Markets lost about 5% this week and BSE Bankex lost more than 10%, Reality Index lost more than 19%. Both foreign & domestic institutional investors were sellers for the week, insurance companies were the major buyers in the market. Market moves were very volatile albeit with very low volumes in cash & derivatives market indicating lack of retail participation.

Outlook for the week

While currently we are witnessing FII outflows from India due to so called ‘Risk aversion’, over a longer term we would see renewed interest in the structural stories of Asia and India in particular as the concept of ‘Risk aversion’ gets re-defined. We expect continued volatility in the Indian market in the short term, though, led by the global financial crisis.  We expect more divergence in sector and stock performances, in a broadly volatile market. India, being a high savings economy with underleveraged households, is fundamentally least impacted. We are a domestic economy with a young demographic profile, unlike most other Emerging and Asian economies which are dependent on exports to the Western world for their growth. On the contrary, the falling commodity prices on account of global slowdown would benefit our economy. While a global slowdown will lower our growth as well, our ‘growth gap’ will remain intact or in fact improve over the rest of the world, mainly because of falling commodity prices and predominantly domestic nature of our economic growth. ____________________________________________________________________________________________ Debt Market Update      International       Central Bank actions   Bank Action Benchmark interest rate     Previous Current Bank of Japan Rate unchanged 0.30% 0.30% Philippine Central Bank Rate unchanged 6.00% 6.00% Turkish Central Bank Rate decreased 16.75% 16.25%    Source: Bloomberg       Economic indicators     Previous Week Current Week US 10 year benchmark treasury 3.76% 3.15% Crude oil WTI ($/barrel) 57.86 50.25           Source:  Bloomberg        Currency     Previous Week Current Week INR 49.01 50.02 EUR 1.27 1.26 JPY 96.35 94.85               Source: Bloomberg   Domestic   Liquidity   Call rates range Previous Week Current Week MIBOR range 7.16-8.11 6.29-7.01 LAF amount  average (Rs crore) -8151 13504            Source: Bloomberg   Domestic interest rates   Previous Week Current Week 3 month CP 13.75% 12.00% 91 day T-bill 7.05% 7.25% 5 year OIS 6.24% 5.50% 10 year benchmark gilt 7.47% 7.05%                 Source: Bloomberg     Outlook for the week Inflation fell for the second week to 8.90% giving the RBI more head room for aggressive monetary easing. The government bond and OIS markets continue to rally and are pricing in a 50 bps point cut in policy rates. Further weakening of INR saw it crossing the 50/ $ level this week. The reserve bank is believed to have intervened in the forex market to steady the currency. This coupled with the fact that a new reporting fortnight starts next week lead us to believe that call rates will remain firm during next week. Corporate bond spreads look extremely attractive across the curve. A steady supply pressure notwithstanding we expect spreads to narrow in the coming months, especially if the RBI backs up its assurance of ample liquidity with substantial action.