The World This Week - 10th Aug to 15th Aug, 2015

1. The World This Week
August 10 – August 15, 2015

2. Equity View:
Last week started with devaluation of Yuan which created fear amongst the emerging markets. However
the pattern to note is that all major currencies like Euro, Yen etc had depreciated around 20% against
USD in last 5 yrs. INR depreciated approx. 28% against USD along with other currencies, except
Philippines currency which depreciated just 5% relative to USD. The Chinese Yuan made a stand out
appearance because it had appreciated around 7% against USD on the basis that it was undervalued.
Slowdown in the Chinese economy implied that currency was the last option left to bring back stability.
This devaluation would have certain consequences on erosion of competitiveness that may hurt India.
However in the past despite 35% competitive advantage (INR depreciated ~28% and Yuan appreciated
~7% against USD) we were unable to compete – this is a concern for our economy. A set of investors have
a fallacy of comparing this fall with the fall of 1997 but it may not be looked at from that perspective. In
1997, South East Asian currencies that had a fall were Indonesian Rupiah and Malaysian Ringgit which
have depreciated around 15% and 20% in last one year. This fall should be looked in the context of their
commodity exports. Malaysia depends on crude exports which amount to 30% of their GDP and
Indonesia depends on coal and other commodities. Hence, it is very much evident that commodity
exporting nations will see their currency depreciating against USD due to sharp fall in commodity prices.
RBI has allowed INR to depreciate little bit to be in line with Yuan. Also as the price of crude oil is falling
RBI is in a comfort zone due to which INR depreciation could be afforded little further. Rate cuts could be
a positive factor for equity markets and from that perspective investors should focus on domestic
defensives and export oriented sectors. The major economic currencies which have depreciated are all
dependent on commodity exports whereas 60% growth of India depends on domestic consumption so
we should not be worried about Yuan devaluation much.
The “Indradhanush” strategy of government for PSU banks is a step in the right direction but not good
enough because no one knows the actual bottom of asset quality which is still a worrisome factor. USD
has appreciated against all major currencies in last one year and if US Federal Reserve increases rates
then it could make their exports uncompetitive. Thus, Federal Reserve may not raise interest rates in
September as this is not the right time and they may wait for the next year and watch where exactly the
slide of commodities is headed.

3. News:
DOMESTIC MACRO:
 India’s exports fell for the eighth month in a row contracting 10.30% in July to $23.13 bn while the import
fell 10.28% in the month to $35.94 bn; trade deficit widened to $12.8 bn in July from $10.8 bn in June.
 India’s Wholesale Price Index (WPI) inflation plunged to a historic low of -4.05% in July from -2.4% in June.
 Government to push amendments to the Reserve Bank of India (RBI) Act in the Winter Session of
Parliament for setting up a public debt management agency (PDMA) and a monetary policy committee
(MPC) that will decide on the key interest rate.
 Insurance Regulatory and Development Authority of India (IRDAI) allows banks to tie up with more than
one insurer, from life, non-life and standalone health insurance segments.
 India and the US to hold first-ever high-level strategic and commercial dialogue next month in Washington
focusing on areas such as ease of doing business and smart cities with an aim to boost investment and
raise bilateral trade five-fold to $500 bn annually.
GLOBAL MACRO
EURO
 Eurozone GDP growth slowed to 0.3% quarter-on-quarter in Q2 from 0.4% in Q1.
 Euro zone industrial production fell by 0.4% month-on-month in June, following 0.2% decline in May.
United States
 US industrial production rose 0.6% in July after a downwardly revised increase of 0.1% in June.
 US producer price index edged up by 0.2% in July after climbing 0.4% in June.
 US business inventories climbed by 0.8% in June after rising by 0.3% in May.
China
 China’s industrial production rose 6% year-on-year in July, compared with a 6.8% rise in June.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
10/8/2015 28,102 11,555 19,678 21,688 11,309 18,273 8,087 17,500 11,123 8,583 9,873 2,051 1,449 6,222
11/8/2015 27,866 11,503 19,419 21,356 11,263 18,048 8,041 17,490 11,276 8,281 9,763 2,032 1,425 6,279
12/8/2015 27,512 11,216 18,925 20,712 11,357 17,677 7,902 17,576 11,568 7,919 9,429 1,989 1,347 6,386
13/08/15 27,550 11,190 19,006 20,852 11,247 17,630 7,899 17,715 11,561 7,701 9,428 1,984 1,328 6,351
14/08/15 28,067 11,454 19,462 21,488 11,264 17,955 7,923 18,059 11,622 7,806 9,508 2,012 1,429 6,397
-0.12% -0.88% -1.10% -0.92% -0.39% -1.74% -2.03% 3.19% 4.48% -9.05% -3.70% -1.90% -1.38% 2.82%

4. Commodities and Currency:
Date USD GBP EURO YEN
Crude
(Rs. per BBL)
Gold
(Rs. Per 10gms)
10/08/2015 63.75 98.75 69.87 51.22 3102 24761
11/08/2015 64.17 99.84 70.35 51.37 3214 25264
12/08/2015 64.82 101.00 71.82 51.91 3156 25597
13/08/2015 64.92 101.43 72.25 52.16 3219 25710
14/08/2015 65.12 101.61 72.55 52.35 3195 25690
-2.10%
Rupee
Depreciated
-2.81%
Rupee
Depreciated
-3.69%
Rupee
Depreciated
-2.16%
Rupee
Depreciated
3.00% 3.75%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 7.54 -3
2-Year 7.74 -11
5-Year 7.87 -8
10-Year 7.75 -6

5. Phani Sekhar Ponangi Kaushik Dani Jharna Agarwal
Nupur Gupta Aakash Mehta Ridhdhi Chheda
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