The World This Week
May 12 – May 17, 2014
Equity View:
The election results surprised the markets last Friday, with the extent of majority with which the NDA
won. I...
projects take off, we would believe that this space would benefit. It is just that infrastructure space takes
time to revi...
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
12/5/2014 23,551 7,511 14,071 16,114...
Varun Goel Jharna Agarwal
Nupur Gupta Ridhdhi Chheda
Disclaimer
The information and views presented here are prepared by K...
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The World This Week May 12, 2014 - May 17, 2014

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Transcript of "The World This Week May 12, 2014 - May 17, 2014"

  1. 1. The World This Week May 12 – May 17, 2014
  2. 2. Equity View: The election results surprised the markets last Friday, with the extent of majority with which the NDA won. It was witnessed by a big move in Nifty on the same day which cooled off during the second half. Overall, a lot has changed and we are hopeful of a new bull run when the economy will slowly be on the mend. We expect a lot of reform measures to be announced over the course of next few months and this should lead to some revival in the broader economy. The biggest and the most crucial thing is resumption of the investment cycle. There is a fair bit of ground for optimism on the equity side however there are caveats to growth linked to the actions taken by the new government. There are things that the government needs to do before we can call it a reforms oriented government like, some reforms on the ground which would indicate that infrastructure is going to be revived. However, some part of this growth story is not entirely in the hands of the government – most importantly the monetary policy and the interest rates. If the interest rates remain high, growth would come from limited quarter of revival of stalled projects while if the same falls, there would be additional Phillip to growth from investments picking up as well. Last week the WPI number was released which came at 5.2, slightly lower than expectation however, which could cool off the immediate concerns about rate hike. If the government actually acts responsibly and maintains its fiscal discipline by cutting down subsidies and wasteful expenditure, the room for monetary policy is much larger. So if the RBI believes that the government will rein in the fiscal deficit through the year, it might be little more enthusiastic about cutting rates. The monsoon also as predicted is not good thus in the short term, the view is cautious on fundamentals not necessarily capital markets. The improvement in fundamentals of economy might be moderate but to its response, the equity markets might witness a sharp uptake as visible in our target expectations. Our 3-year outlook remains bullish. As we had mentioned earlier with respect to the pre-election rally and its quantum, the markets rallied ~17.6% in the hopes and optimism of better governance. The growth this year is expected to be around 5.5-6% which will lead to nominal GDP growth of 13-14%. We also foresee the earnings growth of 14-15% for whole of the year which will be a significant revival as compared to last few years. Based on the overall scenario we have arrived at the new Sensex target of 38,500 for the next 3 years. As the economy revives we expect earnings growth to be 15% CAGR for the next 2-3 years. We would expect the Sensex returns to be of similar order as earnings growth. Another important point is that Midcaps have been beaten down so much that Midcap index is still not back to its own high of 2008 thus there is a significant upside in this space. Looking at the valuations and its outperformance over Nifty, it will be prudent to expect 20-25% returns in Midcaps. Gamma as our strategy has consistently outperformed the Midcap index by 10% in the last 3 years. Hence our returns expectation from the midcap space would be extremely high. In terms of sectors, we continue to like the top banking ideas in the private sector and select PSUs. NBFCs, Housing finance companies and consumer finance companies are also expected to do well. We continue to like select infrastructure ideas like some of the top companies in construction and infrastructure space. We do not expect any revival on the ground in terms of earnings for most of these infrastructure companies but as the economic environment eases, more approvals, clearances and
  3. 3. projects take off, we would believe that this space would benefit. It is just that infrastructure space takes time to revive, and hence there might be a lag of 2-3 quarters in terms of actual improvement in result. IT and pharma have taken a bit of beating in short term but considering the fact that their earnings growth trajectory remains extremely robust, we would continue to look at the sectors favorably and there is no reason to completely sell these off from the portfolio. News: DOMESTIC MACRO:  Inflation in India measured by the Wholesale Price Index (WPI) eases to 5.2% in April following a rise to 5.70% in March.  Industry body CII expects that a stable government could help the economy recover to 6.5% GDP growth rate in 2014 -15 as against an estimated 4.9% in 2013-14.  Ratings agency Standard & Poor's expects the new Indian government’s reform initiatives in economic and fiscal policies in the next two to three months may have significant implications on the sovereign credit rating on India.  RBI data shows India’s foreign exchange reserves rose by $1.97 bn for the week ending May 9 to $313.83 bn.  Central Board of Excise and Customs raises the base import price of gold by $2 to $424 per 10 gm. GLOBAL MACRO EURO  Euro zone GDP increased at an annualized pace of 0.9% in Q1 2014 after expanding at a rate of 0.5% in the previous quarter.  Bank of England in its Inflation Report for May says that the UK economy continues to strengthen, but more slack needs to be absorbed before a rate increase is implemented.  UK ILO jobless rate declined to 6.8% during January to March, the lowest since February 2009, from 7.2% in October to December United States  US consumer price growth accelerated annually to 2.0% in April from 1.5% in March, representing the biggest increase since last July.  US Initial claims for unemployment benefits fell by 24,000 to a seasonally adjusted 297,000 in the week ended May 10. China  China's April retail sales were up 11.9% year-on-year, down from a 12.2% rise in March.
  4. 4. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 12/5/2014 23,551 7,511 14,071 16,114 7,067 12,912 6,974 10,588 8,669 10,466 10,409 1,795 1,434 4,842 13/05/14 23,871 7,619 14,176 16,206 7,273 13,237 7,031 10,541 8,893 10,541 10,705 1,854 1,469 4,951 14/05/14 23,815 7,704 14,172 16,256 7,439 13,189 7,074 10,509 8,866 10,880 10,621 1,869 1,532 4,953 15/05/14 23,906 7,640 14,106 16,280 7,552 13,071 7,095 10,468 8,838 10,802 10,722 1,887 1,515 4,929 16/05/14 24,122 7,766 14,231 16,994 7,478 13,482 6,963 10,323 8,642 11,085 11,006 1,950 1,606 4,866 2.42% 3.40% 1.13% 5.47% 5.83% 4.41% -0.15% -2.51% -0.31% 5.91% 5.74% 8.62% 11.99% 0.49% Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 12/05/2014 59.729 100.8166 82.2235 58.6 6479 29805 13/05/2014 59.8773 100.9831 82.4035 58.55 6475 29667 14/05/2014 - - - - 6541 - 15/05/2014 59.4745 99.7031 81.5526 58.34 6598 29359 16/05/2014 58.861 98.8217 80.7166 57.97 6488 28869 1.47% Rupee Appreciated 2.02% Rupee Appreciated 1.87% Rupee Appreciated 1.09% Rupee Appreciated 0.14% -3.14% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 8.48 -4 2-Year 8.60 -14 5-Year 8.82 5 10-Year 8.84 9
  5. 5. Varun Goel Jharna Agarwal Nupur Gupta Ridhdhi Chheda 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”

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