Source- Ministry of Commerce

Imports on the other hand, registered a growth of 23% for the month of June to achieve the imports of USD 28.3 billion. Oil imports in June went up 26.5% at USD 8.35 billion year on year, while non-oil imports were valued at USD 19.94% and therefore registering a gain of 21.5% on y-o-y basis. As the IMF raised the outlook for the Indian economy growth, energy consumption as indicated by oil imports too kept a fast pace.

The trade deficit registered a marginal decline and stood at USD 10.55 billion for the month under review. Moreover, the trade deficit for April - June, 2010 has been estimated at USD 32.267 billion which is higher than the deficit of USD 23.475 billion during April -June, 2009. Though the growth in India's exports slowed marginally in June but expansion in imports moderated even more sharply and therefore bringing the deficit down from USD 11.3 billion for the month of May. The current growth in the exports is expected to slow down modestly later in the year but may again rebound in next year.

IIP

Index of Industrial Production for the month of May 2010 registered a growth of 11.5% as compared to the level in the month of May 2009. The growth was much lower than the market expectations of around 16%. IIP index for May 2010 was at 312.6, lower than April 2010 figure of 313.8. Mostly, the index attains a growth of 5-6% between April and May and therefore this came as a surprise for the investors.

The slower growth can be largely attributed to lower production in four manufacturing sub-sectors – food products, jute sector, machinery and transport equipment. The global concerns are likely to continue to be a downside risk for IIP growth. The Mining, Manufacturing and Electricity sectors registered growth rates of 8.7%, 12.3% and 6.4% in the month of May 2010 compared to May 2009. In terms of industries, as many as fifteen out of the seventeen industry groups have shown positive growth during the month of May 2010 as compared to the corresponding month of the previous year. This indicates that the industrial activity is broad based and also strengthens the prospects of a sustainable growth. Further, significant growth in the capital goods and stable performance of intermediate goods augurs well for the overall industrial activity going ahead.

Further, moderation in the current IIP growth number should not be a cause for concern as the industrial activity seems to be on a consolidation phase. The base effect factor is likely to continue to impact the IIP numbers in the near term and IIP is expected to have grown close to 10% during June-10.

As per Use-based classification, the Sectoral growth rates in May 2010 over May 2009 are 8.7% in Basic goods, 34.3% in Capital goods and 10.2% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 23.7% and 2.4% respectively, with the overall growth in Consumer goods being 8.2%.

• On the sectoral front, out of 13 indices on BSE, 8 managed to end the month on high while 5 ended weak. Consumer durable, banking, realty and metal stocks surged while oil & gas, healthcare and power stocks fell.
• Buoyed by strong quarterly results from Titan, VIP & Bajaj Electricals, consumer durable sector gained 11.80% during the month. Gitanjali Gems, VIP Industries, Titan and Bajaj Electricals led the gainers with 31%, 22.4%, 18.5% and 11.4% gains. Plans to add 3 lacs sq ft. of retail space in India this year boosted shares of Gitanjali gems.
• Good quarterly numbers from Axis bank, PNB and Bank of Baroda, pushed banked higher. Further, RBI's credit policy which largely came in line with expectation also fueled buying in banking stocks. Bank of Baroda, HDFC bank and Yes bank rose the most with 17.7%, 11.1% and 9.6% respective gains.
• Realty stocks also managed to outperform the major indices on reports of elaxation of the 3-year lock in period for repatriation of FDI in the realty sector. Further, continued low interest rates for home loans despite two hikes by RBI in the month, also helped the index higher. Sobha developer with 15.9% gain, DB Realty with 12.7% gain and Unitech with 9% gain topped the list of gainers.
• Rise in base metal prices on optimism of picke up in demand on shrinking inventories , rise in US building permits and global economic recovery pushed metal index higher. Hindalco (up 10.9%), Tata Steel (up 10.6%) and Welspun Corp (up 6.2%)were the major gainer.
• Disappointing results from Reliance and ONGC pulled oil & gas sector down. Major dampener was sequential fall in gross refining margins of RIL and fears of stagnation of gas production at 60 million standard cubic metres of gas.

Global Scenario

• All major global markets ended the month with hefty gains, with Chinese markets outperforming the global markets. Strong quarterly numbers from companies across the globe and positive outcome of European bank stress test uplifted investors sentiments. Stocks also got some support from a global economic forecast from the International Monetary Fund. The IMF raised its world growth estimate for the year to 4.6% from 4.2%.
• US markets ended the month on strong note, following better-than-expected results from companies like Alcoa, Intel, DuPont, Ford Motor, Boeing and Exxon Mobil. Investors also cheered the European bank stress test result. However, towards the middle of the month market did show some weakness after Federal Reserve Chairman Ben Bernanke's comments regarding the uncertain economic outlook.
• European markets rose during the month, on the back of encouraging economic data and stress test result. Early in the month, investors focused on positive Europe’s services and manufacturing industries data and higher European consumer confidence. Later, the stress test result which showed that only seven of 91 banks failed the tests and higher German industrial output pushed markets higher.
• Asian markets ended in positive terrain led by Chinese markets. Property and banking stocks in China gained as the closing of subscriptions for Agricultural Bank of China's massive IPO helped to ease a liquidity squeeze. Chinese miners also gained on speculation that China will not tighten its monetary policy moves to curb economic growth. Japanese stocks managed to recoup early losses as banking stocks gained after the Basel Committee on Banking Supervision agreed on broadening the rules over how to calculate banks' new core capital requirements

Source: RBI

Source: RBI

INR/USD

Indian Rupee apreciated by 0.30% against the dollar helped by gains in shares after an encouraging earnings session from corporate. Weakness in US Dollar against most currencies also supported Indian Rupee and pushed higher. Though, Rupee weakened slightly in the middle of the month as equity market declined after Federal Reserve Chairman Ben Bernanke's comments that the U.S economy was facing unusually uncertain prospects, sparked concerns the global economic recovery may falter. Further, Indian rupee rose tracking gains in other Asian currencies. Later in the month, Rupee gained against the US dollar on the Interbank Foreign Exchange amid a fall in the value of the American currency against its major rivals. Capital inflows by foreign fuwnds into equities, too, supported the rupee sentiment. Further, tighter policy by RBI as it raised its key borrowing rate by 50 basis points to 4.50% and its lending rate by 25 basis points to 5.75% made rupee firmer at the end of the month against dollar.

Latest Update:

• U.S. economic activity increased at a slightly slower than expected pace in the second quarter. The report released by the Commerce Department showed that gross domestic product increased at an annual rate of 2.4% in the second quarter compared to the revised 3.7% jump seen in the first quarter.
• Confidence among US consumers declined in July to a five-month low, a sign the lack of jobs will limit the economy’s recovery. The Conference Board’s confidence index fell to 50.4 from a revised 54.3 in June.
• Japan’s exports rose faster than economists estimated, sustaining a boost to the recovery that may diminish as global growth cools and the yen strengthens. Shipments abroad advanced 27.7% in June from a year earlier, the Finance Ministry said in Tokyo. Imports advanced 26.1% in June from a year earlier, leaving a trade surplus of USD 7.8 billion, 41.1% higher than the same month in 2009.
• UK house prices fell in July for the first time in five months as tighter lending conditions and concern that government cuts will slow economic growth deterred potential home buyers, Nationwide Building Society said. The average cost of a home fell 0.5% from June to GBP 1,69,347.

FOREIGN CURRENCIES

The Dollar depreciated against Euro and Yen during the month. The dollar was unable to make any headway during early part of the month and subsided to significant losses against the major currencies as confidence in the US outlook deteriorated. Further, dollar dipped to a two-month low against the Euro and Sterling. US economic numbers continued to remain timid in July with a deterioration in business confidence there were further fears that the US economy would slow significantly over the second half of 2010. The Federal Open Market Committee (FOMC) minutes from June’s meeting also registered a slightly more negative tone with comments that the economic outlook remained relatively modest while the risks were tilted to the downside. These comments reinforced speculation that the Fed could be forced into additional measures to support the economy later this year. Though, there was some relief as Fed did not announce a cut in interest rates payable on excess reserves, but Bernanke did outline potential additional support measures if they were required and this reinforced a lack of yield support for the dollar and the dollar failed to extend gains beyond 1.2750 against the Euro. The US economic data was mixed later in the month, but markets looked to put a positive outlook on the figures, especially as corporate earnings results were generally favourable. However, dollar maintained a generally weak tone during later part of the month as confidence in the US fundamentals remained fragile. There was only limited defensive US currency demand and it dipped to 2-month lows on a trade-weighted basis. Also, a decline in jobless claims in the last week to 4,57,000 from a revised 4,68,000 the previous week did not have a major market impact.

EURO

Euro appreciated against Dollar and breached the psychological level of 1.300 during the month. The Euro was subjected to renewed selling pressure in the early month as structural fears persisted. There were fears over the banking sector as it faced debt roll-overs while there was unease over further credit-rating downgrades. There was a three-month auction for funds however demand for funds from the ECB was lower than expected at EUR 130bn compared with some fears that there could have been demand close to EUR 200bn. There was further relief surrounding the European tender results which also eased fears surrounding the Euro-zone financial sector and also helped underpin the Euro. The Euro was able to resist selling pressure as underlying sentiment towards the currency remained slightly stronger while there was some tentative evidence of renewed longer-term inflows into the currency. Fitch commented that Spain’s credit-rating outlook was stable and this also helped underpin Euro sentiment. There was further relief surrounding the European bond auctions with successful Spanish and Greek sales reinforcing the mood of greater optimism towards the Euro-zone and the Euro. Further, there was a weak Hungarian debt auction which tended to undermine Euro sentiment to some extent following the setback on IMF talks. There was some wider negative impact on the Euro with fears that there would be a contagion effect on weaker Euro-zone economies such as Greece and Spain. The Euro also spiked higher and pushed to fresh 10-week highs above 1.3020, helped in part by higher than expected German producer prices, although the Euro was unable to sustain the advance. Also, Euro-zone data was stronger than expected which provided some degree of support for the currency.

Yen

Yen appreciated against Dollar and Euro during the month. The yen secured solid support during as deteriorating global risk appetite and falling stock markets triggered fresh demand for the Japanese currency. China’s PMI data recorded a significant slowdown for June with the HSBC measure dipping to near the 50 level and this provided some further yen protection on renewed fears over fresh deterioration in the global economy. There were greater reservations over carry trades which curbed any yen selling pressure. Markets remained sensitive to Japan’s government debt profile and there were increased doubts whether there would be decisive measures to cut the deficit and this put the yen under some selling pressure in Asian trading on Monday. Standard & Poor’s also warned that it was uneasy over Japan’s credit rating which unsettled sentiment. Confidence in Japan was also undermined by the government’s defeat in the Upper-House elections which triggered further doubts over reform prospects. The Japanese currency maintained a firmer tone on fears over a sharp slowdown in the Chinese economy following an official report warning over second-half prospects and confidence was only partially restored following the release of the second-quarter data which recorded Chinese growth of 10.3% from 11.9% in the first quarter. However, there were speculation that the Bank of Japan would take additional policy steps if the yen appreciated to the 85 area which curbed yen buying support. Though, it was able to resist significant selling pressure against the dollar, the yen dipped to 12-week lows against the Euro before finding some respite at the fag end.