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The World This Week - August 19 - August 23, 2013
 

The World This Week - August 19 - August 23, 2013

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    The World This Week - August 19 - August 23, 2013 The World This Week - August 19 - August 23, 2013 Document Transcript

    • 11 The World This Week August 19 – August 23, 2013
    • 2 Equity View: We’ve seen a significant depreciation of Rupee in the last 2-3 weeks. Rupee has fallen by almost 7% and Indian Equities and Bond markets have also continued to fall. On Thursday, we saw some new measures being announced by RBI, by which they wanted to support the falling bond prices as a result of which we saw bond yields bouncing back from 9.3% to 8.3% in a matter of one and a half days. With this there is a significant rally in the bond yields which just played out. We yet don’t know till what level bonds yields will rally, however there continues to be significant amount of volatility in all asset classes in India, be it bonds, equities, or the Rupee. On Friday, we saw the Rupee bouncing back by almost 2%. While this current volatility will take some time to subside; we believe till the time we get more clarity from U.S. Fed in the middle of September, asset classes across the world will continue to be volatile in anticipation of what could happen in that meeting. In the mean time, we have seen significant cool off in Emerging Market Equities, Bonds as well as Currencies. As far as Indian markets are concerned, we don’t think we have yet seen the worst of volatility. The urgent need is to keep some kind of stability in terms of Rupee, because unless Rupee stabilizes, it is unlikely that the bond and equity markets stabilize, so we continue to remain in a “Wait and Watch” kind of a mode. This week is also crucial from the perspective of Food Security Bill passage in the Lok Sabha. If we see some forward movement on that bill and if it gets passed in the Lok Sabha, there could be further pressure on Indian currency and the Indian Equity markets because it is expected to be negative as far as Fiscal Account for India is concerned. We are not recommending investors to rush into equities as of now. We will wait for this clarity on the Food Security Bill before we actually recommend our clients to actively and aggressively buy equities. There is no doubt that markets have fallen significantly by almost 11% from the peak of July and are trading at cheap valuations, however, in terms of when to enter, we would wait and see what would happen to the food security bill and then we shall take a call. As far as the global developments are concerned, we still need some clarity as far as U.S. Fed is concerned about tapering schedule of the ongoing QE III. Looking at the U.S. 10-year bond yield, which is now trading above 2.9%, we believe it is almost imperative for tapering actions to start by September. While it is expected that tapering will begin, its just the quantum is what we are not aware of. Also from an Emerging Market perspective, the markets have had a knee jerk kind of a reaction. We’ve been maintaining that the tapering of QE III does not mean that all the liquidity which has flown into the Emerging markets will go away. It is just that the quantum of addition of liquidity will get reduced. So we believe that some of the concerns of all liquidity leaving Emerging markets are unbounded. We don’t believe that the world is about to come to an end with the tapering of QE III. One important factor which also the market is considering is who is going to be announced as the new U.S. Federal Reserve Governor. There is a lot of speculation of who that person is going to be, because the future QE measures and how the tapering cycle plays out, will also be a function of the thought process of the new Federal Reserve Governor. So markets will continue to look at that development and we would expect that announcement to happen sometime in September. That also becomes one of the variables as to how the QE drawdown or the tapering activity will playout.
    • 3 So to summarize, we continue to be in a wait and watch kind of a mode for Equities. From a sectoral perspective we continue to like the IT, Pharma, Telecom and FMCG. As far as the banks are concerned, both public and private sector banks are trading at cheap valuations. However, we believe that for now we must neither be buying, nor selling bank stocks. If the bond yields continue to cool off further, it will be a positive for the banking space. However we don’t know that as of now and we will give it some time further. As of now the recommendation is that we stay put in banking stocks that and also we would wait to put in further money into equities. News: DOMESTIC MACRO:  Moody's reiterated its stable outlook on India's Baa3 sovereign rating on back of low levels of overseas government debt and adequate reserves for BoP.  The Reserve Bank of India took steps on Tuesday to comfort the government bond market by buying long-dated government bonds worth 80 billion rupees through an OMO on August 23. GLOBAL MACRO EURO  An index of household confidence in the euro zone improved for a ninth month to minus 15.6, the highest level since July 2011, from minus 17.4 in the previous month.  Britain’s economy grew faster than expected in the second quarter of the year as the UK’s GDP expanded to 0.7%. USA  U.S. Jobless Claims Fell to Five-Year Low over Past Month, the number of claims in the month ended Aug. 17 declined to 330,500, the least since November 2007.  U.S preliminary index on factory activity rose in August to 53.9, its best showing since March. A reading above 50 indicates expansion. China  China's factories have picked up the pace in August, index of manufacturing purchasing manager’s sentiment rose to 50.1 in August, the highest level in four months.
    • 4 Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 19/08/2013 18,308 5,363 10,288 10,433 5,772 7,156 6,338 8,761 7,467 7,078 8,049 1,388 1,261 4,246 20/08/2013 18,246 5,340 10,056 10,511 5,568 7,119 6,343 8,622 7,362 7,420 8,069 1,384 1,292 4,198 21/08/2013 17,906 5,274 9,899 10,562 5,609 6,964 6,142 8,398 7,258 7,151 7,785 1,360 1,249 4,113 22/08/2013 18,313 5,310 10,096 10,589 5,657 7,091 6,246 8,619 7,442 7,739 8,063 1,383 1,240 4,218 23/08/2013 18,519 5,359 10,248 10,791 5,744 7,236 6,294 8,661 7,545 7,817 8,191 1,398 1,224 4,248 1.16% -0.08% -0.38% 3.43% -0.49% 1.12% -0.70% -1.15% 1.04% 10.44% 1.77% 0.70% -2.93% 0.04% Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 19/08/2013 62.34 97.37 83.06 63.83 6825 31357 20/08/2013 63.73 99.78 85.06 65.51 6852 31357 21/08/2013 63.46 99.41 85.12 65.02 7020 31638 22/08/2013 65.42 102.09 87.31 66.62 6969 31659 23/08/2013 64.68 100.79 86.30 65.32 7190 31444 24/08/2013 7183 31876 -3.62% Rupee Depreciated -3.39% Rupee Depreciated -3.75% Rupee Depreciated -2.29% Rupee Depreciated 5.25% 1.66% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 9.40 -18 2-Year 9.09 -36 5-Year 8.99 -34 10-Year 8.27 -62
    • 5 Satadru Mitra Varun Goel Jharna Agarwal Abbas Naheed Kinjal Mehta Disclaimer The information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock Broking Limited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal 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 own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from 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 disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to 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. Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on investments Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian regulations. 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-SEBI Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”