 1.5% increase in December.

Domestic Fixed Income Review

Domestic G-Sec Yield

6 Month LIBOR

Interbank call money rates moved in the wide range of 7.00-9.10% during the month. The rates were on the higher side earlier in the month on tight liquidity due to the two day public sector bank employee strike and on strong demand for funds from banks to meet funding requirements. The pressure on the call rates however eased as the month progressed, especially due to the government’s month-end spending and fund infusion by the Reserve Bank of India (RBI) through 9-day and 28-day term repo auctions of Rs 10,000 cr and Rs 20,000 cr on February 12 and February 14, respectively. Liquidity deficit also reduced due to inflow of funds towards coupon payments and redemption of gilts.

Indian government bond (gilt) prices fell during the month, with the yield on the 10-year benchmark paper 8.83%, 2023 bond ending at 8.86% on February 28, 2014, compared with 8.77% on January 31, 2014. Bond prices came under pressure due to caution ahead of the release of the US non-farm payroll numbers and domestic inflation (wholesale and retail) and industrial production data. Gilt prices fell on fears that the government's market borrowing numbers could be higher than expected at the vote-on-account scheduled for February 17. The RBI’s announcement to conduct term repo auctions in March also dented the appetite for gilts as it dashed hopes of further gilt purchases by the central bank via open market operations. High cutoff yields set at an auction of state development loans also weighed on bond prices. Prices retreated further on tracking rising US Treasury note yields and weakness in the rupee following the release of the US Federal Reserve’s meeting minutes which signaled its intention to continue tapering its monthly bond purchases.

Decline in prices was however restricted later in the month after the RBI cancelled the deferred auction scheduled on January 17, 2014 amounting to Rs 15,000 cr, indicating a comfortable government cash position and low funding requirements. The central bank also announced that gilts worth Rs 27,000 cr maturing in 2014-15 and 2015-16 had been switched to a longer tenor with an institutional investor. Encouraging domestic wholesale and retail inflation data, coupled with sporadic strength in the rupee and value buying also supported the prices. Sentiments strengthened following the end of the government’s gilt auctions for the current fiscal year. Gilts also rose after the government announced it would contain fiscal deficit for 2013-14 at 4.6% of GDP and set a net market-borrowing target of Rs 4.57 lakh cr for the next fiscal. Fiscal deficit for 2014-15 has been pegged at 4.1% of GDP. Prices got more support after the RBI infused Rs 30,000 cr through a 28-day term repo auction. Gilt prices also gained on the back of heavy purchases by some foreign banks near the end of the month.

RBI lowered the sub-limit for foreign investors in commercial papers to $2bn from $3.5bn at present. The central bank said that secondary market over-the-counter trades in corporate bonds and securitised debt instruments must be reported within 15 minutes of the trade to any stock exchange. It also decided to revise the timing of term repo auctions to 11-11.30 am from 2.30-3.00 pm earlier. SEBI data showed that private placement of corporate bonds fell in January to Rs.20782cr against Rs.24,277cr in December.

The RBI decided to constitute a committee to examine the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) relating to capacity building in the banking sector. Further, it notified the rules for forming a Joint Lenders' Forum and adopting a Corrective Action Plan for distressed assets, it also put certain riders for refinancing project loans and the sale of non-performing assets (NPAs). The RBI laid out rules for early detection of loan default and suggests a timeline to restructure loans; also said that restructuring of a bad loan should be done in such a manner that shareholders, including promoters, bear the first loss and not the lenders. The central bank asked banks to discontinue the practice of levying penalty on non-maintenance of minimum balance in ordinary savings bank account. It has allowed banks to utilise up to one-third of the countercyclical provisioning buffer held by them during previous fiscal for making specific provisions to cover bad loans. The RBI approved a payment system that will let people without bank accounts withdraw from automated teller machines (ATMs). It also released statement saying people queuing up at banks from April 1 to exchange their pre-2005 currency notes will get ‘no value’ from the bank if the notes are found to be counterfeit.

The RBI removed the 26% interest rate cap on loans given by microfinance institutions regulated by it. It also issued 'certificate of authorisation' to four non-bank entities, including Tata Communications Payment Solutions and Muthoot Finance, to set up White Label ATMs (WLAs) in the country.


Fixed Income Indicators

Rates & Liquidity

  28-Feb-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) 22,159 28,228 31,561
LAF o/s Rev Repo (Rscr) 6,273 3,005 483

Overnight                                                   Rate(%)

  28-Feb-14 1 Week Ago 1 Month Ago
Mibor 8.08 8.04 8.12
Call 7.90 8.25 8.90
CBLO 7.98 7.46 8.03
OIS 1Y 8.68 8.65 8.72
OIS 5Y 8.56 8.47 8.44

CDs                                                                       Yield(%)

  28-Feb-14 1 Week Ago 1 Month Ago
1-Month 8.50 8.61 8.35
3-Month 9.83 9.79 9.57
6-Month 9.80 9.79 9.64
1-Year 9.76 9.77 9.64

CPs                                                   Yield(%)

  28-Feb-14 1 Week Ago 1 Month Ago
1-Month 8.95 9.01 8.64
3-Month 10.25 10.21 9.97
6-Month 10.25 10.10 10.03
1-Year 10.12 10.07 10.00

Short Term Bonds                                                       Yield(%)

  28-Feb-14 1 Week Ago 1 Month Ago
1 Y G-Sec 8.71 8.67 8.86
1 Y AAA 9.89 9.92 9.63
1 Y AA 10.40 10.43 10.14
2 Y G-Sec 8.61 8.64 8.51
2 Y AAA 9.79 9.78 9.56
2 Y AA 10.28 10.27 10.05

Long Term Bonds                                                   Yield(%)

  28-Feb-14 1 Week Ago 1 Month Ago
5 Y G-Sec 8.97 8.91 8.86
5 Y AAA 9.81 9.75 9.73
5 Y AA 10.46 10.40 10.38
10 Y G-Sec 8.86 8.80 8.77
10 Y AAA 9.74 9.68 9.63
10 Y AA 10.55 10.49 10.44

Top 5 Graded G-Secs                                         Yield(%)

  28-Feb-14 1 Week Ago 1 Month Ago
8.83% CGL 2023 8.86 8.92 8.77
08.12 GS 2020 9.29 9.33 9.19
07.28% CGL 2019 8.97 9.05 9.17
08.28% CGL 2027 9.21 9.27 9.04
08.28% CGL 2027 9.29 9.34 8.86


  28-Feb-14 1 Week Ago 1 Month Ago
USD/INR 61.76



EURO/INR 85.06 85.27 84.60
GBP/INR 103.61 103.44


100 JPY/INR 60.99 60.66 60.96
USD/EURO 0.73 0.73 0.73


10 Year G-Sec Movement


Corporate Bond Yield


Corporate AAA, AA Bond

Economic Events Calendar

March 10, 2014
  • Euro-Zone Sentix Investor Confidence, March
  • Bank of Japan Monetary Policy Review
  • Japan’s GDP, Q4
  • Japan’s Trade Balance, January
March 26, 2014
  • US Durable Goods Orders, February
  • US PMI Services Flash, March
  • UK GDP, Q4 2013 (Final)
March 11, 2014
  • US Wholesale Inventories, January
  • UK Industrial Production, January
  • UK NIESR GDP Estimate, February
March 27, 2014
  • US GDP, Q4 2013 (Final)
  • UK Retail Sales, February
  • Japan’s Consumer Price Index, February
  • Japan’s Household Spending, February
  • Japan’s Unemployment Rate, February
  • Japan’s Unemployment Rate, February
March 12, 2014
  • US Treasury Budget, February
  • Euro-Zone Industrial Production, January
  • UK Visible Trade Balance, January
  • Japan’s Consumer Confidence Index, February
  • Japan’s Tertiary Industry Index, January
  • India’s Industrial Production, January
  • India’s Industrial Production, January
March 28, 2014
  • US Consumer Sentiment, March
  • Euro zone Economic Sentiment, March
March 13, 2014
  • US Retail Sales, February
  • US Import and Export Prices, February
  • European Central Bank Monthly Report
  • UK RICS House Price Balance, February
  • China’s Industrial Production, February
  • China’s Retail Sales, February
March 31, 2014
  • US Chicago PMI, March
  • US Dallas Fed Mfg Survey, March
  • China’s CFLP Manufacturing PMI, March
  • China’s PMI Manufacturing Index, March
  • India’s Government finances, April-February
  • India’s CPI for industrial workers, February
  • India’s CPI for industrial workers, February
March 14, 2014
  • US Producer Price Index, February
  • US University of Michigan consumer sentiment index, March
  • Bank of Japan Monetary Policy Minutes
  • Japan’s Industrial Production, January
  • Japan’s Industrial Production, January
April 1, 2014
  • US ISM Mfg Index, March
  • Euro zone PMI Manufacturing Index, March
  • Euro zone Unemployment Rate, February
  • UK CIPS/PMI Manufacturing Index, March
  • India’s RBI Monetary Policy Review
  • India’s HSBC Manufacturing PMI, March
March 17, 2014
  • US Industrial Production, January
  • US Empire State Mfg Survey, March
  • US Treasury International Capital, January
  • Euro zone Consumer Price Index, February
April 2, 2014
  • US ADP Employment Report, March
  • China’s PMI Composite, March
  • Japan’s PMI Composite, March
March 18, 2014
  • US Consumer Price Index, February
  • US Housing Starts, February
  • Euro zone Merchandise Trade, January
  • Japan’s Merchandise Trade, February
  • Japan’s All Industry Index, January
April 3, 2014
  • US ISM Non-Mfg Index, March
  • US International Trade, February
  • European Central Bank Monetary Policy Review
  • Euro zone PMI Composite, March
  • UK CIPS/PMI Services Index, March
  • India’s HSBC Services PMI, March
March 19, 2014
  • US FOMC Meeting Announcement
  • Bank of England Monetary Policy Review
  • UK Labour Market Report, February
April 4, 2014
  • US Employment Situation, March
March 20, 2014
  • US Philadelphia Fed Survey, March
  • US Existing Home Sales, February
  • India’s CPI for Rural / Farm Labourers, February
April 7, 2014
  • Bank of Japan Monetary Policy Review
March 24, 2014
  • US PMI Manufacturing Index Flash, March
April 8, 2014
  • UK Industrial Production, February
March 25, 2014
  • US S&P Case-Shiller HPI, December
  • US Personal Income and Outlays, February
  • US Consumer Confidence, March
  • UK consumer price Index, February
  • UK Producer Price Index, February
April 9, 2014
  • US FOMC Minutes

US Fixed Income Markets - Overview

US treasuries ended a volatile month in the green zone with the yield on the 10 year benchmark bond falling from 2.67% on January 31 to 2.66% on February 28 amid escalating tensions in Ukraine, a series of discouraging domestic indicators, and intermittent weakness in domestic equities. Bond prices gained after the Bureau of Labor Statistics revealed that non-farm payroll figures had risen by a lower than expected 113,000 in January. A series of other disappointing economic releases including widening US trade deficit in December, weak industrial production and consumer confidence data, and a fall in the Wells Fargo Housing Market Index drove up bond prices. Fear of a war between Russia and Ukraine triggered global equity selloffs and augured well for US treasuries. Concerns about the impact of harsh weather on job creation and economic recovery also supported bonds. However, further gains were capped following the new Fed Chief’s remarks which increased the demand for riskier equities. The head of the central bank announced that interest rates would remain near zero for the foreseeable future and that tapering of stimulus would continue at a measured pace. Demand for bonds was dented after the US Senate voted in favour of raising the debt ceiling and extending federal borrowing authority by a year.

US 10 Year Govt. Bond Yield

Learning Centre– Credit Quality

Investors have traditionally preferred debt, especially bank fixed deposits (FDs), for safe investments. In this space, debt securities such as corporate bonds have made their presence felt in an investor’s portfolio either directly or indirectly through debt mutual funds. The primary factor to gauge while investing in such debt instruments / debt mutual funds (in addition to the investment horizon) is the credit risk or the default risk of these bonds (bond issuer). In order to gauge this credit risk, investors should look at the credit quality of debt securities / portfolio of the fund invested.

Credit quality is determined from ratings given by independent credit rating agencies such as CRISIL, ICRA and CARE. Credit ratings given by these agencies are evaluated based on extensive research on the creditworthiness of the issuer. In general, any event that affects the issuer’s ability to repay the loan amount in full or on time may cause a change in credit quality. This change is conveyed through a credit rating downgrade. Typically, credit quality designations range from high ('AAA' to 'AA') to medium ('A' to 'BBB') to low ('BB', 'B', 'CCC', 'CC' to 'C'). The higher the credit rating assigned to the debt securities, the safer the investments.

The following table shows CRISIL’s rating classification for long-term debt obligations:

Symbol (Rating category). Description (with regard to the likelihood of meeting the debt obligations on time)
AAA Highest Safety
AA High Safety
A Adequate Safety
BBB Moderate Safety
BB Inadequate Safety
B High Risk
C Substantial Risk
D Default

Investors interested in safe (or conservative) investments should look for investment grade bonds ('AAA' for long-term bonds and ‘P1+’ for short-term bonds). Investors willing and able to accept a higher level of risk could consider lower credit quality bonds. Debt mutual fund investors can get the credit quality information from a fund’s factsheet uploaded on the respective website on a monthly basis.

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.