2. Equity View:
Indian equity markets have moved up by 2.3% during the last week. From the beginning of the year Indian markets have
rallied upwards by 15% because of positive and strong macro economic data. Last week, there were no major negative
surprises in the Q3 results declared.
HSBC’s PMI date for the month of January came at 57.2 which is six month high for India. The monthly numbers for the
Auto companies have shown a strong bounce back specially the four-wheelers and Industrial auto segments. Tractor
companies like Mahindra & Mahindra delivered a very robust set of numbers and hence we expect positive movement to
continue going forward.
The NPA cycle which was feared has been played out especially in PSU bank names; NPAs for PSU banks should bottom
out this quarter and hence, we continue to maintain a positive view on PSU banks and Infrastructure names specially
those names which are present in the Construction and Road space. We are cautious on Power space as this sector
continues to see huge losses carried forward by State Electricity Boards.
The un-employment data of US was released last week. The rate has come down to 8.3% in month of January, which is
the lowest in last 3 years. The equity markets in US have been rallying very strongly with NASDAQ hitting an 11 year high
and Dow Jones is trading at best levels since May 27 2008. So, globally the returns have increased with very strong rally
in all the risky assets including commodities and equities. Our view is that this positive movement will continue as the
macro economic data continues to improve in US and negative data points from Europe continue to cool off.
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The European Central Bank has taken liquidity enhancement measures since the beginning of this year. On 29 Feb 2012,
there is one big LTRA event, where in it is expected that ECB will lend to European Banks which would take care of
immediate financing requirements of major European Governments. We believe that would infuse further liquidity and
give boost to the Euro denominated carry trade which has been happening around the world since last six weeks.
We continue to be positive on equity markets this year as we mentioned in the beginning of this calendar year that we
expect the equity markets to give return of around 20 to 25%. Also, the kind of macro economic news from India and
across the world is coming; there is a significant chance that this rally might continue going forward.
News:
DOMESTIC MACRO:
India's food price index declined 1.03% in the year to January 14, compared with an annual drop of 0.42%in the
prior week.
India's consumer price index (CPI) rose 6.49% in December from a year earlier, sharply slower than November's
annual rise of 9.34%.
The HSBC Business Activity Index bounced to 58.0 in January from 54.2 in December. India's services sector grew
at its fastest pace in six months during January as new business swelled, extending the previous couple of
months' positive trend into the new calendar year
India's December exports rose an annual 6.7% to $25 billion, while imports for the month rose 19.8% to $37.8
billion, leaving a trade deficit of $12.7 billion
India's economy is expected to grow by 7 to 7.5 percent in the current fiscal year ending March, Prime Minister
Manmohan Singh said in a speech on Friday.
The Reserve Bank of India's choice of securities to buy in open market operations is not aimed at reducing the
cost of borrowing for the government but to ensure an adequate supply of liquidity in the banking system,
Deputy Governor Subir Gokarn said.
3. GLOBAL MACRO
Euro:
Greece's prime minister will call the country's political leaders in the next few days to seek backing for more
austerity after the International Monetary Fund warned this was the key to securing the new bailout Athens
needs to avoid a messy default.
Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to 48.8 last month from December's
46.9, recording its sixth month below the 50 mark that divides growth from contraction.
Joblessness among the 17 countries sharing the single currency rose to 10.4% in December. Euro zone
unemployment has risen to its highest level since before the euro was introduced; data showed on Tuesday, a
day after EU leaders promised to focus on creating millions of new jobs to try to kickstart Europe's floundering
economy.
US:
The jobless rate fell to 8.3% in January - the lowest since February 2009 - from 8.5 percent in December.
Federal Reserve Chairman Ben Bernanke on Thursday defended the U.S. central bank's policies against charges
from Republican lawmakers they risked sparking inflation, saying the economy still needs plenty of support.
The United States is headed for a fourth straight year with a $1 trillion-plus budget deficit, congressional
forecasters said on Tuesday, giving ammunition to Republicans to hammer President Barack Obama's spending
record in November's elections.
China:
Chinese Premier Wen Jiabao raised hopes in Europe when he pledged to consider deepening Chinese
participation in European bailout funds, but there is little indication that China is prepared to go out on a limb
with a direct contribution. For Europe, China's direct support of its funds would be a welcome vote of
confidence from outside the bloc as well as increasing the amount it could draw on directly.
China's factory sector expanded slightly in January, confounding expectations for a contraction and supporting
hopes the world's second-biggest economy will avoid a hard landing, a government purchasing managers' index
showed. The official PMI rose to 50.5 in January from 50.3 in December
4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Abbas Naheed Kanika Khorana
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