The World This Week April 15 - April 19 2013Document Transcript
The World This WeekApril 15 – April 19, 2013
Equity View:Last week the Indian equity markets went upwards with a 4.5% gain in markets. This rally was largelydriven by commodity prices collapse witnessed across the world. The crude oil prices fell below$100/barrel which lead to a significant cushion as far as the fiscal account and current account deficitsare concerned. As we’ve been talking about crude oil subsidies continuing to be the biggest drag forIndia’s fiscal numbers, any cool off in crude oil will lead to some comfort on subsidies.We have already witnessed the diesel subsidies coming down from more than Rs. 15 per litre last year toalmost Rs. 5 per litre now and this will continue to come off as crude oil continues to fall in the globalmarkets. Even if crude oil remains around $100 a barrel the government subsidy burden should fallaround Rs. 70,000 – 80,000 Crores for this year as compared to the number we had last year. The grossunder recoveries for crude oil and crude oil related products was around Rs. 1.70 lakh crore in last yearand this number should easily come below a lakh crore if crude oil stays at this level. However, theinherent assumption here to be made here is that rupee continues to at 54-55 per dollar levels.Quarterly results continued during the last week, we had good results coming in last week from privatesector banking names. Indusind & Yes Bank both declared their quarterly results last week. Both IndusIndand Yes Bank delivered results slightly better than the market expectations. IndusInd Bank delivered avery strong Net Interest Income Growth which came in at 42% and the net profit also increased by 30%on y-o-y basis. Yes Bank also delivered a 30% y-o-y growth in profits. Both the banks gave a goodguidance for next year and we continue to like both the stocks from a medium to long term perspective.Few private sector banks would announce their results this week, key among them are Axis Bank andHDFC Bank. We expect both the banks to deliver 15-20% growth in profits on y-o-y basis with a decentasset quality.One of the key things to be witnessed in this year’s quarterly results for banks is that we have not seenany material deterioration in asset quality and there are no slippages in the books of these private sectorbanking names. Hence, we continue to maintain a bullish stance on the private sector banking namesversus public sector banking names.TCS also announced its quarterly results in line with the market expectations. HCL Tech also announcedits quarterly results which were better than the expectations. We believe that the cool-off that we saw inthe IT space after the Infosys’ quarterly results showed more of a company specific issue rather than theindustry specific issue. We still think that there is some value left in the IT space as a whole for this yearand we continue to maintain IT as defensive bet for the year as the whole.Reliance Industries also announced its results last week. The numbers were better than expectations aswe witnessed a 30% growth in profits on y-o-y basis. This growth was driven by Gross Refining Margins(GRMs) which came in at $10 per barrel. We believe that the current levels would not really sustain andwe would see some kind of cool-off in GRMs going forward. The other businesses in Reliance Industriescontinued to languish and there is no sign of recovery on that front. We believe that next round ofgrowth in Reliance Industries would be driven by their telecom venture and the retail venture.
The highlight of the results was that the retail venture is now broken even at the EBITDA level and webelieve that Reliance Retail is now a quite a size which is good enough for it to deliver a significant valueto its shareholders going forward. Reliance Retail has total revenue of Rs. 10,000 crores for this yearwhich is a very significant number in the Indian Retail market.We had a monsoon prediction by one of the private agencies during the last week. It has predicatednormal monsoons for India this year. There is an expectation of total monsoon rainfall at 3% (+/-) of longterm average which is considered a good level of monsoon as far as agricultural production is concerned.Thus, the first indication of monsoon indicates that a normal year for agricultural income and broaderFMCG sales.Last week, there was a run up in banking space because of the rate cut expectations. Considering the factthat both current account and fiscal account deficits are expected to come down, if the commodity pricescontinue to cool-off, there is an expectation that during its Annual Policy Review on 3rdMay 2013, RBIwould cut 25 bps in repo rate. We also believe that we would have probably a 25 bps cut in CRR. RBI in itslast policy review had indicated that they are unlikely to do any more rate cuts anytime soon because itexpressed concerns about inflation and then expressed the concerns of overall fiscal situation. Butconsidering the fact that the overall fiscal and current account situation seems to correcting on its own,we expect the RBI to act during its next policy review on 3rdMay 2013.News:DOMESTIC MACRO:Indias wholesale price index (WPI) rose a slower-than-expected 5.96 percent in March, thelowest rate in more than three years. The reading for January was revised up sharply to 7.31percent from 6.62 percent. February WPI was left unchanged at 6.84 percent.Finance Minister P. Chidambaram said on Wednesday he expected Indias current account deficitfor the 2012/13 fiscal year that ended in March to be around 5 percent of gross domesticproduct and perhaps half that amount in one to two years.GLOBAL MACROEUROThe euro zone will slow its budgetary belt-tightening to help reinvigorate economic growth, a topEU official said on Thursday, highlighting a policy shift the United States has long been pressingfor.USInitial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 352,000 theLabor Department said.
ChinaThe worlds second-biggest economy grew 7.7 percent in the first quarter from a year ago, slowerthan 7.9 percent hit in Q4 2012. Chinas economic recovery unexpectedly stumbled in the firstthree months of 2013 with slowing factory output and investment spending forcing analysts tostart slashing full-year forecasts despite official insistence that the outlook was favourable.Moodys Investors Service on Tuesday affirmed Chinas governments bond rating of Aa3 but cutthe outlook to stable from positive, the second pessimistic revision by a foreign ratings agencythis month.
Satadru Mitra Varun Goel Jharna AgarwalAbbas Naheed Kinjal MehtaDisclaimerThe information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock BrokingLimited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sourcesthat we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is forpersonal information and we are not responsible for any loss incurred based upon it.The investments discussed or recommended here may not be suitable for all investors. Investors must make their owninvestment decisions based on their specific investment objectives and financial position and using such independentadvice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may pleasenote that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arisingfrom the use of this information and views mentioned here.The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned companies from time to time. Every employee of Karvy and its associated companies are required to disclosetheir individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysisand investment recommendations are restricted in purchasing/selling of shares or other securities till such a time thisrecommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restrictedto place orders only through Karvy Stock Broking Ltd.The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investorsare advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We alsoexpect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicabilityand incidence of tax on investmentsKarvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indianregulations.Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at:702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 .(Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills,Hyderabad 500 034)SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O):INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBIRegistration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”