wealth management October 17, 2005 Equities Market Overview Sensex & Weekly FII Flows l The indices, having sprinted at a scorching pace for 40 8,600 a better half of the year witnessed bouts of volatility 8,550 in the past two weeks. Given the sharp run up in the 20 8,500 past 3 months, the correction was not entirely unforeseen; apprehensions seem to have got 0 8,450 further heightened by the negative sentiment 07-Oct 11-Oct-05 13-Oct-05 14-Oct-05 8,400 -20 across global markets. The Sensex lost 3.4% to 8,350 close the week at 8202 and the Nifty ended at 2484, -40 weaker by 3.5% for the week. 8,300 -60 8,250 l However, unlike last week, the selling was broad 8,200 based, as the mid-cap and small-cap segments of -80 FII flows(in $Mln) Sensex 8,150 the market also witnessed profit booking, which is evident from the 4% and 6% weekly losses -100 8,100 registered by the respective indices (on the BSE). Source: SEBI & BSE l While our markets may have corrected a good deal Sensex & Nifty Performance (YTD) over the last fortnight, this time around, it wouldn't be justified to single out the Indian stock markets. 9,000 2,700 This is because profit booking has been witnessed across markets, with most of the developed and 8,500 Sensex(LHS) Nifty (RHS) 2,600 emerging world stock markets having lost 2% to 2,500 8,000 10% from their peaks in the last fortnight. 2,400 7,500 2,300 l The Indian economy has blazed its way to the top of 2,200 7,000 the growth charts once again. Last week, it was 2,100 reported that the economy grew by an estimated 6,500 2,000 8.1% in the first quarter of FY06. Only China is 6,000 growing at a faster clip. India and Japan are, 1,900 perhaps, the only two major economies doing 5,500 1,800 better than what was expected of them earlier in the Jan-05 Mar-05 May-05 Jul-05 Oct-05 year. The recent growth spurt has ensured that India's share of world output has increased - from Source: BSE & NSE 4.3% in 1990 to 5.8% in 2004. Over the past two years, according to the IMF, India has accounted for 20% of Asian growth and 10% of world growth. Annualized Returns (in %) as on 13th October, 2005 l Equities have outperformed other asset classes Index Name 1Yr 2 Yrs 3 Yrs 5 Yrs over a longer period of time. Over the last few years, mid-cap funds have performed better than large- BSE Sensex 47.41 31.38 40.76 17.50 cap funds. Mid-cap stocks however are volatile over the shorter term. Investors should have a S&P CNX Nifty 41.86 28.04 37.67 16.60 blend of large & mid-cap funds in their total equity portfolio. Conservative investors who have never CNX 500 47.96 34.43 46.60 21.50 invested in equity markets should start their investment with funds having large-cap bias. BSE 200 43.28 31.27 43.56 21.80 Source: Crisil MFPT Source: Citigroup Investment Research and Citigroup Economic & Market Analysis Bond Market Overview: Trends in GOI Yield Curve l After ruling weak for the past few weeks, the bond 7.60% markets recovered towards the end of the week and 07-Oct-05 14-Oct-05 the yields eased by 2-5 bps across the yield curve. 7.10% l The market received yet another surprise on Thursday with the announcement that the Rs. 40 bn auction due between 18th and 25th October had 6.60% been cancelled. This comes on the heels of the RBI rejecting all bids under the Rs. 60 bn 2014 bond auction held recently. However, factors like the 6.10% impending RBI policy, the Fed and the spot rupee weighed the overall sentiment and consequently 5.60% the rise in the bond prices due to auction cancellation was curbed. 1Y 2Y 3Y 5Y 10Y 15Y l The wholesale price index (WPI) rose in the week Source: Reuters ending October 1st, mainly due to a rise in prices of ATF fuel, fruits and vegetables and manufactured products. The annual rate of inflation, stood at 4.24% as against previous week's 3.97%. Trends in Liquidity (Reverse Repos) l The yield on the 10-year benchmark, 7.38% 2015 200 5.12 bond eased by 5 bps to 7.13%. The yield on the 15- 180 5.11 year paper eased by 2 bps to 7.47% levels. 160 5.1 140 l The call rates remained soft on account of easy 5.09 liquidity conditions. The average amount placed 120 5.08 under RBI's reverse repo fell from Rs 244 bn in the 100 5.07 previous week to Rs 160 bn. The call rates closed at 80 5.10-5.25% on Friday 5.06 60 40 5.05 l The comments from RBI officials indicate that 20 5.04 domestic factors will be the prime drivers of interest rates. Over the near term, the market players would 0 5.03 keenly watch the RBI's mid-term Credit Policy for 10-Oct 11-Oct 13-Oct 14-Oct taking fresh cues on the interest rates. Reverse Repos( INR BLN) MIBOR(%) l Investors with a short to medium term horizon Source: Reuters should consider investing into liquid or short term floating rate funds, while investors with a slightly longer-term perspective may look at investing into long term floating rate funds. Given that the slope of the yield curve has medium term horizon, one can consider investing into short-term income funds. During the last 5-6 months, the steepness of the yield curve at the short end offered an opportunity to investors. Hence, despite a reverse repo rate hike over this period, short-term income funds have delivered a good performance compared to liquid & floating rate funds. Source: Citigroup Investment Research and Citigroup Economic & Market Analysis Fx Views for the week ahead CMN/Close 45,0000 Last 44.8462 l USD: Cyclical USD support has strengthened and High 10/13/05 44.9487 Average 43.6931 Low 07/21/05 43.1750 will likely be maintained over coming weeks as the 44,50000 market prices in higher expected inflation and interest rates. 44,0000 l JPY: JPY looks set to weaken further during Q4 as 43,5000 market rates move higher in the US and Europe. 22 02 09 16 23 01 08 15 22 01 08 15 22 01 08 16 23 01 08 15 22 03 10 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct l EUR: ECB hawkishness on inflation should support EUR against the crosses in coming months. USD/ INR Source - Bloomberg l GBP: Weak economic data continues to weigh CMN/Close . on GBP This week we rolled our short GBP Last 54.1563 High 04/20/05 57.2621 Average 53.8535 57,0000 Low 07/04/05 51.8272 exposure to short GBP/USD via options. 56,0000 55,0000 l CHF: EUR/CHF continues to move higher as interest rate expectations move in favor of EUR. 54,5000 53,0000 l SEK: SEK remains under pressure after inflation 52,0000 readings were in line with market expectations and 22 02 09 16 23 01 08 15 22 01 08 15 22 01 08 15 22 01 08 15 22 03 10 Riksbank Governor Heikensten was less hawkish 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct than expected. EUR/ INR Source - Bloomberg l NOK: Further oil price losses could weigh upon Last CMN/Close 54.1563 NOK in the sessions ahead. High 04/20/05 57.2621 57,0000 Average 53.8535 Low 07/04/05 51.8272 56,0000 l CAD: Increasing expectations for higher policy 55,0000 rates should support CAD going forward, despite a 54,0000 moderation in commodity prices. 53,0000 l AUD: AUD took a hit from surprisingly 52,0000 disappointing employment data out this week, but 22 02 09 16 23 01 08 15 22 01 08 15 22 01 08 15 22 01 08 15 22 03 10 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 Oct near term prospects against the crosses remain positive. GBP/ INR Source - Bloomberg Spot 1 Month 3 Month 6 Month 12 Month Currency 12-Oct Forecast Forward Forecast Forward Forecast Forward Forecast Forward USD / INR 44.79 44.85 44.95 45.00 45.10 44.00 45.21 43.00 45.43 EUR / INR 53.62 52.92 53.90 56.25 54.27 57.64 54.70 58.29 55.55 JPY / INR 0.39 0.39 0.39 0.42 0.40 0.44 0.40 0.46 0.41 HKD / INR 5.77 5.78 6.94 5.80 5.81 5.67 5.82 5.61 5.86 RMB / INR 5.54 5.54 5.57 5.60 5.61 5.59 5.67 5.67 5.83 Source : CitiFx Views and Citigroup Asian Economic Weekly Citibank Investment Services - Advantages l Advice from certified Investment Counsellors l Personalized investment plans to suit your needs l One common portfolio statement of all holdings l Automatic credit of dividends to your account l Transact through Citibank Online and 24-hour CitiPhone 24-Hour Exclusive CitiGold Lines: Ahmedabad : 2640-4653 Aurangabad : 563-4653 Bangalore : 2229-4653 Chandigarh : 508-4653 Chennai : 2858-4653 Coimbature : 9894014653 Delhi : 95124-256-4653 Gurgoan : 256-4653 Hyderabad : 5566-4653 Jaipur : 511-4653 Kochi : 9895014653 Kolkata : 2288-4653 Lucknow : 2231044 Ludhiana : 501-4653 Mumbai : 2834-4653 Noida : 255-4653 Pune : 401-4653 Surat : 553-4653 Vadodara : 232-4653 DISCLAIMER This report is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security and/or currency. 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