>INDIA MONTHLY REVIEW (MORGAN STANLEY)

Retrospective – July 2009: A Month of Consolidation

Despite underperforming emerging markets and other global indices for the second consecutive month in July, India continues to be the second best-performing emerging market year to date. India’s performance ranking rose to 16th position in July compared to 19th in June. While the performance of the large-cap index was in line with the small-cap index, it underperformed the mid-cap index for a second successive month.

The following were notable market indicators in July:

• Technology was the best-performing sector in July for the second consecutive month while Telecoms was the worstperforming sector. Consumer Discretionary and Telecoms were the best- and the worst-performing sectors on a 12- month trailing basis. Sector rotation was low with only two sectors changing direction of relative performance MoM.

• FII flows in the cash market were positive for the fifth consecutive month. FIIs turned buyers of derivatives after two months of selling. Domestic insurance companies were buyers for the second consecutive month. Domestic mutual funds have now been net buyers for five straight months.

• Market activity was dull with trading volumes in the cash market down 21% (after touching an all-time high in June), intra volatility at a four-month low, breadth weaker by 36% MoM, and close to no change in delivery volumes and open interest. The exception was the surge in derivative market volumes, which breached an 18-month high.

• The yield curve steepened by 55bp MoM and touched an 11-year high. The 10-year bond yield rose 14bp MoM and touched an 8½-month high while the 91-day yield fell to its lowest level since1993 to 3.23%.

• Aggregate consensus EPS growth estimates for the BSE Sensex constituents were revised upward for the third consecutive month to 3% and 18% in F2010 and F2011, respectively (from previous forecast of 1% and 19%).

• Credit growth was lower than deposit growth for a sixth month in a row. Credit growth decelerated to a five-year low.

To see full report: MONTHLY REVIEW