Global Markets

• US treasuries fell on Citigroup bailout, appointment of New York Fed President Timothy Geithner as next Treasury Secretary and US Fed’s new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion. The central bank will purchase 600 bn of debt ($100bn of direct debt of Fannie Mae, Freddie Mac and Federal Home Loan Banks and $500bn of mortgage back securities of Freddie Mac, Fannie Mae and Ginnie Mae). Under Term Asset-backed Securities Loan Facility to be set up by February, Fed will lend upto $200bn to holders of AAA rated asset- backed securities backed by consumer loans, and borrowing guaranteed by the Small Business Administration. Rates on home loans haven’t fallen despite Fed rate cuts and yields on benchmark Treasuries tumbled. Average 30-year mortgage rates were 5.98%, little changed from 2007 average of 5.95%. Analysts view these measures as attempts to lower credit spreads.
• China announced biggest interest rate cut in 11 years to spur borrowing to exporters, smaller companies and real estate developers. The 1.08% cut — 4th cut in 3 months — reflects government's urgency. A World Bank report forecast 7.5% growth for China in 2010 as compared to ~9.5% growth expected in 2009, down from 11.9% last year, suggesting China should rebalance its economy from investment, exports and industry to domestic consumption and services.
• Economists are stepping up their forecasts for ECB rate reductions in Dec amid signs Europe's recession is deepening. Investors are betting ECB will cut interest rates by at least 75 bps on Dec 4 during its next meeting. The European Commission proposed 200bn Euros (US$259bn) in a 2-year European Economic Recovery Plan to jointly combat the mounting economic.
• Crude oil prices fell as OPEC deferred production cuts before rising on account of EU stimulus package, Citigroup bailout and China’s aggressive rate cuts.

Indian Equity Markets

• On the back of positive global cues in the form of a surprise steep rate cut announced by China's central bank, US measures to prop up Citigroup which caused 6.8% rise in MSCI Asia Pacific during the week coupled with better than expected GDP data and lower inflation data lifted the markets as Sensex gained 2% during the week. The market ended the week with decent gains despite worst terror attack in India’s history on its financial centre Mumbai.
• FIIs were net sellers on account of caution and higher risk aversion in global markets while MFs were net buyers as they bought at lower prices.
• GDP grew better than expected 7.6% YoY in Q2FY09 as manufacturing expanded 5%, agriculture 2.7% and services 9.2%.

Outlook: Investors do not see a long-term impact of sporadic terror attacks to have a lasting impact on Indian economy as even the S&P along with other international companies have dismissed the attacks as an isolated case and reaffirmed faith in India’s long term growth story. Global slowdown concerns, liquidity and investor sentiment to drive market direction.

Indian Fixed Income Markets

• 10-year bonds rallied as yields dropped ~50bps on reasonably comfortable liquidity, fall in inflation and expectations of further downward movement in interest rates.
• RBI announced extension of liquidity support to banks through relaxation in SLR maintenance by 1.5% for further lending to housing finance companies in addition to MFs and NBFCs currently and allowed rollover of special refinance facility for commercial banks. These along with provision of forex liquidity to foreign branches will be extended till June 30, 2009. Also, in view of global slowdown exporters will be provided concessional credit for 180 days as compared to 90 days earlier.
• WPI Inflation declined further to 8.84% in the week ended 15 Nov 2008 from 8.90% in the previous week. Petroleum Minister indicated that fuel prices could be cut late December after the state elections are over, which could further ease pressure on inflation.

Outlook: Market sentiment upbeat due to RBI’s measures on liquidity, credit and fall in inflation.

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