For the fortnight ending 04 th Feb 2011

Transcription

1 Government bonds Corporate bonds Equity Technical Analysis Knowledge page For the fortnight ending 04 th Feb 2011 She s leaving

2 Government Bonds Sovereign Yield Curve ` Feb Jan-11 4-Jan-11 In its monetary policy review on 25th January 2011, RBI raised repo rate and reverse repo rate by 25 bps to 6.5% & 5.5% respectively. Since mid- March 2010, RBI has cumulatively increased the repo rate by 175 bps and the reverse repo rate by 225 bps. RBI has also extended second Liquidity Adjustment Facility till 8th April, 2011 to manage tight liquidity situation. It also announced the additional liquidity support to scheduled commercial banks under the liquidity adjustment facility (LAF) to the extent of up to one per cent of their NDTL. RBI also raised the baseline projection of WPI inflation for March 2011 from 5.5% to 7.0%. The prices of bond were range bound during the fortnight, as market had already factored hike of 25 bps in repo and reverse repo rate by RBI. Liquidity situation improved along the fortnight, as bank borrowings reduced from the average of Rs. 100,000 crores to Rs. 60,000 crores. Signs of improvement in systemic liquidity provided support to prices. On 24 th Jan the yield on the benchmark 7.80%, 2020 bond hit a rose to 8.17% as investors sold the bond due to concerns of rate and also its looming illiquidity. But the bond has sustained gains on view the bond may remain the benchmark security for the rest of the fiscal and the government is unlikely to issue a new 10-year benchmark until the next financial year which begins April. Spreads 04-Feb Jan Jan (3.00) year year The fortnight started with RBI conducting monetary policy review on 25 th January, Rising inflation, tight liquidity situation and high global commodity prices put upward pressure on yields of government securities. There was no auction of government securities for the week ending on 28 th January, RBI conducted auction of government securities such as 7.17% GS 2015 worth Rs crores, 8.13% GS 2022 worth Rs crores and 8.30% GS 2040 worth Rs crores with cut-off yield coming at %, % & % respectively. The primary article inflation rose to four-week high 18.44% for week ending on 22nd January from 17.26% in previous week. India's food price index rose 17.05% and the fuel price index climbed 11.61% for the week ending on January 22 as compared to percent and percent in previous week respectively.

3 Treasury Bills The past fortnight saw auction worth Rs crores. First Auction held on saw Rs crores worth of 91 DTB auctioned at 7.23% & Rs crores worth of 364 DTB at 7.59%. The next auction was for Rs crores worth of 91 DTB at 7.19% and Rs crores worth of Rs 182 DTB at 7.49%. Apart from that there were SDL auctions worth 4000 crores. There was only one G-Sec auction in the fortnight. Treasury Bills Auction as on 25-Jan-2011 T-Bill Notified Amount Cut-off Rate 91 Day T-Bill 4000 Crs 7.23% 364 Day T-Bill 1000 Crs 7.59% Total 5000 Crs GOI auction result on 02-Feb-2011 T-Bill Notified Amount Cut-off Rate 91 Day T-Bill 5000 Crs 7.19% 182 Day T-Bill 1500 Crs 7.49% SDL auction result on 01-Feb-2011 Security Notified Amount Cut-off Yield Haryana SDL 600 Crs 8.50% Kerala SDL 1000 Crs 8.50% Maharashtra SDL 1200 Crs 8.50% Puducherry SDL 250 Crs 8.53% Punjab SDL 150 Crs 8.50% Rajasthan SDL 800 Crs 8.50% Total 4000 Crs GOI auction result on 04-Feb-2011 Security Notified Amount Cut-off Yield 7.17% Crs % 8.13% Crs % 8.30% Crs % Total Crs Total 6500 Crs

4 Corporate Bonds With the LAF coming in control we may see the short term rates to cool. The LAF from 1.15 lakh cr has come down to cr which is indicating that the liquidity crunch is over and so short term rates might see some respite. Banks and most of the insurance companies are sitting with cash or investing in liquid mutual fund or else investing in CP & CD. Almost 2,00,000 cr of CD s are maturing in the month of may and which is most likely to be rolled over, so with that it is expected that CD rates will touch level by march end. With RBI raising rates frequently and with no respite for inflation, and with rising commodity prices, its very difficult to see rates coming sown in near future. Some of the issues during the fortnight are as follows Name of the Issuer Coupon Rate Tenure Amount (in Crs) Sundaram Home Finance 10.05% 3years 200 HDFC 9.75% 3years GS ICICI Home Finance 9.70% 10 Years 50 Central Bank of India Upper Tier II 9.20% 15 Years 300 Commercial Papers Name of Issuer Coupon Tenure Amt (In Cr) PNB Bank 9.95% 364 Days 1000 Vijaya Bank 9.77% 364 Days 1000 Tata Capital 10.06% 90 Days 500 Volumes in the secondary corporate bonds market have been same. The volume on the corporate bond market has been 900cr. Many players are investing in short term paper as the corporate bond paper gets out of money due to rising rates. A few insurers and provident funds bought corporate bonds today. Power Finance Corp's 10-year bonds quoted at 9.12%-9.15% from %, from last week levels. Three-year private corporate bonds were quoted at 9.80%-9.90%, compared with 9.35%-9.40%%. Merchant bankers said a lot of banks and companies will tap the market in February and March to raise funds to meet their targets

5 Equity Technical Analysis BSE SENSEX (February 04, 2011) SENSEX IS TESTING ITS KEY SUPPORT ZONE % 0.0% % % 100.0% WEEKLY CHART % O N D 2008 M A M J J A S O N D 2009 M A M J J A S O N D 2010 M A M J J A S O N D 2011 M A Last fortnight, we had said that breach of confirms further downsides and expected a test of zone. As expected the Sensex has declined and is now tested the zone. Multiple supports are placed in the zone. The 23.6% Fibonacci retracement level of the up-move from 8047 (March 2009 low) to (November 2010 high) is placed at The 61.8% Fibonacci retracement level of the up-move from to is placed at Horizontal support from the May 2008 peak is placed at The Daily RSI is also now placed near its oversold levels. Hence, the area between is a key support zone where buying is expected to emerge. However, the Daily / Weekly charts are showing signs of weakness and a decisive Daily Close above the 4 th February 2011 high of are required to trigger a rally in the near term. In that scenario, the Sensex would initially test resistance placed around (26 th November 2010 Weekly Closing Trough) where selling pressure is likely to be witnessed. On the other hand, a decisive breach of would extend the ongoing corrective process further. For any clarifications, please contact technical-research@darashaw.com

6 Knowledge Page Exchange Traded Fund (ETF) Introduction ETF is an acronym for exchange traded fund. India ETFs are exchange traded funds that invest in stocks of Indian companies, precious metals and currencies. They are listed across the various stock exchanges of India. The main object of an Indian exchange traded fund is to capture the major sectors of the Indian economy. This aim is fulfilled by the India ETFs by owning a pool of diversified stocks of major companies of the Indian economy. soon followed by a similar product, namely the Toronto Index Participation Shares, trading on the Toronto Stock Exchange. This product, which tracked the TSE 35 and later the TSE 100 stocks, became highly popular. In the US, Standard & Poor's Depositary Receipts (SPDRs), or "Spiders," were the first ETF to hit the market. Since then, ETFs have flourished and form a significant portion of trading activity on US bourses. As of May 2008, there were 680 ETFs in the US, with $610 billion in assets, according to wikipedia.org. Features of an ETF In December 2001, India began its foray into the sphere of exchange traded funds. ETF Nifty BeES, the Nifty Benchmark Exchange-traded Scheme was the first Indian ETF launched in the country. Based on the S&P CNX Nifty Index, it was launched by the Benchmark Mutual Fund. Other India ETFs launched by Benchmark include the Junior BeES and Liquid BeES. A History of Exchange Traded Funds The bear market in the US in the first couple of years of the twenty-first century propelled investors towards Exchange Traded Funds, thanks to their combination of stability (similar to mutual funds) and ease of trading as stocks. ETFs have been traded in the US since 1993 and in Europe since They owe their origin to a product called Index Participation Shares that was traded on the American Stock Exchange and the Philadelphia Stock Exchange in 1989 as an S&P 500 proxy. This product had to be terminated on account of a lawsuit, but was The undivided interest that an ETF offers in a pool of securities makes it similar to the traditional mutual funds. However, unlike a mutual fund, shares in an exchange traded funds: Can be traded, just like the stocks, through a broker on a securities exchange throughout the day. Are not sold or redeemed at their net asset value. ETF shares are purchased and redeemed directly from the exchange traded fund by financial institutions. This is done only in large blocks, varying from 25,000 to 200,000 shares. These are called 'creation units'. The purchase or redemption of these creation units is generally in kind. Institutional investors contribute or receive a basket of securities of the same type and proportion that is held by the concerned ETF. In some cases, the substitution by cash may be required or permitted for purchase or redemption.

7 The portfolios of existing ETFs are transparent. This facilitates institutional investors in deciding the portfolio assets they should assemble for purchasing a creation unit. How are India ETFs Traded? The Indian ETFs are traded openly on exchanges. They are designed to track specific indices. Traded like other stocks, these funds are bought or sold through brokers on a daily basis. Unlike traditional equity funds, the Indian exchange traded funds are traded at real-time prices. Benefits of India ETF While it can be traded like a stock, it gives the additional benefits of mutual funds. Indian ETFs provide investors an opportunity to diversify their portfolios. Indian exchange traded funds provide investors easy liquidity with a short-term horizon. These can be traded intra-day at a price close to the net asset value. Risks of India ETF The expense ratio of an Indian ETF is higher than most of the domestic funds. Certain rules in India limit direct investment by the foreigners. The Indian market is found to be highly fragmented due to a lot of small caps. information technology, make Indian ETFs an attractive investment. Types of ETF s: Commodity ETFs Bond ETFs Index ETFs Exotic ETF s Leveraged and Inverse ETFs Futures-Based Commodity ETFs Exchange Traded Notes (ETNs) ETFs of ETFs Some of ETF s are: ishares S&P India Index Fund (INDY): Launched in 2009, it tracks the performance of the leading index for large companies listed on India's National Stock Exchange, so offers exposure to all sectors of the economy. PowerShares India Portfolio (PIN): Based on an index of 50 of India's largest companies listed on the National Stock Exchange and Bombay Stock Exchange. WisdomTree India Earnings Fund (EPI): Tracks a group of large Indian companies and filters out ones that aren't profitable. Despite these areas of concern, the vibrancy of Indian economy in the form of proficient sectors such as finance, healthcare and

8 At a Glance 04-Feb Jan 2011 NSE 14 day MIBOR day T-bill day T-bill yr G-Sec yr G-Sec year OIS CD/CP 1-yr Rate AAA spread AA + spread AA spread BSE Sensex Nifty Inflation (primary articles) 18.44% USD/INR WMA (Bn) 0 0 Forex Reserve ($)(Bn) Brent Crude ($) Scheme/Index Name NAV/Index Value as on 04-Feb-11 1 Months Annualized 3 Months Annualized 1 Years Annualized ICICI Prudential Gilt Investment Growth ICICI Prudential Gilt - Treasury Growth SBI Magnum Gilt Fund - Long Term Growth SBI Magnum Gilt Fund - Short Term Growth Tata Gilt Securities Fund Appreciation Tata Gilt Securities Short Maturity Fund Appreciation Templeton India G-Sec Fund - Long Term Plan - Growth Templeton India G-Sec Fund - Treasury Plan - Growth UTI Gilt Advantage Fund - Long Term Plan - Growth UTI G-Sec Fund Growth Place Mumbai Chandigarh New Delhi Bangalore Chennai Kolkata Vadodara Pune Hyderabad Lucknow Ahmedabad Bhubaneswar Singapore Contact Person Rishi Bhasin Varun Narang Paritosh Garga S.Barnidharan Chandrasekharan Prosanta Biswas Sangram Barot Gayatri Deshmukh Kishore Kumar Vinay P Singh Bharpreet Pahwa Kinshuk Roy Asif Shamsudin Phone Numbers Fax Numbers T his paper has been m ade for private circulation only. It has been prepared by DARASHAW, based on inform ation g e n e ra lly a v a ila b le to p u b lic o r s o u rc e s g e n e ra lly b e lie v e d to b e c o rre c t a n d re lia b le. DARASHAW does not w arrant the com pleteness or accuracy of the inform ation. It is notified that DARASHAW w ould not be responsible for any loss or dam age of action in any m anner based on this paper and