Equity View:The Reserve Bank of India (RBI) in its Monetary Policy Review last week delivered on expected lines andreduced the Repo Rate by 25 bps from 7.50% to 7.25%. However, the CRR cut did not materialize asexpected by many. Consensus expectation at this point of time is of further 50-75 basis points cut in reporates for FY 14. We believe that another rate cut in repo by 25 bps could be in next couple of months i.e.during the July review and next 25-50 basis points cut would be in second half of this fiscal.Inflation continues to come down and we are witnessing a continuous cool-off in the non-foodmanufactured inflation or the core inflation number which is below 4% for last couple of months. RBIexpects inflation to hover broadly around the 5.5% mark in the current fiscal and said it will deploy "allinstruments at command" to bring it down to 5% by March next year.RBI in its review projected FY 14 growth numbers at 5.7% which is significantly below the number financeministry is working towards. All the budget estimates have been made keeping in mind a 6.5-6.7%number in mind. This shows that RBI is expecting a slower revival of economy than the governmentexpectations. As we are aware that the Indian investment sector has taken a huge hit and has almostcome to a stand still in last couple of years because of policy inaction, land acquisition and environmentalissues. There is some slow progress on that front, however RBI believes there is lot more to be done forinvestment growth to really revive in short to medium term. RBI also made the point that thegovernment would need to do more in terms of reviving sentiments for the growth to really bounce back.In global developments, ECB lowered its main rate by a quarter percentage point to a record low 0.50%.Growth expectations in Europe have been quite muted which lead to poor macro-economic data fromvarious countries in Euro Zone in last couple of quarters. This rate cut will give a boost to the fallinggrowth levels across the euro area.Bharti Airtel announced its quarterly results last week which were broadly in line in terms of revenuefront but were disappointing at the PAT level. Bharti’s performance in African markets continued tostruggle and it might take couple of more quarters for the operations there to stabilize. The telecomspace as a whole is seeing some kinds of revival in terms of domestic operations are concerned. Eebelieve that the competitive intensity is coming down as the operators like Idea, Bharti Airtel etc havetaken price hikes in the last 2-3 quarters and this trajectory will continue further. The health of overalltelecom sector should get fixed and as such we remain bullish on the telecom sector.In the FMCG space we had few companies announcing their quarterly results last week. The key amongthese were HUL, Marico, Godrej Consumers and JSK Consumers. All of these companies delivered adecent set of numbers. The volume growth was highest in Dabur and we continue to like the Dabur storyfrom medium to long term perspective. This boost in FMCG space in terms of companies’ profits in thisquarter is on account of significant cooling-off in commodity prices which is adding to the margins.Hence, going forward we believe that margin expansion is the theme which is going to play-out in nextseveral quarters and we are going to see a good set of profit growth for most of the FMCG companieseven if the volume growth were to stay muted. We continue to maintain positive bias of FMCG sector.
Auto Sales for the month of April came in at last week. The numbers were disappointing as most of thecompanies had flat to negative growth. We believe that 2-wheeler space is going through lot of troubleas far as volume growth is concerned and we expect a 5-6% growth in volumes on full year basis. As faras 4-wheeler space is concerned, most of the companies would continue to struggle to show flat volumegrowth number. We believe that only the selected category like SUV or entry level Sedan will see volumegrowth and rest of segments could contract this year and hence would have cautious stance for now.News:DOMESTIC MACRO: The RBI cut its benchmark interest rate i.e. repo rate by 25 basis points to 7.25% on Friday for thethird time since January, as expected, as growth slows and inflation ebbs, but said there is littleroom to ease monetary policy further, disappointing markets. The HSBC Manufacturing Purchasing Managers Index (PMI), fell for the second straight month inApril, dipping to 51.0 from 52.0 in March. The reading for April was the lowest since November2011. Indian Oil Corp (IOC) (IOC.NS), the countrys biggest refiner, will cut petrol prices by 4.5% fromWednesday as global prices of the fuel have declined and as the rupee appreciated against thedollar, it said in a statement on Tuesday.GLOBAL MACROEURO The European Central Bank cut interest rates for the first time in 10 months by a quarterpercentage point to a record low 0.50% on Thursday and held out the possibility of further policyaction to support the recession-hit euro zone economy. Inflation in the euro zone has fallen to a three-year low to 1.2% in April, the lowest level sinceFebruary 2010 and the biggest monthly drop in more than four years. Euro zone unemployment reached a record 12.1% of the working population in March.US The U.S. April unemployment rate dipped from 7.6% to 7.5% -- the lowest figure in five years --with 165,000 jobs added. The U.S. Federal Reserve said on Wednesday it will continue buying $85 billion in bonds eachmonth to keep interest rates low and spur growth, and added it would step up purchases ifneeded to protect the economy.China The final HSBC Purchasing Managers Index (PMI) dropped to 50.4 in April from Marchs 51.6 andwas largely in line with a flash reading last week of 50.5. Fifty divides expansion from contractionon a monthly basis.
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”