Securities and exchange board of india




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Brazil:





    1. Seasonally adjusted Real GDP of Brazil shrank and reported a negative growth of (-) 0.6 per cent (Q-o-Q) in the second quarter of 2014, as per the estimates by Instituto Brasileiro de Geografia e Estatística. In comparison with Q2 of 2013, the GDP shrank by 0.9 per cent in Q2 of 2014. In 2013, the GDP grew modestly at 2.3 per cent. Brazil has posted a high current account deficit of USD 7.907 billion in September 2014. Brazil's budget deficit widened to 69.4 billion Reals (USD 28.4 billion) during January-September 2014. Recent elections in Brazil paved the way for a second term for President Dilma Rousseff. The government now faces the uphill task of pulling Brazil out of recession, slowing above target inflation and preventing a further deterioration of fiscal accounts that threatens the country’s investment grade status.




    1. Brazil’s annual inflation rate (IPCA) marginally decreased from 6.75 in September 2014 to 6.59 per cent in October 2014. On monthly basis, the benchmark index decreased to 0.42 in October 2014 from 0.57 per cent in September 2014. Brazilian Central Bank has increased the benchmark Selic rate by 0.25 per cent to 11.25 per cent. Brazil has lifted domestic fuel prices for the first time in 2014, raising the spectre of even higher inflation. Brazil's unemployment rate did not change significantly and stayed at 4.7 per cent in October 2014 from 4.9 per cent in September 2014.

Russia:





    1. According to estimates by the Russian State Statistics Service (Rosstat), quarterly real GDP of Russia grew at 0.8 per cent (Y-o-Y) during second quarter of 2014. GDP grew by 0.9 per cent during Q1 of 2014.  International Monetary Fund (IMF) has estimated that Russian GDP growth would be 0.2 per cent in 2014 which is 1 per cent lower than its pre-crisis estimate. The International Monetary Fund slashed its economic growth forecast for Russia in 2015 to 0.5 per cent from 1 per cent, citing geopolitical uncertainty and recommended the Bank of Russia to continue tightening monetary policy to tame inflationary expectations. The World Bank has also lowered its outlook for Russia’s GDP growth to 0.5 per cent in 2014 from the previous forecast of 1.1 per cent.




    1. As regards price situation, the annual CPI inflation rate inched up to 8.3 per cent (highest in three years) in October 2014 from 8.0 per cent in September 2014. Month-on-Month CPI inflation rate was recorded at 0.8 per cent in October 2014 due to high food inflation. In September, the Central Bank of Russia increased its forecasts on inflation in 2014 to 7.5 percent, "or higher" from the earlier outlook of 6.5 percent. A sharp fall in the price of oil, stricter sanction on a large number of Russian companies has led to weakening of ruble which in turn added to the accelerating consumer prices. Therefore, the Central Bank of Russia has increased the benchmark 'Key rate' to 9.5 per cent from 8.0 per cent. The unemployment rate in Russia increased marginally from 4.8 per cent in August 2014 to 4.9 per cent in September 2014.

China:





    1. Gross domestic product of China grew by 7.3 per cent (Y-o-Y) in Q3 of 2014 as compared to 7.5 per cent (Y-o-Y) in Q2 of 2014, according to China's National Bureau of Statistics. The Quarter on Quarter (Q-o-Q) growth for Q3 of 2014 was registered at 0.7 per cent as compared to 1.8 per cent in Q2 of 2014. The International Monetary Fund (IMF), in its Asia and Pacific Regional Economic Outlook, has retained its 2014 economic growth outlook for China at 7.5 percent, but has estimated that China's GDP will fall to 7 percent in 2015 because of slow implementation of reforms and policies to limit local government debt and investment credits.




    1. The HSBC China manufacturing Purchasing Manager Index (PMI) increased marginally from 50.2 in September 2014 to 50.4 in October 2014, signalling a fractional pace of improvement in health of China's manufacturing sector. On the other hand, HSBC China Composite Output index eased from 52.3 in September 2014 to 51.7 in October 2014.




    1. As regards price situation, the annual Consumer Price Inflation in China was recorded at 1.6 per cent (Y-o-Y) in October 2014 (unchanged from September 2014). The food prices went up by 2.5 per cent, while the non-food prices increased 1.2 per cent. The month-on-month change in consumer prices during October 2014 was nil. On average from January to October 2014, the overall consumer prices were up by 2.1 percent over the same period of 2013.


  1. Review of Global Financial Markets:




    1. At the end of October, stocks jumped globally after the Bank of Japan’s unexpected monetary policy decision. Positive global economic news enhanced the confidence in the global economy and helped the investors regain confidence. Due to strong performance of stocks in emerging markets with a few exceptions like Russia, stocks for emerging markets largely remained cheerful. However, financial markets witnessed mixed trend during October 2014.


Stock Market:

    1. During the month of October 2014, US stocks reached all-time highs, despite the Federal Reserve bringing Quantitative Easing to an end. Stronger macroeconomic data and encouraging corporate earnings were some of the important factor that helped the stocks to regain momentum. Turkish and Indian stock increased mainly due to a plunge in oil prices. Chinese markets gained on expectations that the government would relax monetary policy, introduce more reforms in state-owned enterprises, and take other steps to support the slowing economy. However, unsatisfactory data from Germany’s industrial sector was a major reason for decline in its stocks. Colombian stocks also witnessed a fall during the period under review.




    1. MSCI World Index, which is a leading indicator for tracking the overall performance of stock markets in developed markets, witnessed an increase of (0.57 per cent) during October 2014 in comparison to a fall observed in the previous month. Further, the MSCI Emerging Market Index also increased by (1.07 per cent) during the period under review (Chart 3).



Chart 3: Movement in MSCI World and Emerging Market Index

Source: Bloomberg

Bond Market:

    1. During October 2014, long-term Treasury bond prices of almost all major developed economies such as United States, European economies viz., Germany, United Kingdom and Spain rose amid increased demand. The long-term Treasury bond yield of United States moved lower by 6.2 per cent on account of increased demand. Investors bought U.S. government debt even though they expected tightening of Federal Reserve monetary policy. The bond yield of 10 year government bonds of Germany, United Kingdom, United States and Spain fell by 11.2 per cent, 7.3 per cent, 6.2 per cent and 3.0 per cent, respectively.




    1. Among emerging market economies, bond yield of 10 year government bond of China, India, Brazil and Russia fell by 5.9 per cent, 2.7 per cent, 1.9 per cent and 0.9 per cent, respectively during October 2014. Demand for government bonds of Brazil saw a high demand on account of the positive sentiment of the presidential elections in the country.


Currency Market:

    1. During October 2014, major currencies across the globe depreciated against US dollar. Japanese Yen, GBP and Euro depreciated by 2.43 per cent, 1.41 per cent and 0.81 per cent, respectively as Federal Reserve maintained a loose monetary policy and indicated that the interest rates will remain low for considerable period.




    1. Among emerging markets, Russian Rouble, Brazilian Real and Chinese Renminbi depreciated by 8.60 per cent, 0.98 per cent and 0.41 respectively against USD. On the contrary, Indian Rupee exhibited an appreciation of 0.89 per cent against USD (as per the closing price of the interbank foreign currency trade) during the month under the review.



Chart 4: Movement in 10 year bond yield of major countries

Source: Bloomberg
Chart 5: Movement of major currencies against US Dollar ($)
Source: Bloomberg Note: Exchange rate represents the closing price of the interbank foreign currency trade.
Trend in Market Indices:

    1. Major stock indices all over the world exhibited mixed trends during October 2014. Hang Seng of Hong Kong witnessed an increase of 4.64 per cent during the month, followed by All Ordinaries of Australia, which witnessed an increase of 3.93 per cent and Nasdaq Composite of USA (growth of 3.06 per cent). On the contrary, the steep decline was witnessed by CAC 40 of France (4.15 per cent), followed by Dax of Germany (1.56 per cent) and FTSE 100 of UK (1.15 per cent).




    1. As regards the emerging market indices, ISE National 100 of Turkey performed well in October 2014 and increased by 7.53 per cent, followed by S&P BSE Sensex of India (4.64 per cent) and Shanghai SE Composite IX of China (2.38 per cent). On the contrary, major decline in the emerging markets was witnessed by Hermes of Egypt (7.13 per cent), followed by Budapest Stock Exchange of Hungary (3.16 per cent) and IGBC General of Colombia (2.75) during the month of October 2014 (Annex - A1).



Chart 6: Trend in Major Developed Market Indices

Source: Bloomberg

Chart 7: Trend in Market Indices of BRIC Nations

Source: Bloomberg

Market Capitalisation:

    1. Market capitalisation of major stock exchanges at the end of October 2014 is given in table A6 and is illustrated in Chart 8. The market capitalisation of stocks listed in developed as well as developing markets exhibited a mixed trend during the month. During October 2014, among major developed markets, the market capitalisation of NYSE Euronext (US) grew by 11.9 per cent, followed by Australian Stock Exchange and Hong Kong Stock Exchange which grew by 4.7 per cent and 3.8 per cent, respectively. Market capitalisation of other major stock exchanges among developed nations demonstrated a declining trend.




    1. As regards the major emerging markets, the market capitalisation of National Stock Exchange grew by 4.1 per cent during October 2014, followed by Bombay Stock Exchange (3.8 per cent) and the Shanghai Stock Exchange (3.2 per cent). On contrary, the market capitalisation of Saudi Stock Market - Tadawul fell by 7.6 per cent during the month under review, followed by Korea Exchange and Mexican Exchange that fell by 3.2 per cent and 1.1 per cent, respectively.


Chart 8: Trend in Market Capitalisation of Major Exchanges (US$ Million)

Source: World Federation of Exchanges

Derivative Market:

Among the major stock exchanges covered in the review (Table A4 & A5), during October 2014, the notional monthly turnover of index futures in CME Group was USD 6,851,780 million, followed by EUREX (USD 2,426,920 million) and China Financial Futures Exchange (USD 1,858,900 million). As regards trading in stock futures, National Stock Exchange recorded notional monthly turnover of USD 90,319 million, followed by EUREX (USD 16,816 million) and Korea Exchange (USD 7,270 million). The notional monthly turnover in stock options for BM&FBOVESPA was USD 90,691 million, followed by EUREX (USD 82,116 million) and National Stock Exchange India (USD 44,009 million). In the case of Stock Index Options, Korea Exchange registered notional monthly turnover of USD 5,047,350 million, followed by CME Group (USD 2,543,470 million) and EUREX (USD 1,862,210 million).





  1. Review of Indian Economy


Output

    1. As per the provisional estimates of GDP for Q1 of 2014-15, GDP growth was registered at 5.7 per cent against 4.7 per cent in the corresponding period of Q1 of 2013-14. Agriculture sector maintained a growth of 3.8 per cent in Q1 of 2014-15, similar to that of 4 per cent in Q1 of 2013-14. Industrial sector growth showed a jump from -0.9 per cent in Q1 of 2013-14 to 4.2 per cent during corresponding period of 2014-15. Manufacturing sector showed a sub zero growth of (-) 0.7 per cent during 2013-14. Services sector showed a marginal increase in growth from 6.2 per cent to 6.8 per cent during the period under review. Organization for Economic Cooperation and Development (OECD) has estimated that India's GDP is expected to accelerate to 5.4 per cent in the year 2014-15 and 6.6 per cent for the year 2015-16


Exhibit 2: Quarterly GDP growth in India (Y-o-Y) (at 2004-05 prices)


Items

2012-13

2013-14

2013-14

2014-15

Q1

Q2

Q3

Q4

Q1

1. Agriculture & allied activities

1.4

4.7

4.0

5.0

3.7

6.3

3.8

2. Industry

1.2

0.6

-0.9

1.7

-1.2

-0.5

4.2

Mining & Quarrying

-2.2

-1.4

-3.9

0.0

-1.2

-0.4

2.1

Manufacturing

1.1

-0.7

-1.2

1.3

-1.5

-1.4

3.5

Electricity, Gas & Water Supply

2.3

5.9

3.8

7.8

5.0

7.2

10.2

3. Services

7.0

6.9

6.2

5.7

7.6

5.7

6.8

Construction

1.1

1.6

1.1

4.4

0.6

0.7

4.8

Trade, Hotel, Transport and Communications

5.1

3.0

1.6

3.6

2.9

3.9

2.8

Finance, Insurance, Real Estate & Business Services

10.9

12.9

12.9

12.1

14.1

12.4

10.4

Community, Social & Personal Services

5.3

5.6

10.6

3.6

5.7

3.3

9.1

Gross Domestic Product at Factor Cost

4.5

4.7

4.7

5.2

4.6

4.6

5.7
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