The World This Week December 2 - December 7


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The World This Week December 2 - December 7

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The World This Week December 2 - December 7

  1. 1. The World This Week Dec 02 – Dec 07, 2013
  2. 2. Equity View: The Assembly election results came yesterday and as expected NDA-led by Mr. Narender Modi delivered victory in three states and the fourth state had a single largest party. This election result would definitely be taken positively by the equity markets. We see upward bias both on Indian equity and currency. In the short term, market had been expecting a change in government and; opinion polls and assembly election results showed continued strength for BJP. We would expect the equity markets to continue to react in a positive way. We also expect that FII inflows would continue over the next few months. As of now, we continue to maintain our equity market target for March 2014 end of 6740 on Nifty. Analysis shows that the average returns in the six months post the last seven general elections have been ~15% in equity markets. Thus, equity markets generally tend to move up in the run up to general elections and we believe this time would be no different. We are a strong buyer of Indian equity at this point in time and we continue to advise investors to increase the allocation to equities. We believe the participation in the current rally would not come from large cap stocks only but mid cap and small cap stocks would also start playing catch up. We have seen mid and small caps underperforming Nifty to an extent of 40-50% and we believe some of this underperformance will be rectified in the times to come. By saying that we are positive on Nifty, we do not mean that there will be a unidirectional move. The only thing we can say from a downside point of view is that equity markets are not expected to sustainably fall below 6000 on nifty hence we believe that too much downside is not there and every dip of 4-5% should be used as a buying opportunity. The US Non Farm Payroll data came on Friday at 203,000, which has definitely surprised the markets on positive. The US GDP growth last quarter has been revised from 2.8% to 3.6% which shows that growth in US is becoming broad based and stronger. All this has led to fears that the US tapering will happen sooner than expected. We don’t expect the tapering of QE to begin anytime before the end of February that is when the fiscal issues in US are supposed to be addressed. So in our view, the easy monetary policy is expected to continue in the US until further clarity on fiscal issues is there. If the easy monetary policy which means that negligible or zero taper till March continues, we would expect the equity inflows to continue in India and other emerging markets which would be positive for Indian equity and currency. Commodities View: The cost of production for 1 ounce of gold is around $1200 and we have seen in the past that each time prices were at these levels, there was a decent up move. The US debt ceiling issue will come back during mid-Jan again. Last time when S&P downgraded US following the debt ceiling issue, gold made an all time high peak of $1921 an ounce during September 2011. And, two years later the world is still talking to resolve the US debt ceiling matter and this time gold is down 36% from its peak. The Comex registered gold stocks fell to new low and claims per ounce of gold were at record 69! – This means for 1 ounce of gold, there are 69 buyers claiming it. This is apathy of fractional reserve system and Cyprus Bank run is a classical case for this argument. NY Fed told Bundes Bank that it will take 7 years for them to repatriate their (German) gold. It is the leverage in fractional gold reserve system that has already reached a record high of 69 (and increasing at an alarming rate) and would shake up the entire world in case of failed deliveries; at that time, its impact on price of Gold is beyond imagination. It is quite
  3. 3. Interesting to note that China has relaxed its gold norms. Chinese Central Bank and Chinese are accumulating gold at a run rate never seen before. Clearly they have sensed the danger and accumulating gold as much as they can while diversifying from their greenback holdings. There is too much pessimism on gold today and it is a clear indication of an inflection point. With zero rate policy of the US Fed and raising bond yields in US (2.75%) and in India (9.10%), inflation expectation is building up as implied from these bond yields and are far from subsiding. Given these arguments, it seems the downside in gold is limited and any dip should be bought as gold is expected to come back strongly. Smart investors (like Chinese) are accumulating gold at every dip. News: DOMESTIC MACRO:  The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, nudged up to 47.2 in November from 47.1 in October.  India’s net direct tax collections in the eight months ended 30 November rose 14.6% to Rs.3.1 trillion, less than half of the annual budgeted target.  India's steps to support its currency, including a curb on gold imports, helped to narrow the current account deficit in the September quarter to $5.2 billion, or 1.2 percent of GDP -- the lowest since the June quarter of 2009. GLOBAL MACRO EURO  The Bank of England left monetary policy unchanged, sticking to its commitment to keep interest rates at a record low 0.5 percent until Britain's recovery is more firmly established.  Britain has had a surprisingly strong recovery since the start of the year, overtaking its euro zone peers to become one of the fastest-growing advanced economies in the world with annualized growth in excess of 3 percent.  Britain's services PMI fell to a still very strong 60.0, its fifth highest reading since December 2006 - and all of the better ones have been since June this year. United States  U.S. employers hired more workers than expected in November and the jobless rate hit a five-year low of 7.0 percent, raising chances the Federal Reserve could start ratcheting back its bond-buying stimulus as soon as this month.
  4. 4. China  Factory output growth is seen slipping to a four-month low of 10.1 percent in annual terms on November, the median forecast from 22 analysts showed, from October's 10.3 percent.  Export growth, which has whipsawed this year, is seen quickening to a three-month high of 7.1 percent from a year earlier, up from October's 5.6 percent and a sign that external demand may be improving. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 2/12/2013 20,898 6,377 12,378 12,878 5,746 9,974 6,567 9,691 8,450 9,505 8,618 1,638 1,363 4,769 3/12/2013 20,855 6,392 12,325 12,806 5,713 9,942 6,513 9,668 8,462 9,528 8,662 1,641 1,380 4,775 4/12/2013 20,709 6,350 12,196 12,733 5,716 9,844 6,424 9,619 8,469 9,552 8,594 1,646 1,343 4,780 5/12/2013 20,958 6,358 12,242 13,298 5,737 10,197 6,364 9,478 8,426 9,658 8,701 1,668 1,363 4,762 6/12/2013 20,997 6,389 12,297 13,364 5,809 10,279 6,382 9,511 8,421 9,719 8,733 1,706 1,366 4,763 0.47% 0.19% -0.65% 3.77% 1.09% 3.06% -2.82% -1.86% -0.34% 2.24% 1.33% 4.17% 0.20% -0.12% Commodities and Currency: Date USD GBP EURO YEN 2/12/2013 3/12/2013 4/12/2013 5/12/2013 6/12/2013 62.23 62.34 62.33 61.69 61.67 0.91% Rupee Appreciated 102.14 102.06 102.18 101.08 100.65 1.48% Rupee Appreciated 84.64 84.46 84.68 84.07 84.25 0.46% Rupee Appreciated 60.74 60.38 60.77 60.44 60.40 0.56% Rupee Appreciated Debt: Tenor 1-Year 2-Year 5-Year 10-Year Gilt Yield in % (Friday) Change in bps (Week) 8.55 8.46 8.70 9.16 -16 -2 4 10 Crude (Rs. per BBL) Gold (Rs. Per 10gms) 6844 6935 7021 6974 6846 30357 30213 30310 30442 30220 -0.03% 0.45%
  5. 5. Satadru Mitra Varun Goel Nupur Gupta Jharna Agarwal Kinjal Doshi 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 abovementioned 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”