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THE WEEK GONE BY AND THE WEEK AHEAD .

May 24, 2013

US Federal Reserve chairman Ben Bernankes statement that it would be easing out the bond purchase program going forward and a week factory output data by China made the markets around the world jittery with Nikkei falling more than 7% on Thursday. BSE Sensex had a volatile week and closed 2.9% lower this week. While the Nifty recovered slightly after 4 sessions of losses, the underlying trend is weak. The US markets closed this week lower for the first time in five weeks as the prospects of the Federal Reserve starting to reduce their bond buying program. Friday losses were however mild as investors took some solace in stronger than forecast on demand for big ticket purchases and improvement in jobless claims. Inflation indexed bonds will make a debt in Indian markets next months. Currently bonds indexed to whole sale price inflation (WPI are expected to auction on June 5th, however it is expected that consumer price indexed (CPI) bonds will be announced in the next few months. The bench mark Indian 10-yr government security closed at 7.34% with yields dropping 6bps over last week. We have overall bullish view for bond in the near term as inflation tapering down and the expectation of rate cut.

28 Dec 2012 The key events of last week:

Euro zone economic growth in the the first quarter of 2013 fell 1.0% from the same period a year earlier, down from a 0.9% contraction in the fourth quarter of 2012a sign that the monetary unions recession is picking up speed. This decrease in the GDP marked the sixth straight quarter of economic contraction in the eurozone and the longest since 1995. U.S. Headline PPI fell in line with expectations due to a drop in gasoline and also food prices. The core rate actually softened. The April producer price index fell 0.7 percent after a 0.6 percent decrease the month before. Analysts projected a 0.7 percent decline. The core rate, which excludes both food and energy, increased 0.1 percent after rising 0.2 percent in March. Expectations were for a 0.2 percent increase.

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With oil imports flat in the May 10 week, a drop in domestic production and a rise in refinery inputs made for a 0.6 million barrel draw in commercial oil inventories to 394.9 million barrels.

Seasonally adjusted the merchandise trade balance widened out surprisingly sharply to some E18.7 billion in March, a new record high. The February excess was also revised a little larger at E12.7 billion while in unadjusted terms the black ink stood at E22.9 billion, up from E10.1 billion in mid-quarter.

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 853,000.This is 16.5 percent below the revised March estimate of 1,021,000, but is 13.1 percent above the April 2012 rate of 754,000. This is 16.5 percent below the revised

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March estimate of 1,021,000, but is 13.1 percent above the April 2012 rate of 754,000. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 83.7 in May, the highest since July 2007, from 76.4 the month before, a report showed. A gauge of the U.S. economic outlook for the next three to six months climbed 0.6 percent in April after a revised 0.2 percent fall in March, the New York-based Conference Board said. The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated worsening for the US economy. The index fell to a weak level of -0.53 from a level of -0.23 in March, while the three-month moving average declined to a level of -0.04. The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of production and income, employment, unemployment and income, personal consumption and housing, and sales, orders and inventories. CSC-Goldman had been reporting weakness for the early part of May but not for the May 18 week where sales rose 0.2 percent for a standout year-on-year pace of plus 3.1 percent. The year-on-year pace compares with only plus 1.2 percent in the prior week and is the strongest pace since January. The report attributes the gain to pent-up demand following the prior week's soft sales and to warm weather in parts of the country Jobless Claims Drop, But Stay In Recent Range: There were 340,000 first-time claims for unemployment insurance last week, down 23,000 from the week before, the Employment and Training Administration reports.The decline follows something of a spike. But in reality, the drop just means that claims continue to run at the pace they've been setting since late 2011. Since then, the number of new filings each week has pretty much stayed in a range from the mid-300,000s to just under 400,000. Germany's gross domestic product (GDP) rose by 0.1 percent on the quarter and shrank by 1.4 percent on the year, final seasonally adjusted data from the Statistics Office confirmed. Durable goods orders in March declined 5.8 percent, following a 4.3 percent surge the month before. The transportation component declined 15.1 percent after a sharp 20.3 percent jump in February. Excluding transportation, durables orders decreased 0.1 percent after a rise of 0.9 percent in February. Numbers reflect revisions from the more recent total factory orders report.

And closer home.

Despite strong foreign inflows into the debt and stock markets, the rupee has depreciated as the dollar gains against global currencies on concerns about whether the US monetary stimulus will continue. The RBI cut the key policy repo rate for a third straight time in 2013 to 7.25 percent, pulling it to a two-year low, in a bid to revive decelarating growth and taking into account benign

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inflation reading. India's new inflation-linked bonds will be sold to foreign investors as part of an up to $25 billion investment limit for government debt allotted for demand from overseas, Reserve Bank of India (RBI) For March-April, the OECDs composite leading indicators signs of a turning point in economic activity point to a pickup in economic growth in most major economies. Even the troubled euro zone is gaining momentum. In India, however, growth is below trend. The rupee on Thursday declined by a hefty 37 paise to trade at a fresh six-month low of 55.83 in early trade at the Interbank Foreign Exchange market on sustained dollar demand and strengthening of the U.S. currency overseas. Forex dealers said besides dollars gains against euro and other currencies in the overseas markets, sustained dollar demand from importers and some banks and a lower opening in the stock market put pressure on the domestic currency.

Important upcoming International events to be tracked:

22-05-2013 22-05-2013 22-05-2013 23-05-2013 23-05-2013 23-05-2013 24-05-2013 24-05-2013 29-05-2013 29-05-2013 30-05-2013 30-05-2013 30-05-2013 31-05-2013 31-05-2013 31-05-2013 08:40 IST 16:30 IST 20:00 IST 18:00 IST 18:30 IST 19:30 IST 02:00 IST 18:00 IST 05:20 IST 17:15 IST 18:00 IST 18:00 IST 19:30 IST 02:00 IST 02:00 IST 05:00 IST Japan US US US US US US US Japan US US US US US US Japan Bank of Japan Announcement (Level) MBA Purchase Applications (Purchase Index - W/W Change) EIA Petroleum Status Report (Crude oil inventories (weekly change)) Jobless Claims (New Claims - Level) FHFA House Price Index (Y/Y change) New Home Sales (New Home Sales Level - SAAR) Fed Balance Sheet Durable Goods Orders (Ex-transportation - M/M) Retail Sales (Year over Year) ICSC-Goldman Store Sales Jobless Claims GDP (Real GDP - Q/Q change - SAAR) Pending Home Sales Index (Pending Home Sales Index - M/M) Money Supply (M2 Weekly Change) Fed Balance Sheet CPI

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31-05-2013 31-05-2013 31-05-2013 31-05-2013

05:00 IST 05:00 IST 18:00 IST 19:25 IST

Japan Japan US US

Unemployment Rate Household Spending (Month over Month) Personal Income and Outlays (PCE Price Index -- M/M change) Consumer Sentiment (Sentiment Index Level)

Important upcoming Domestic Events:

24-05-2013 24-05-2013 24-05-2013 27-05-2013 29-05-2013 29-05-2013 29-05-2013 31-05-2013 31-05-2013 31-05-2013 31-05-2013 31-05-2013 17:00 IST 17:00 IST 17:00 IST 17:00 IST India India India India India India India India India India India India Gilt auction offer for 8.12%-2020(R) Rs 30B (cut-off yld) Output of Crude oil FX reserve (change on wk) IIP Core (YoY Chg) 91 day T- Bills auction of Rs 70 bln (cutoff yld) M3 (YoY Chg) 364 day T- Bills auction of Rs 50 bln (cut-off yld) Government finances -fiscal deficit (pct of Budget Estimate) Gross Domestic Product (YoY Chg) WMA (ways and means advance) - to central govt FX reserve (change on wk) Bank Credit Deposit Ratio

TECHNICAL VIEW
The rupee on Thursday declined by a hefty 37 paisa to trade at a fresh six-month low of 55.83 in early trade at the Interbank Foreign Exchange market on sustained dollar demand. All medium term and long term technical indicators point rupee weakness and USDINR seems to continue prevailing uptrend but we expect Rupee to consolidate around 55.5 to 56 levels. Current trend and momentum points Rupee depreciation to continue and strong demand of dollar may push rupee towards 57 to 58 levels. But we expect Rupee weakness would take a halt sooner and reversal of a trend in the next few weeks as RBI may intervene.

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