Good Afternoon!

It was a truncated week in India last week, and the biggest play for the markets in India and elsewhere was the decision of the Federal Reserve.

The Federal Reserve raised interest rates by 25 basis points as expected and hinted it might be the final move in the most aggressive tightening campaign since the 1980s.

The increase lifted the federal funds rate to a target range of 5% to 5.25%, the highest level since 2007.

Chairman Powell said it would be in June, when committee members will opine if the interest rate hikes will be paused. He did not expect interest rate cuts this year.

Indian bond yields fell during the week only to retrace the fall a bit on Thursday as the rally below 7% on the 10-year did not have many legs.

The gap between the 10-year and the repo rate eased to 50 basis points. Such a narrow gap was last seen over five years ago.

A sell-off in the HDFC pair drove stocks down on Thursday, although the market had a good run most days of the week.

Indian Markets Last Week:

Stocks fell sharply Thursday, erasing all the gains of the week, owing to sharp falls in the shares of HDFC Bank and HDFC LTD after MSCI said only the merged entity would be in its large-cap index and that too with an adjustment factor of 0.5. This implies that some $150 million-$200 million of investments could flow out from the merged entity. Overall, financials were weak due to fears of contagion from the US beleaguered US banks.

Government bond yields rose Thursday but closed the week lower. Yields rose Thursday due to weaker-than-expected demand at the weekly auction of government bonds. The gap between the 10-year yield and the RBI's repo rate narrowed to 50 basis points, the lowest since September 2017.

The rupee closed at little changed against the dollar on Thursday in a truncated week following dollar purchases by oil companies and, possibly, by the Reserve Bank of India. Oil companies bought dollars to take advantage of a sharp fall in oil prices due to concerns over US growth.

Global Markets Last Week:

According to the latest report from the U.S. Labor Department, job growth in April picked up speed, and wage gains saw a solid increase.

In April, nonfarm payrolls saw a growth of 253,000, surpassing the forecasted 180,000 predicted by economists surveyed by Reuters.

The data also revealed that average hourly earnings experienced a 0.5% increase in April, following a 0.3% rise in March.

These positive labour indicators indicate that the Federal Reserve still needs to address persistent inflation concerns, as demonstrated by their decision to raise rates by an additional 25 basis points on Wednesday.

US Stocks rose sharply on Friday, with shares of Apple Inc. rallying after upbeat results, while U.S. jobs data pointed to a resilient labour market. The iPhone maker's shares were the biggest influence on all three major U.S. stock indexes. All 11 major S&P sectors were higher on the day. Regional bank shares rebounded, adding to the momentum, on the view that the recent fall was overdone.

US yields rose, reversing the trend seen most of the week after strong jobs data raised expectations that the Fed may have to raise interest rates further.

US dollar gave up its earlier gains against the euro but maintained its strength against the yen. This came as a result of April's job gains and wage growth exceeding economists' expectations.

Corporate Bonds

Bond Issuances Of The Past Week

• Piramal Capital & Housing Finance raised ₹5 billion via 12-month 13-day NCDs at 8.81%.
• Axis Finance raised ₹3 billion via 39-month NCDs at 7.99%.
• Muthoot Finance raised ₹3.02 billion via 39-month NCDs at 8.43%.
• Shrem Infrastructure raised ₹1.20 billion via 5-year NCDs at 9.75%.
• Tata Capital Fin Services raised ₹2.40 billion via reissue of 2-year NCDs at price of ₹97.8727.
• IIFL Finance raised ₹350 million via 10-year NCDs at 9.20%

Secondary Market

Trade was subdued, and yields for three-year and five-year maturities fell marginally because of the US Federal Reserve's expected rate hike. The yield on 10-year bonds on the secondary market remained unchanged.

Outlook of the Week

Stocks are likely to rise this week, buoyed by the rise in US shares. Moreover, strong earnings momentum could help the stocks. HDFC twins could recover some losses. Government bond yields could stay firm on persistent sales for profits. The rupee is likely to broadly track the dollar, but importer demand and RBI purchases could keep a rise in check.

In Other news

• HDFC net profit rises 19% to 44.3 bln rupees in Q4, 44 rupees per share dividend declared.
• Adani Transmission said to plan up to $100 million of bonds buyback.
• India, Russia suspend negotiations to settle trade in rupees: Reuters.
• NCLT starts hearing Go First insolvency case, airline seeks moratorium on assets.
• April auto retail sales fall 4% on year as car, 2-wheeler sales decline.
• Adani Ports says concludes sale of Myanmar port for $30 mln.
• US FDA begins inspection at Dr Reddy's Telangana bulk drug plant.
• Fed raises rates, opens door to pause in tightening cycle.
• White House to meet Microsoft, Google CEOs on AI dangers.
• Jaishankar calls Pakistan's Bilawal Bhutto 'spokesperson for terror industry'.
• NCP's Sharad Pawar says not retiring, will withdraw resignation.
• PM Modi will be guest of honour at France's Bastille Day Parade in July.
• COVID-19 no longer a global health emergency, WHO says.
• MSCI tweak may trigger $150 mln-$200 mln outflow in merged HDFC Bank.
• Russia says it has billions of Indian rupees that it can't use.

Key Events Next Week

• May 8: Chicago Fed President Goolsbee television interview.
• May 9: Fed Governor Philip Jefferson speaks.
• May 9: New York Fed President Williams speaks.
• May 9: Five Indian states to raise ₹97 bln via bond sale.
• May 10: US CPI data for April.
• May 10: Rainfall for week to May 10, by IMD.
• May 10-12: Tractor sales for April, by Tractor and Mechanization Association.
• May 10-12: Automobile sales for April, by SIAM.
• May 10-12: General Insurance for April, by General Insurance Council.
• May 11: US PPI data for April.
• May 11: Initial, continuous jobless claims data for May 6 week.
• May 11: Fed Governor Christopher Waller speaks
• May 12: Industrial Production for March, by NSO.
• May 12: CPI (combined) for April, by NSO.
• May 12: St. Louis Fed President Bullard and Fed Governor Jeffersonon panel on outlook for economy and monetary policy