on Economic Outlook G-secs in India react to US treasury bonds Index: Base=100 107 Relative change in US and India's 10-year g-sec yields 108 (August 1, 2023 = 100) = usa 108) India 103 102 101 100 99. 2 34 7 8 9 0 1 m4 7 18 August Centre for Monitoring Indian Economy Pvt, Ltd., 21 Aug 2023 Rupee crosses 83 per USD by Sameeksha Kumar The week ended August 18 came bearing both good and bad news for investors to digest. 10-year US treasury bond yields surged to a 15-year high of 4.31 per cent following the release of the Federal Reserve meeting's minutes. The ‘minutes suggested significant upside risks to inflation in the US and consequently further monetary policy tightening. Further, on August 14, 2023, data suggested an inflation rate of 7.44 per cent in July in India. This was a 1S-month high in inflation in the country. This was primarily due to soaring food prices, specifically vegetables. In fact, food inflation hit a 89-month high of 11.51 per cent. This likely led to benchmark indices Nifty 60 and S&P BSE Sensex ending in the red in the four day tracing week ended August 18. Both indices have delivered negative returns for four consecutive weeks now. The 50-scrip Nifty 50 was down 0.61 per cent and the 30-scrip S&P BSE Sensex was down 0.57 per cent. 38 out of 40 Nifty sectoral indices posted negative returns. Nifty India Defence Index was up 3.26 per cent followed by Nifty Media at 2.34 per cent. Nifty Metal proved to be the biggest loser ofthe week, down by 2.92 per cent. ‘The CMIE Total Returns Index (CTRI), which constituted 3,432 actively traded scrips, was down by 0.46 per cent, Unlike the benchmark indices, ths isthe first time in eight weeks that the CTRI has registered negative returns, ‘Trading volumes were down to Rs.3.13 trillion from Rs.4.05 trlion in the week prior. However, this Is likely owing to a four day trading week compared to five days in the preceding week. Market valuations were stable compared to the previous week, The index price to earnings (P/E) ratio closed at 31.24 times from 31.22 times in the week ended ‘August 11 ‘Two large Nifty 50 companies, namely Eicher Motors and State Bank of India (SBI), released their interim financial ‘statements for the first quarter of financial year 2023-24 (Q1FY24) over the week. Both companies delivered excellent results over the quarter. n fact, Eicher Motors noted its best ever Q1 results. Nonetheless, this did not reflect in the 42‘company's share prices. Eicher Motors remained relatively iat with negative returns of 0.07 per cent while SBI was down 0.21 per cent. While SBI delivered good results, a slower than expected loan growth caused a fallin its share prices. Foreign Portfolio Investors (FPIs)/Foreign Institutional Investors (Fils) remained net buyers for the seventeenth consecutive week. However, in August so far, FPls have not pumped in foreign cash in billions, In fact, the week ended ‘August 4 saw a measly USO 4 milion getting infused into the Indian capital market, However, n the week ended ‘August 18, FPIs brought in cash worth USD 1.09 billion. This magnitude of inflow into the Indian capital market was solely caused by the large USD 1.1 billion inflow on August 16 alone, Prices of the Indian basket of erude oll continued to be elevated over the week. However, compared to the week prior, prices depreciated by 2,18 per cent to USD 85.9 per bartel, A fal in prices comes as a respite after a six-week gaining streak. Gold prices, in the London Bullion Market, continued to fall for the fourth consecutive week. Prices hit a 23-week low at USD 1900.4 per troy ounce, This likely follows the rise in yields on 10-year US treasury bonds which could have prompted inflows away from the yellow metal. ‘The Indian Rupee (INR) depreciated against the US Dollar (USD) and Pound Sterling (GBP) while it appreciated against the Euro and Japanese Yen (JPY). The INR reached a record low and crossed Rs.83 per USD for the first time in the week ended August 18. The same averaged at Rs.83.03 per USD. Against the GBP, the INR averaged at Rs.105.61 per GBP -a0.13 per cent depreciation of the rupee, ‘Against the Euro and the JPY, however, the INR saw some respite, The same appreciated by 0.47 per cent against the Euro and closed at Rs.90.54 per Euro while it strengthened by 1.09 per cent against the JPY and settled at Rs.0.8710 per JPY. Weighted average yields on government securities (g-secs) increased across the maturity spectrum. That of 1-year g- ‘secs increased the most, by 13 basis points, o 7.18 per cent. Yields on 3-year, S-year and 10-year g-secs converged at 7.23 per cent -a rise of nine basis points, seven basis points, and five basis points respectively. Thus, Its evident that the magnitude of increase in yields of shorter term g-secs was higher than that of longer term g-secs. However, yields fon 10-year g-secs touched 7.25 per cent forthe first time since early April, on August 17, likely due to the rise in 10- year US treasury bond yields. In general, while g-see yields in India move in reaction to US treasury yields, the intensity of change in US treasury yields is much higher than the same in India, Weighted averaged yields on AAArated corporate bonds of 1-year and 10-year residual maturity increased by eight basis points and five basis points respectively to 7.61 per cent and 7.62 per cent. That of 3-year AAA-rated corporate bonds fell by six basis points to 7.74 per cent. Yields on S-year AAAated corporate bonds fell very significantly to. 7.64 per cent -a 33 basis points fal. Thus, risk premium on AAA-rated corporate bonds of 1-year, 3-year, 5-year, and ‘10-year residual maturity stood at 43 basis points, 51 basis points, 41 basis points, and 39 basis points respectively, 22