Equity View:Indian equity markets fell by 2% last week. Calendar Year2011 was the second worst year for Sensex since 1980. Thereturn for the year was -25% in rupee terms & -42% in dollar terms. The three key factors that contributed to this wereslowing GDP growth, policy paralysis on part of the Government & corruption.For CY 12we expect the GDP growth to be in the range of 6.5%-7%. Inflation is expected to cool down to 6.5%-7%. Thistranslates to a nominal GDP growth rate of around 13-14%. With the nominal GDP growth of 13%-14% we expect thecorporate earnings to increase by the same number. In addition to this we expect a re-rating of the PE multiple of theIndian equity market. We currently are trading around 12 times one year forward earnings & we expect it change to 14times once the growth revives. Hence, for CY 12 we believe returns from the equity markets will be in the range ofaround 20-25%. The rupee is expected to stabilize around Rs. 52-53 level which is effectively the real exchange rate.Hence, we believe that the rupee was overvalued for some time & has now gone down to its fair value number. thRBI is expected to start reversing its tight monetary policy, sometime in the first quarter itself. On 24 Jan 2012, we willhave the RBI policy review. The consensus expectation is that RBI might cut the CRR. For the year we see rate cut in therepo by 50-100 basis points for policy loosening.For the month we will have Export-Import data to be released on Monday, 2nd Jan 2012. Also, PMI manufacturing data thwill be released on Monday. Inflation number for month of December is expected to come on the 15 which will be key thdata to watch out for. In January the earnings season will begin from the 10 . Companies having exposure to imports willtake a huge hit because of sharp depreciation in rupee. On other hand, we would see many companies who have majorexports benefitting from the same. Information technology would be one of the sectors to benefit out of Rupeedepreciation.News:DOMESTIC MACRO: Indias food inflation eased to 0.42% in the year to December 17, from an annual 1.81% rise in the previous week. Indias consumer price index rose 9.34% from a year earlier, slower than Octobers annual rise of 9.39%. Indias fiscal deficit for the first 8 months of the financial year ballooned to Rs. 3.53 trillion, or nearly 86% of the full-year target, reinforcing expectations the government will be forced to tap the bond market for additional borrowing. The current account deficit remained unchanged at $16.9 billion in the September quarter from a year earlier, as a widening trade gap was offset by service-related inflows. The trade deficit widened to $43.9 billion during July- September compared with $37 billion in the year ago period. Japan will invest $4.5 billion in the Delhi-Mumbai Industrial Corridor over the next five years, Japanese Prime Minister Yoshihiko Noda said on Wednesday after meeting his Indian counterpart in New Delhi.
GLOBAL MACROEuro: German Finance Minister Wolfgang Schaeuble said he expects the euro zone will be stabilised within 12 months and ruled out a break-up of the single currency in an interviewUS: The Conference Boards index of consumer confidence rose to 64.5 this month from 55.2 in November, beating economists expectations for a reading of 58.3. U.S. President Barack Obama has agreed to delay submitting a debt ceiling increase request until next month to allow lawmakers time to consider it while they are in session. Banks tightened the screws on lending to major financial market participants in recent months, the U.S. Federal Reserve said on Thursday, reflecting concerns about European banks as the regions crisis mounts.China: The HSBC Purchasing managers Index, designed to preview the state of Chinese industry before official output data are published, inched up to 48.7 in December from a 32-month low of 47.7 in November.
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