March recession broke. money. savings. loss. money. banking

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1 March 2015 $ $ $ DEBT Market Review edit mortgage ey es poverty s wealth bond investment bankruptcy Shares loss bond econom povert News/Announcements Money Market T-bills Market G-Secs Market Corporate Debt Market Currency Rates recession br bankruptc

2 News/Announcements Domestic news The Government met with the fiscal deficit target of 4.1 of GDP for the current fiscal. However, the fiscal consolidation roadmap was extended to 3 years with a target of 3.9 in FY16, 3.5 in FY17 and 3 in FY18. The Union Budget made clear the Government's focus towards supporting growth through infrastructure spending. The Reserve Bank of India kept the policy repo rate unchanged in its 6th Bi-monthly monetary policy announcement on 3rd Feb '15. However, in a surprise move, RBI lowered the policy repo rate by 25 bps to7.5 thereby taking the reverse repo to 6.5, effective 4th Mar '15 onwards. Gross Domestic Product (GDP) for Q3 FY15 as per the new series (base yr ) recorded a growth of 7.5 (y/y), lower than the 8.2 (y/y) growth recorded in Q2 FY15. As per the early estimates, GDP for FY15 is expected to grow by 7.4 as against 6.9 in FY14. The Consumer Price Index (CPI) series has been rebased to Under the new series, CPI inflation for Jan '15 came in at 5.1 (y/y), higher than the 4.3(y/y) in Dec '14 driven by a significant price rise in food items Industrial production expanded by 1.7 (y/y) in Dec '14 compared with a 0.1 (y/y) growth in FY14. Likewise, for the cumulative period (Apr- Dec '14), industrial production grew by 2.1 (y/y) vis-à-vis 0.0 (y/y) in FY14. Global news The economic report card for the USA was mixed in Feb '15. While there was a pickup in industrial production growth to 0.2 (m/m) in Jan '15, GDP growth for Q was revised downwards from 2.6 (q/q) to 2.2 (q/q). However, sentiments remained upbeat as Federal Chairperson, Ms. Janet Yellen stated in her testimony to the Congress that interest rate will be hiked only in mid In the Eurozone, investors cheered the news of Greece being granted an extension in its financial rescue plan. Further, Germany and Spain showed signs of growth. This is expected to support the Eurozone GDP with an estimated growth of 0.3 (q/q) in Q from 0.2 (q/q) in Q The Chinese recorded a GDP growth of 7.4 (y/y) in 2014, its slowest pace in 25 years. In an attempt to boost the, the People's Bank of China lowered the key interest rate. In the Sovereign Ratings Domain Moody's Investors Service downgraded Russia's sovereign credit rating to 'Ba1', the highest non-investment grade level, from 'Baa3', citing the conflict in Ukraine, plunging oil prices, and the weakened. Fitch Ratings affirmed Denmark's Long-term foreign and local Issuer Default Ratings at 'AAA' with a stable outlook driven by the nature of the which falls in the bracket of 'wealthy ' and absence of any threats to the Government account. Standard & Poor cut Greece's long-term sovereign credit rating to 'B-'with a warning that liquidity restraints on Greek banks would limit the time the new government has to clinch a deal 1 with its creditors. Fitch Ratings downgraded Austria's Long-term foreign and local Issuer Default Ratings to 'AA+' from 'AAA' with a stable outlook. The rationale for the downgrade emerged primarily from a high general government, which in turn is expected to remain elevated going ahead. Money Markets Overall liquidity conditions in the system remained smooth in Feb '15 as RBI conducted timely term repo auctions. RBI conducted 5 auctions of 14-Day term repos during the month for a notified amount of Rs. 81,500 Cr. which received bids to the tune of Rs lkh Cr. even as the RBI alloted a total of Rs. 81,528 Cr. the cut off yields for these 14-Day term repos were in the range of RBI also conducted singular 8-Day and 15-Day term repo auctions and two 13-Day term repo auctions during the month. In all, it offered a total of Rs. 85,000 Cr. in these term repo auctions which received bids upto Rs lkh Cr. However, the RBI alloted Rs. 80,348 Cr. (the 8-Day Term repo auction for a notified amount of Rs. 35,000 Cr. received lower bids to the tune of Rs. 30,335 Cr. which was subsequently allotted) in these term repo auctions where the cut off yield was between 7.76 and Thus, in all RBI alloted Rs lkh Cr. through the various term repo auctions with the average cut off yield being 7.8 in Feb '15. The overnight borrowings under the LAF amounted to a total of Rs lkh Cr. i.e. 31 lower than the aggregate borrowing of Rs lkh Cr. in Jan '15. However, the average borrowing under the LAF stood at Rs. 25,885 Cr., higher than the average borrowing of Rs. 17,054 Cr. in the previous month. Exhibit 1 given below depicts the dynamics of the domestic during the month of Feb '15. Exhibit 1: Repo Borrowings and MIBOR Repo Borrowings (Rs.crore) 24,000 20,000 16,000 12,000 8,000 4,000 - MIBOR remained largely range bound during the month and settled at 7.79 on 27th Feb '15 vis-à-vis 7.9 at the start of the month. After undergoing some fluctuations during the month, the average call rate settled at 7.25 significantly higher than the previous month's close of MIBOR rose higher to close at 7.79 against the close of7.53 in Jan '15 while still being lower than 9.01 as of end Dec '14 Repo Borrowings MIBOR Feb 1, 2015 Feb 27, 2015

3 Table 1: Movement of interest rates, FIMMDA Corporates issued Rs lkh of Commercial Paper during the period of April 15th Feb '15, 52 higher than the corresponding figure of Rs lkh Cr. raised through Commercial Paper in FY14. Exhibit 2: CP issuance during Apr- 15th Feb '15 CP issuance (Rs. crore) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 CP vol 180-days rate 364-days rate April 1, 2014 Feb 15, 2015 G-Secs Market Primary G-Sec Market (Domestic) In line with the G-Sec auction calendar for H2FY15, G-sec auctions aggregating to Rs. 26,000 Cr. were conducted during Feb '15. The yields of these auctions ranged from 7.69 to There are no auctions envisaged in Mar '15in the auction calendar. 10-yr G-sec yields started from 7.69 at the beginning of Feb '15 and remained largely in the band of 7.73 to 7.75 during the month. However, the benchmark yield edged upwards towards the end of the month and settled at 7.77 on 27th Feb '15. Exhibit 4 captures the movement in the 10-yr G-Sec yield in Feb '15. Exhibit 4: 10 yr G-Sec yield Exhibit 3: Issuance of Commercial Paper (fortnightly) 10,00,000 9,00,000 8,00,000 7,00,000 6,00,000 5,00,000 4,00,000 3,00,000 2,00,000 1,00,000 0 CP rates firmed upwards in Feb '15 relative to Jan '15. Yields for the 180 days paper settled 37 basis points higher at 9.23 on 15th Feb '15 than the yield of 8.86 on 30th Jan '15. Likewise, the 360 days paper also rose to 9.2 from the 8.98 close of Jan '15. T-Bills Market In accordance with the auction calendar, an aggregate of Rs. 56,000 Cr. was raised through T-bills in the month of Feb '15. Yields on the 91-day T-bills increased from 8.27 in the first auction to 8.35 in the third auction but settled 5 basis points lower at 8.29 in the fourth auction of the month. Two auctions for the 182-day T-bills were conducted which amounted to a total of Rs. 12,000 Cr. The first auction resulted in a yield of 8.25 while the second auction ended with a higher yield of On comparing with the yields of the previous month, the 182-day paper rose by 19 basis points from 8.14 in the last auction in Jan '15 to 8.33 in Feb '15. Rs. 12,000 Cr. was raised through two auctions of 364-day T-bills, each resulting in a yield of As per the T-bills auction calendar for Q4 FY15, Rs. 56,000 Cr. of T- bills is to be auctioned during the month of Mar '15 (Rs. 32,000 Cr. through 91-day T-bills, Rs. 12,000 Cr. through 180-day T-bills and 364-day T-bills each.) 6,34,101 (Apr-15th Feb) FY14 Volume Volume 9,69,200 (Apr-15th Feb) FY15 Twenty nine auctions of State Development Loans (10-yr securities) were conducted during the month of Feb '15 aggregating to Rs. 26,706 with Rs. 28,226 being allotted. The yields on these 10 year government paper averaged 8.06 across states lower than the 8.1 average yield in Jan '15. Orissa SDL of Rs. 1,000 Cr. auctioned on 24th Feb '15 resulted in the lowest yield of 8 while SDLs of Himachal Pradesh (Rs. 95 Cr.), Madhya Pradesh (Rs. 1,000 Cr.), Meghalaya (Rs. 75 Cr.), Punjab (Rs. 750 Cr.), Uttar Pradesh (Rs. 1,500 Cr. and Rs. 2,000Cr.), Telangana (Rs. 1,000Cr.) and West Bengal (Rs. 2,500Cr.) attained the yield of 8.08 Secondary G-Secs Market (Domestic) Exhibit 5 captures the yield curves at the end of the month for the last three months of Dec'14, Jan'15 and Feb '15. Exhibit 5: Benchmark Yield Curve Compared to a month ago level i.e. 30th Jan '15, the benchmark yield curve has risen across all maturities as of 27th Feb '15. The short term 0.25-yr paper recorded the maximum increase of 13 bps from a yield of 8.03 on 30th Jan '15 to 8.16 on 27th Feb ' Dec '14 30 Jan '15 27 Feb '15 Maturity

4 followed by the 0.5-yr and 4-yr maturity paper which increased by 12 bps to 8.15 and 7.76 over the corresponding close in Jan '15. The 10-yr maturity paper on the other hand closed almost flat at 7.73 against the close of 7.72 in Jan '15. The NSE G-sec Total Return Index was little changed from on 30th Jan '15 to on 27th Feb '15., thereby implying that investors' capital gains remained virtually status quo in Feb '15. Sovereign Bond Yields in the Global Context Table 2: Yields on different tenure bonds () Source: Economist, February 25th, 2015 $- 5-year yield There was limited movement in the short term instruments across countries in Feb '15 relative to the previous month. The short term yields ended almost unchanged in USA, Japan and China However, short term yields drifted marginally lower in the Eurozone (0.04) and Greece (0.04). The same increased significantly by 17 bps in India to 8.38 and by 3 bps in Brazil to 12.7 compared with the levels in Jan '15. Russia was the sole country in the sample to record a steep fall in short term yields (44 bps) to There was a mixed movement in the long term yields across the sample. Some countries like USA, Japan and Brazil wited an increase in long term yields to 2.03 (25 basis points), 0.37 (11 basis points) and 12.7 (3 basis points) respectively. Greece recorded the largest fall in long term yields as they declined to 9.1 as of 25th Feb '15 from 10.9 in Jan '15 followed by China with a 10 basis point fall to 3.25 while long term yields in the Eurozone only contracted by 2 basis points to 0.33 in Feb '15. In India, long term yields closed flat at 7.71 on 25th Feb '15. Corporate Debt Market Corporate Bonds 29 corporates issued a total of Rs. 10,031 Cr. through instruments during 1st Feb '15 to 13th Feb '15. Table 3: Select Debt Issuances between 1st Feb '15-13th Feb '15 3

5 The rating changes for the month of Feb '15 are given in Table 4. Table 4: Rating change during February '15 FIIs and Mutual Funds in Debt Markets Foreign Institutional Investments in the Indian Debt moderately significantly in the month of Feb '15 relative to Jan '15. A total of $ 2,113 mn was infused through FIIs in domestic securities, thereby marking a slowdown of 37 over the FII inflows in in Jan '15. Mutual fund investments in securities recorded a sharp increase of 99 over the corresponding figures in Jan '15. A total of Rs. 67,507 Cr. was invested by Mutual Funds in in the month gone by compared with Rs. 34,004 Cr. in during Jan '15. (Based on press releases made by Rating Agencies across India) Exhibit 5: AAA Spreads bps Exhibit 7: FIIs and Mutual Fund Investments in Domestic Debt Securities Rs. Cr. 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000-50,680 50,101-1,445 3,425 67,868 3,829 66,107 31,917 23,417 44,586 60,969 34, ,507 2,674 2,759 2,920 3,349 18,787 2,320 1,900 2,113 1, US $ mn Maturity (yrs) 31 Dec '14 30 Jan '15 27 Feb '15 The corporate bond spreads across the various maturities ended mixed in Feb '15 relative to Jan '15. The largest increase between spreads in Feb '15 was seen in the 2 yr paper (6 bps) followed by the short term 1 yr paper (5 bps). The long term papers of 9 yr and 10 yr maturity underwent an increase of 2 bps. Corporate bond spreads fell the most for the long term 5 yr paper (11 bps) followed by the 4 yr paper (9 bps) and 6 yr paper (7 bps) versus the close in the previous month. Rs. 118,781 was traded through corporate bonds in the month of Jan'15 higher than Rs. 103,025 traded in the previous month. A total of 7,293 transactions took place during the month. Volume of trade for the cumulative period of Apr-Jan '15 increased by 3.9 and volume of trade recorded a 9.5 growth over the corresponding period of the previous fiscal. Source: NSDL, SEBI Mutual funds in Debt Securities Currency Rates Rupee was largely range bound during Feb '15. The exchange rate moved from Rs at the start of the month and depreciated to Rs in the second week of Feb '15. However, the regained ground and appreciated towards the end of the month on the back of optimism surrounding the Union Budget and firmer FII inflows in the capital s. The exchange rate eventually settled at Rs on 27th Feb '15. The trend for the Rs/ was almost identical to that of the Rs/$ in Feb '15. While Rupee opened at Rs against the Euro in Feb '15, it weakened to Rs in mid Feb '15 before recovering in the second half of the month and finally settling at Rs On an average, INR appreciated by 0.3 versus the USD and 3.1 against the European Euro in Feb '15. Exhibit 8: Rupee movement FII inflows in Debt Securities Table 5: Trading in Corporate Bonds Source: NSDL, SEBI Corporate Bonds- Confidence Index The Barron's Confidence Index recorded an improvement as the index moved from 77.3 in Jan '15 to 78 in Feb '15. This suggests that consumer confidence soared in the month gone by. (This index is a ratio of the average yield- to- maturity of the best grade bonds list compared to the average yield-to-maturity of the intermediate grade bond list. The ratio is higher and the bond yield spread narrower as the confidence index rises when investors are confident about the ). Rs/$ Table 6: Currency Rates Aug 1, 2014 Feb 27, 2014 Rs/$ Rs/Euro Linear (Rs/$) Rs/Euro

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