The World This Week - September 10 - September 13, 2013


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The World This Week - September 10 - September 13, 2013

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The World This Week - September 10 - September 13, 2013

  1. 1. 11 The World This Week September 10 – September 13, 2013
  2. 2. 2 Equity View: There was a lot of concern amongst the equity markets that Lawrence (Larry) Summers would tighten interest rates in the U.S. much more sharply than the other candidates. In the last 3 months, we have seen a big correction and depreciation in emerging market currencies and stock markets largely on the back of concerns that U.S. monetary regime will change from a very easy liquidity driven regime to a more hawkish kind of a regime in the next couple of years, especially with the expectation that Larry Summers would become the next U.S. Federal Reserve Governor. Today morning he announced that he was no longer in the race considering the political opposition to him which was expected in the U.S. Senate. In the short term we would believe that it would have a positive bearing not just on the equity markets but also on the Indian rupee. We have a Federal Reserve meeting on the 17th and 18th of this week, where we expect the beginning of the tapering process. The current expectation is that Fed may reduce its bond-buying program from $85 billion currently to $75 billion from next month which is the consensus expectation at this point of time. We also have the RBI meeting on 20th of this month and there is this expectation building up of the Marginal Standing Facility (MSF) reducing by 100 bps i.e. from 10.25% to 9.25%; however we believe that the repo rate will continue to be unchanged for now, and we believe that RBI would maintain a cautious stance as far as the inflation is concerned in the short term. We have quite a few data points on the macroeconomic front coming out last week. The Index of Industrial Production (IIP) data coming at 2.6% was a big positive surprise. This was largely driven by Capital Goods data, as we’ve seen in last several months Capital Goods data tends to be extremely lumpy. This IIP data was largely driven by 16% growth in Capital Goods. However, we don’t think there has been a sustainable turnaround as far as the Infrastructure and Capital Goods creation activity in the country is concerned. Hence we would not assign too much importance to this data. We believe that the industrial activity remains extremely muted. There is a need to be cautious on the whole industrial space for now. We also witnessed the Prime Ministers Economic Advisory Council lowering the FY14 GDP growth forecast to 5.3% from 6.4% expectation that we had earlier in March. As of now most of the economists, especially those attached to Broking houses, have had a GDP growth forecast between 4% – 5%. For now we have forecasted GDP growth of around 5%. If we don’t see a significant reversal of Monetary Policy in India, we would expect that even that 5% growth would be difficult to come by. Hence, we would wait for another quarter and see what actions RBI takes before changing the GDP growth forecast.
  3. 3. 3 News: DOMESTIC MACRO:  Overseas investors have pumped in nearly Rs 6,000 crore in the Indian capital markets in a fortnight ended September 13, mainly on the back of new RBI Governor Raghuram Rajan announcing various measures to boost the depreciating local currency and revive economic growth.  India’s factory output (Index of Industrial Production, or IIP) rose 2.6% in July and retail inflation decelerated in August for the second consecutive month to 9.52%. GLOBAL MACRO EURO  Germany trade surplus has shrunk to 14.5 bn euros from 15.8 bn euros in June as exports dropped by 1.1% and imports going up by 0.5%. Also in France, the trade deficit widened as the trade deficit in UK which doubled to that of June and stood at 3.085bn pounds.  Euro zone employment fell by 0.1% from the 1st Quarter to stand at 145 mn. This is 1% lower than in the second quarter of 2012. The big political event for the 2nd half of the month are the elections scheduled in Germany which the markets will be watching closely. USA  The U.S. economy created 169,000 jobs last month which was lower than the expected 180000. The jobless rate fell to 7.3 percent, the lowest since December 2008, and less than estimates that it would hold steady at 7.4 percent. America's budget deficit shrank in August compared to a year earlier, with government accounts helped by tax hikes and an improving economy. China  Chinese stock markets rose to a 3 month high led by banks after the Chinese premier said he would accelerate financial reform. The Shanghai Index has risen 16% since reaching this year’s low as data ranging from exports to industrial output showed growth is accelerating. This portent to improved economic growth in the last quarter of this calendar year. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 10/09/2013 19,997 5,526 11,040 11,584 5,988 7,852 6,835 9,267 8,031 8,355 8,697 1,480 1,242 4,535 11/09/2013 19,997 5,599 11,049 11,793 5,949 7,960 6,759 9,372 8,012 8,633 8,678 1,488 1,276 4,527 12/09/2013 19,782 5,597 10,850 11,574 5,839 7,861 6,780 9,360 7,915 8,414 8,533 1,478 1,283 4,471 13/09/2013 19,733 5,629 10,943 11,589 5,749 8,039 6,714 9,375 7,802 8,459 8,582 1,515 1,318 4,421 -1.32% 1.88% -0.87% 0.04% -3.98% 2.38% -1.76% 1.17% -2.85% 1.25% -1.33% 2.32% 6.11% -2.51%
  4. 4. 4 Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 09/09/2013 - - - - 7291 30860 10/09/2013 64.21 100.82 85.20 64.28 7224 30482 11/09/2013 63.9 100.46 84.65 63.68 6896 30222 12/09/2013 63.66 100.70 84.72 64.10 6873 30181 13/09/2013 63.78 100.70 84.66 63.88 6914 30181 14/09/2013 - - - - 6903 29624 0.67% 0.12% 0.63% 0.62% -5.61% -4.10% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 9.22 -5 5-Year 8.40 -58 10-Year 8.48 -15
  5. 5. 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”