Market ReviewL&T Investment Management Ltd

May 2011

Macro EconomicsMacro Economics

IMF Pegs Japan’s Growth At 1.4%

IMF pegs Japan’s economic growth at 1.4% for 2011 from 1.6% expected earlier

Leaders of BRICS nations calls for a revamp of global monetary system that relied less on US dollar

US Federal Reserve leaves interest rates unchanged at 0-0.25% and discount rate unchanged at 0.75%

People’s Bank of China raises its benchmark 1-year lending rate to 6.31% from 6.06% and the 1-year

deposit rate to 3.25% from 3%

Portugal asks for EU bailout, joining Greece, Ireland

Russian central bank – Bank Rossii raises refinancing rate by 25 bps to 8.25% from 8%

Moody’s cut Ireland rating two levels to Baa3 from Baa1, outlook negativeMoody s cut Ireland rating two levels to Baa3 from Baa1, outlook negative

Fitch lowers China’s local-currency credit rating to negative from stable

Key Global Economic Data Releases

US

GDP grows at 1.8% annualized in first quarter of 2011 from 3.1% growth previous quarter

ISM Manufacturing for April falls to 60.4 from 61.2 last month

Advance Retail Sales grow 0.4% in March compared with rise of 1.1% last month

Euro-zone

UK GDP grows 0 5% q-o-q in first quarter of 2011 as against 0 5% drop previous quarterUK GDP grows 0.5% q o q in first quarter of 2011 as against 0.5% drop previous quarter

Euro-Zone PMI Manufacturing for April climbs to 58 from 57.7 last month

Euro Zone CPI estimate accelerates to 2.8% in April from 2.7% last month

iAsia

Japan's industrial production declined by 15.3% m-o-m in March from increase of 1.8% rise last month

China’s economy grows at 9.7% in first quarter of 2011 and inflation accelerates to 5.4% in March

South Korea’s GDP rises 1.4% in first quarter of 2011 compared to 0.5% growth in previous quarter

Key Domestic Economic Data Releases

Industrial production

Grows by 3.60% in February against

rise of 3.70% in January

Core sector

Posts growth of 7.40% in March

against 6.80% in February

Exports

Jump by 43.80% in March to

USD 29 13 bn

Source: Mospi

USD 29.13 bn

Continue…...

Headline WPI inflation

At 8.98% in March against 8.31% lastmonth

Rupee strengthens

By 0.82% over the month to Rs 44.22against US dollarg

Forex reserves rise by USD 6.2 bn toUSD 309.71 bn as on April 23 fromMarch 25

Source: Mospi

Bank credit

Stands at Rs 39,56,407 crs as on April8 growth of 0 5% over the fortnight8, growth of 0.5% over the fortnightand rise of 22% overthe year

Source: Bloomberg

Commodity Prices Rise

Reuters Jefferies CRB Index climbs

3.1% over the month to 371

MCX Comdex surges

6.55% during the month to 3,734

Oil prices jump

6.76% over the month to

USD 113 93 a barrelUSD 113.93 a barrel

Gold prices rally

9 17% during the month to Source: Bloomberg9.17% during the month to

USD 1,563.70 an ounce

Source: Bloomberg

Equity Market Review

Global Markets Rally

MSCI AC World climbs 3.86% whileMSCI Emerging Marketsg grises 2.83%

Dow Jones moves up 3.98%, whileFTSE climbs 2.73%

Nikkei rises marginally 0.97%, whileShanghai Composite falls slightly0.57%

Source: Bloomberg

Indian Equities Fall

Sensex, Nifty decline

By 1.59% and 1.44% respectively

Top 3 Losers – DLF, Infosys &

RCom

Drop 23 50% 10 22% andDrop 23.50%, 10.22% and

7.34% respectively

BSE Mid & Small cap o tperformBSE Mid & Small cap outperform

larger counterparts

Mid-caps index moves up 3.21%

hil S ll i d

Source: BSE/ NSE

while Small-caps index

surges 6.60%

Sectors in Limelight

BSE sectoral indices register

a divergent trend

FMCG, Healthcare and Auto gain the

most

With rise of 4.42%, 3.47% and

2.90 % respectively

Realty, IT fall the most

With decline of 6.71%, 6.17%t dec e o 6 %, 6 %

respectively

Source: BSE

FII Flows Remain Positive

FIIs

Remains net buyers in equities

worth Rs 3,680 crs (USD 853 mn

provisional) in April

MFs

Turns net sellers in equities worth

Rs 463.70 crs (USD 100 mn)s 63 0 c s (US 00 )

in April

Source: Sebi

Sensex Drivers

Major positive contributors Scrip Name Chg in Index Points

ITC, ONGC and Bharti

Major negative contributors

gITC 71

ONGC 40Bharti 35M&M 34

Infosys, RIL and L&TM&M 34

Hero Honda 15Infosys (202)

RIL (148 )L&T (38)L&T (38)

Jindal Steel (24)DLF (23)

Source: Bloomberg

Outlook

Markets are likely to focus on domestic events especially the earnings season togauge the impact of commodity and wage inflation on corporate numbers andprobable earnings cut for FY12 Sensex earnings. Election outcome in five states mayset future course of action on Government’s ability to carry forward the reformset future course of action on Government s ability to carry forward the reformprocess.

Sustenance of crude oil at higher levels is expected to prompt Government toi i f d ki f l i O hi b kd kincrease consumer prices of auto and cooking fuel prices. On this backdrop marketwill be closely watching the RBI monetary policy.

Nonetheless, India is expected to post good nominal GDP growth over medium, p p g gterm helped by domestic consumption demand, despite the issues like inflation/ oilprices etc.

Investors should continue to increase exposure in equities systematically throughInvestors should continue to increase exposure in equities systematically throughregular investment plans as valuations remain in fair value zone.

Debt Market Review

Global Bond Yields Fall

US 10-year treasury yield drops 18 bps

to 3.29%

Yield on 10-year European govt bond

declines 12 bps to 3.24%

Japan 10-year govt bond yield falls 5 bps to

1.21%

Source: Bloomberg

Indian Bond Yields Rise

Highlights

Bond yields rise across the curve amid

expectations of further interest hikeexpectations of further interest hike

Short-term rates register mixed performance

Spread

On 10-year G-sec and 10-year AAA bond

moves down by 6 bps at 95 bps

Source: Bloomberg

Short-term Rates Show Divergent Trend

Average Call Rates

Move down to 6.65% from 8.75%

Certificate of Deposits (CDs)

Yield on 3-month CD declines 57 bps

Treasury-Bills (T-Bills)

Yield on 91-day T-Bill rises 21 bps

to 8.88%

1-year CD yield moves up 35 bps

to 7.52%

364-day T-Bill yield climbs 12 bps

to 9.85%

Commercial Papers (CPs)

to 7.76% Yield on 3-month CP falls 103 bps

to 9.33%

1 year CP yield drops 39 bps1-year CP yield drops 39 bps

to 10.35%

G-Sec Yields Rise

10-year G-sec yield

Rises 14 bps to 8.13%

Yield on 4-year G-sec

Moves up 30 bps to 8.23%

Short term 1-year G-sec yield

Climbs 30 bps to 7.83%

Spread

On 1 & 10-year G-sec drops by 16 bpsSource: Bloomberg

to 30 bps

Corporate Bond Yields Move Up

10-year AAA yield

Rises 8 bps to 9.24% 100 1-yr AAA 5-yr AAA 10-yr AAA

CorporateBondYield Trend(in %)

5-year AAA yield

Climbs 7 bps to 9.31%

9.509.73

9.58 9.60

9249.32 9.24

9.31924

9.5

10.0 y y y

Short term 1-year AAA yield

Moves up marginally 2 bps to 9.6%

8.899.13

8.70

8.98

9.24 9.24

8.858.98

9.20 9.19 9.169.24

8.5

9.0

Spread

On 1 and 10-year AAA bond shortensSource: Bloomberg

Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11

by 7 bps to negative of 36 bps

Outlook

RBI has hiked policy rates by 50 bps on May 3.

Inflation would continue to remain predominant concern for debt market.

10-year benchmark G-sec yield can trade in a range of 8.00% to 8.50%.

Interest rates across all asset classes are expected to move up.

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