Debt
During the month of April 2013, the yield on 10-year Government benchmark bond ended lower at 7.73%
as against 7.95% in March 2013.
The average Liquidity Adjustment Facility (LAF) during the month was negative 
85,928 crs as compared to negative 116,198 crs in March 2013. The NSE overnight MIBOR ended at 7.62% much lower than the
rate seen in end March 2013 (8.98%).
The annual rate of inflation, based on monthly Wholesale Price Index, stood at 5.96% (Provisional) for the
month of March 2013 as compared to 6.84% (Provisional) for the previous month and 7.69% during the
corresponding month of the previous year.
The INR appreciated to 53.81 against the US dollar as compared to 54.28 at the end of previous month, a
rise of 0.87% for the month of April. The net FII investments in equities & debt was an inflow of USD
1992.47 million in April 2013 as compared to an inflow of USD 2741.49 million in March 2013.
The industrial production (IIP) data for February 2013 came in at 0.6% over the previous year as against
2.5% reading last month, higher than consensus expectations of a contraction. On a cumulative basis April
– February 2013, IIP increased by only 0.9% as against 3.5% increase in the same period last year.
India’s Q3 FY13 current account deficit (CAD) came in at USD 32.5 billion or 6.7% of GDP, higher than
consensus expectations of 6.5% of GDP, largely because of high trade deficit on account of high oil and
gold imports.
In the Annual Monetary Policy Statement for 2013-14, RBI has reduced the repo rate by 25 bps to 7.25% in
line with consensus expectations. As per RBI’s assessment, real GDP will grow at 5.7% while WPI inflation
is likely to average around 5.5% in FY14. In its guidance RBI continues to be cautious stating "overall, the
balance of risks stemming from the Reserve Bank’s assessment of the growth inflation dynamic yields little
space for further monetary easing".
Source for various data points: Bloomberg, Reuters, www.sebi.gov.in, www.rbi.org.in & Central Statistics
Office (CSO).
Equity
The equity markets rallied this month with the Sensex and Nifty up 3.5% and 4.4% respectively.
Mid-caps outperformed with the CNX Midcap Index up 5.6%. FMCG, Banks and Capital Good
sectors performed well, while IT and Metal sectors were laggards. Weak commodity prices,
particularly that of oil and gold, which have a positive impact both on the current account and
fiscal deficit, buoyed investor sentiment. Political activity remained in limbo with parliamentary
proceeding held up by the Coalgate scam.
International markets performed well with the US markets approaching all time high levels
supported by better than expected jobs data. The Dow Jones and NASDAQ were up about 2%
each. European markets also did well with the CAC 40 Index up 3.4%, the DAX up 1.5% while
the FTSE 100 ended flat. Asia performed well with Taiex, Hang Seng and Jakarta Composite up
about 2% each. The Kospi and Shanghai Composite fell about 2% each while the Nikkei was the
star performer up by 12% for the month.
Commodity prices continued to correct during the month with copper down about 6.5% while
aluminum, zinc and lead fell by 2-4%. Crude and gold fell sharply by 7-8%. Crude fell on
concerns that the shale gas revolution in the US would dampen oil demand. Gold retreated for
the fifth straight month as investors seemed to be shifting towards riskier assets on the
expectation that the global economy was recovering and stimulus plans would be checked. Prices
also fell on news that Cyprus was planning to sell some of its gold holdings to finance a bailout.
The Sensex currently trades at a PE of 14x one-year forward earnings and is moderately below
its long-term average valuation. Averages hide more than what they reveal and this is true for
the current markets. A 14x P/E for the markets is a result of very high P/Es for FMCG and few
other companies and much lower P/Es for a large number of other companies.
The future course of the markets will depend on how the economy performs in FY 13-14. The
government is now working hard to resolve the bottlenecks in the economy and as and when
these bear fruit, the markets should respond given the widespread under-valuation. While there
is a widespread expectation that the worst of the current and fiscal deficits are behind us, the
risks are a spike in oil prices and a disruption in capital flows in this period of adjustment.
In such an environment, a phased approach to equity investments is recommended.
Disclaimer: This Update is for information purposes only and is not an offer to sell or a
solicitation to buy/sell any mutual fund units/securities. The information/ data herein alone is not
sufficient and should not be used for the development or implementation of an investment
strategy. It should not be construed as investment advice to any party. The statements
contained herein may include statements of future expectations and other forward-looking
statements and involve known and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those expressed or implied in such
statements. If you are not the addressee, or the person responsible for delivering it to the
addressee, any disclosure, copying, distribution or any action taken or omitted to be taken in
reliance on it is prohibited and may be unlawful. No part of this document may be duplicated in
whole or in part in any form and/or redistributed without prior written consent of the HDFC
Mutual Fund/ HDFC Asset Management Company Limited. The recipient(s) before acting on any
information herein should make his/their own investigation and seek appropriate professional
advice and shall alone be fully responsible / liable for the decision taken. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED
DOCUMENTS CAREFULLY.