The World This Week April 08 - April 12 2013


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Analysis of various factors that affected the market & its performance this week

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The World This Week April 08 - April 12 2013

  1. 1. The World This WeekApril 08 – April 12, 2013
  2. 2. Equity View:Last week the equity markets ended on a flattish note. Nifty had a downside of 0.4% for the week. Aswe’ve seen for the last few weeks, there has been a corrective mode largely on the back of expectationsof weak results and of course political uncertainty that we’ve seen unfold.In terms of the earnings season, we saw the first result coming out on Friday with Infosys declaring itsresults. Infosys results on a whole came out on a negative side, although the full year and the Q-o-Qrevenue growth were broadly in line with expectations, the margins showed a sharp decline. Themanagement has guided for a 6% - 10% dollar-revenue growth for FY14 which is below NASSCOM’sprojection for the full year. The company has not guided anything on the EPS number and also notmentioned what kind of the margin profile the company is expected to maintain. As we’ve seen for lastseveral quarters the margins for Infosys have constantly been under pressure. The company is finding itdifficult to maintain the pricing at current levels. In this quarter too, both onshore and offshore priceshad a sharp dip. The company had a full year EPS of around Rs 165 for FY13. Our estimates would put theFY14 EPS at Rs 175 a share which would put the valuation of the company close to Rs 2500 on a 12 monthtraining basis.We don’t believe there’s a lot of downside in Infosys from the current levels, although the stock mightnot perform in the short to medium term. We believe this as more of a company specific issue and do notexpect IT space as a whole to witness this kind of pricing pressures. We would have the results of bothTCS and HCL Technologies during this week and we will be looking out for any margin pressures, if at allthey are visible in these two companies also.In terms of macroeconomic data points, we had the IIP numbers for February coming out last week. Thenumbers surprised on the positive, with a 0.6% growth v/s largely an expectation of a de-growth. In themonth of January, the IIP growth was around 1.2%. On a 11 month basis in FY13, IIP has been hoveringaround 1 -2% range, which is a very soft manufacturing growth number. We believe that we have beenslipping around the bottom from quite some time now. The growth has been in this range and we believethat gradually the growth is going to pick up in the next few months. The biggest surprise of this monthwas a very sharp growth in capital goods number which we believe is more because of bunching up oforders and we don’t expect it to be a sustainable growth. Hence, we continue to maintain a cautiousstance on the capital goods space.The Consumer Price Inflation (CPI) for the month cooled off to 10.39%. There are a lot of concerns aboutthe prices of food and vegetables in the last few months and this is the first time in the four months thatthe CPI number has taken a downward direction. We would be watching these numbers very carefully.
  3. 3. There is a RBI policy meeting on the 3rd of May to discuss the strategy for the full financial year (FY14).Although the RBI has mentioned that they would be looking at reduced possibility for further rate cuts,we believe that if inflation continues to cool off and we see very soft IIP numbers that we’ve seenrecently, there might be a 25 bps cut in CRR and perhaps a cut in repo also, but that is still a lowprobability event as of now.In terms of global news, we saw China’s Q1 GDP numbers come out at 7.7% which was belowexpectations. We have been continuously seeing moderation in Chinese growth for last several quartersand it looks like Chinese GDP growth for this year is going to be between 7% -7.5%. There is a lot of talk inthe Chinese political establishments as to how to re-balance their economy from an ‘investment andexport’ lead model to a ‘consumption’ model. We believe the days of 10% GDP growth by the economyare over and we would witness probably 7% -8% GDP growth this year and the next few years. Theramifications of this de-growth in Chinese economy would be felt on the commodity prices.As we’ve mentioned earlier this year, we expect the commodity space to be soft as a whole. We continueto be bearish on commodities and metal stocks in general. Crude oil too has cooled off in the last fewweeks. Brent crude currently trades around $101 a barrel. The good thing for India is that if crude oilcools off, there’s going to be a significant cushion on the Current account as well as the Fiscal account.The current diesel subsidy is Rs 6.5/litre and our sense is that in the next few days diesel price is going tobe re-calculated again and the diesel subsidy might come down to almost Rs 4/litre; which is a significantcool off from the Rs 10/litre subsidy burden in January.If the 50 paisa price increase in diesel continues for the next few months, we believe that the dieselsubsidy will become zero much sooner than what the market is broadly expecting. On the back of thisand the cool off in crude oil prices, we have a positive stance on oil and gas space now and we like theupstream oil and gas companies like ONGC, Oil India, etc. which would see significant reduction insubsidy burdens if the diesel subsidy were to become zero in the coming months.
  4. 4. News:DOMESTIC MACRO:Indias annual consumer price inflation slowed to 10.39% in March from the previous month,government data showed on Friday. Consumer prices rose an annual 10.91% in February.Food prices for consumers rose 12.42% on year in March, slower than an annual rise of 13.73% inFebruary.The Index of Industrial Production (IIP) slumped to 0.6 per cent in February as compared to 4.3per cent in same period a year ago coming at the back of contraction in power and mining outputand dismal performance of the manufacturing sector.GLOBAL MACROEUROGreek bank deposits are safe and the countrys lenders are protected due to a recapitalisationscheme which will be completed by the end of April, Prime Minister Antonis Samaras said onSaturday.USPresident Barack Obama proposed a $3.77 trillion budget on Wednesday that combinescontroversial cuts to social safety net programs with tax increases on the wealthy in a packagethe White House hopes will jumpstart deficit-reduction talks.Initial claims for state unemployment benefits dropped 42,000 to a seasonally adjusted 346,000,the Labor Department said on Thursday.ChinaThe consumer price index showed an annual rise of 2.1%. Chinas annual consumer inflationcooled in March as food prices eased from nine-month highs and producer price deflationdeepened, data showed on Tuesday, leaving policymakers room to keep monetary conditionseasy and nurture a nascent recovery.
  5. 5. 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”