HINDUJA BANK (SWITZERLAND) LTD

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1 HINDUJA BANK (SWITZERLAND) LTD BUILDING WEALTH, ENABLING ENTERPRISE 9 July 2014 WEEKLY MARKET COMMENTS EXECUTIVE SUMMARY Michel Menoud The latest job report has confirmed the strong improvement of the labour market in the US. The main problem of the US economy was the decline of the participation rate (increasing discouraged persons able to work) and by the increase of the average duration of unemployment. The past few months, however, have been deeply reassuring as the decline of the number of people anchored in a form of long term unemployment has shown us that normal times are once again in sight. We have been positive on the US economy for a while now, defending it as the unique source of stability in the world, but we have to admit that we are quite impressed by its economic performance. The weather conditions of Q1 have affected the picture for the whole year, but GDP growth should reach a low 3%, given the stronger real underlying trend which continues to gain momentum. As the job market significantly improves, the reasons for maintaining an unconventional monetary policy diminish. Therefore, the slack in the economy is returning to their historical norms. The US economy has entered a new growth regime since the crisis of 2008, estimating a new trend growth rate. With the de-leveraging process almost done for households and the potential for the corporate sector to re-leverage, maybe the US economy could surprise structurally on the upside. The US economy is no longer in a context for which an extreme monetary policy (named unconventional by the central bank) is justified. Because the US economy is back on a robust trend, monetary policy should not be extreme but only accommodative. Thus, the consequences for financial markets is higher interest rates, and especially, higher expectations for the long term equilibrium rate. Therefore, the risk of a bond market correction is rising, as the long term growth of the nominal GDP is maybe underestimated. The LT bond yields in the US is probably mispriced by around 100bp. The strong bull run of US equities coupled with resilient commodity prices and low US$ bond yields has allowed EM equities to stabilise in relative terms. What is the next step? Should they start to outperform by now or should we expect a new weakness? The EM asset class is a delicate subject to mention. Many investors have played this asset class based on an economic scenario of a stabilisation of the Chinese economy as well as on a market scenario in which markets favour the laggards. The interest rates context is not the focus of investors when it matters with investing in EM equities. They accept the idea that the Fed could raise interest rates earlier than expected but that EM equities could outperform given the low positioning on this theme, their cheapness and the higher expected economic growth that is forecast for these countries next year. However, growth expectations continue to decline in the EM world and the negative trend is intact. It contrasts well with the dynamic in the developed world and this demonstrates therefore that the problem of the EM world is not cyclical nor global but structural and domestic. Cautious stance maintained.

2 FOREX Agostinetti Mattia EUR/USD Data and event lull on both sides of the Atlantic and is difficult to suggest any interesting short term trading idea in EUR/USD. Nevertheless, having a look at the mid-term technical outlook, we saw an interesting movement in the first half of May. These days move to corresponded to the 38.2% Fibonacci retracement and this has to be considered as a strong continuation pattern of the original move, from May s high at down to Even surprisingly good/bad economic data (the disappointing US GDP was a perfect example) only created brief fluctuation and we are therefore sure we will see interesting selling interests, which will increase once the area will be clearly broken. ECB policy may stay accommodative for longer, as indicated by Mr. Coeuré two days ago, turning soon the European currency from an asset toward a liability currency. The US yield short term curve has established an advantage compared to the EUR peripheral one, with the 2y granting higher returns on the USD, and the rest of the curve increasing its gap in favour of the greenback. This should increase further once banks take on TLTRO funds with the effect that EMU s bond market should become less attractive for foreign investors. They will automatically reduce their EUR-denominated holdings, putting further pressure on EUR. Strategy: go or stay short, add shorts below , with a mid-term objective at and possibly lower in the long term. EUR/CHF The SNB raised its inflation outlook for 2014 from 0% to 0.1% in its quarterly report in June. They are not expecting any rise in inflation pressure, this was only due to a base effect resulting from the inflation surprise in May (+0.2% yoy). Sorry to say, but if the target is a small but real inflation (between 1% and 2%) these are really sad numbers and are surely not having much effect on EUR/CHF, which is currently driven by global risk sentiment only. In conclusion, almost 3 years after its introduction, the 1.20 minimum exchange rate is still relevant. Strategy: stay out, we are probably not seeing the cross going above before mid next year. USD/CHF Considering what said above, the forecast is for a higher USD against CHF, with a mid-term objective around and a possible in the long term (1 to 2 years). Strategy: go or stay long. VIEWS FROM THE EQUITY TRADING FLOOR Ben Morton The S&P managed to keep its positive momentum going over the Independence Day weekend in the US and has now furthered its record highs to 1985 before consolidating a touch lower going into the start of earnings season. At this stage the obvious 2000 benchmark is a nearby reachable horizon and it seems a selffulfilling prophecy it should eventually print there. At that stage we could get a basket of stop loss buyers coming into the market to cover shorts, which may end with the S&P printing a flattering high in a volatile market. If it does seemingly overshoot to a new record and the VIX soars from its current low levels, we would not chase the offer for a declining risk/reward. At that level, we would expect some reaction selling, but again we come back to our support levels. They continue to outweigh the resistance

3 levels heavily. On the offer we are seeing a hesitant and lonely few, whereas the bid side seems to be offering the mantra where do you put in your next bid? rather than do you put in a bid?, with the figures 1966, 1956, 1919, 1888 and 1831 all touted in various quarters as anything between soft support and impenetrable. We would never label a market or market trend as impossible to break, though the headlines we are seeing from the Fed and the ECB in particular continue to encourage us to stick to our guns. There will be a day when we decide the price exceeds the valuation, but that is not now and we remain bullish.

4 HINDUJA BANK (SWITZERLAND) LTD BUILDING WEALTH, ENABLING ENTERPRISE 9 July 2014 WEEKLY MARKET COMMENTS INDIA SUMMARY Benchmark indices edged higher earlier in the week on expectations of a growth oriented Budget and decline in crude oil prices. The S&P BSE Sensex and the 50-unit CNX Nifty, both hit record high. Markets retreated post the government announced the railway budget on Tuesday, 8 July It raised worries the government would slash spending when it unveils Union Budget on Thursday, 10 July The railway budget has revised up the plan outlay to Rs bn for , up 1.8% compared with the Interim Budget's estimate of Rs bn, but lower than market's expectations. As a result, the S&P BSE Sensex remained almost unchanged at 25,582 on 8 July Shares of IT companies ended firm on expectation of strong revenue growth during the recently (April-June) concluded quarter. Oil and Gas shares fell after the Oil Minister Dharmendra Pradhan decided not to raise prices of kerosene and LPG. IDFC surged after Morgan Stanley raised its price target for the company to Rs 175 from Rs 115. Union Budget for is a major event next week. The week also marks the beginning of the Q1 June 2014 corporate earnings season. INDUSTRY NEWS & TRENDS Stricter norms by American drugs regulator USFDA will lead to higher compliance costs for Indian pharma, although these enforcements are not country specific but more on account of "cultural differences", said a report by global credit rating agency Crisil. The companies have little choice but to invest in bringing compliance processes up to speed, it said, adding that the cost of not doing so (warning letters/import alerts may impact both current revenues and future pipeline) will be far higher. Sector Auto BFSI Construction Consumer Goods Average trend for the week Iron ore exports have shown a whopping 40.5% decline in the first quarter ended June 30 this year at 1.93 million tonnes. During the corresponding quarter last year, exports stood at 3.26 million tonnes. The decline is largely attributed to global slowdown in spot market prices and better prices in the domestic market owing to ban in Odisha, which led to hike in prices. Energy Industrial Manufacturing IT Metals The Narendra Modi-led government will initiate measures to turn-around the Highways sector in 2 years time by garnering funds to the tune of Rs 1 trillion in a year. Telecom

5 ECONOMIC AND POLITICAL HEADLINES Ahead of his maiden Budget, Finance Minister Arun Jaitley said he favours controlling fiscal deficit through expansion of economy and tax buoyancy rather than contracting expenditure. "Fiscal deficit has to be maintained at acceptable levels," he said, but refused to give target for saying his Budget on Thursday will spell out those numbers. Manufacturing and services sectors in India expanded at a faster pace than China during June while emerging market output registered the strongest upturn in business activity since March quarter of 2013, an HSBC survey said. The HSBC Emerging Markets Index (EMI), a monthly indicator derived from Purchasing Managers' Index surveys, stood at 52.3 in June, up from 50.6 in May, signalling the sharpest rate of expansion since March Private weather forecaster Skymet lowered its rainfall forecast to 91% of the average rainfall of last 50 years against an earlier projection of 94%, both considered sub-normal. Skymet cut chances of normal rain from 34% to 10%. The forecaster also raised the probability of drought across the country to 60% as against its earlier estimation of 25%. Chances of drought in northwest India is at 80%, followed by central India at 75% and south at 50%. India has agreed to extend the benefits of special economic zones (SEZ) and National Investment and Manufacturing Zones (NIMZ) to the proposed industrial parks which would be developed in collaboration with China. The MoU would facilitate Chinese investments in India and it would help in bridging the ballooning trade deficit, which now average around $35 billion a year. The bilateral trade totalled to $65.47 billion last year. SEZs and NIMZs enjoy tax related benefits. The SEZs enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years thereafter and 50% of the ploughed back export profit for next five years. CORPORATE NEWS Tata Starbucks, the 50:50 joint venture between Starbucks Coffee Company and Tata Global Beverages Ltd, opened its first store in Chennai, taking the total number of company's outlets in the country to 50. The company, which now has stores operational across five cities, will continue to open more stores and thoughtfully grow in the market, Tata Starbucks said. The country's largest two-wheeler maker Hero MotoCorp reported 7.82% increase in sales at 541,594 units in June "With the commissioning of the plant, which has an installed capacity of 750,000 units, Hero MotoCorp now has a total annual installed capacity of 7.65 million units of two-wheelers," it added. Bajaj Auto reported 3% increase in motorcycle sales at 262,202 units in June BAL said exports were up 12% during the month at 135,074 units as compared to 120,399 units in June TVS Motor Company reported 23% jump in total sales at 202,177 units in June Domestic two-wheeler sales stood at 168,521 units last month, up 23%, from 137,331 units in the year-ago period. ONGC Videsh Ltd (OVL), overseas arm of state-owned ONGC, has raised $ 2.23 billion from global markets through long term bonds to refinance loans for acquiring stake in oil field in Mozambique.

6 INDICES WEEKLY PERFORMANCE Asian Indices Weekly Performance Var. % S&P BSE Sensex 25,582 25, China Shanghai Comp 2,064 2, Hong Kong Hang Seng 23,541 23, Indonesia Jakarta Comp 4,989 4, Japan Nikkei ,314 15, Malaysia KLCI Comp 1,893 1, Pakistan Karachi ,498 29, Philippines PSEi 6,949 6, South Korea Kospi 2,007 1, Singapore Straits Times 3,283 3, Sri Lanka All Share 6,566 6, Thailand SET 1,508 1, Indian Benchmark Indices Weekly Performance Var. % S&P BSE Sensex 25,582 25, CNX Nifty 7,623 7, S&P BSE 100 7,718 7, S&P BSE 200 3,115 3, S&P BSE Smallcap 10,128 10, CNX Midcap 10,952 11,

7 Nifty Gainers & Losers Weekly Performance Var. % Sun Pharma ITC IDFC Infosys 3,310 3, Asian Paints Jindal Steel Bajaj Auto 2,170 2, United Spirits 2,296 2, Coal India IndusInd Bank The information in this publication was developed using data which Hinduja Bank (Switzerland) Ltd assumes to be accurate; nevertheless, Hinduja Bank (Switzerland) Ltd accepts no liability and offers no guarantee. The availability of such information does not constitute a recommendation to buy or sell any of the securities discussed therein. Statements made in this publication can be changed without prior notice. Moreover, the content is not intended for individuals (or entities) who (which), by reason of their nationality or domicile or for any other reason, are subject to foreign regulations prohibiting access to banking services or investment instruments via one or several distribution channels, or prohibiting or restricting the use of any information provided in this document.

HINDUJA BANK (SWITZERLAND) LTD

HINDUJA BANK (SWITZERLAND) LTD BUILDING WEALTH, ENABLING ENTERPRISE October 25, 2013 DAILY MARKET COMMENTS INDIA SUMMARY Key benchmark indices edged lower in choppy trade on last trading day of the week