The World This Week - 16th to 19th August, 2016

1. THE WORLD THIS WEEK
August 16 – August 19, 2016

2. EQUITY VIEW

3. EQUITY VIEW
• On the economic front, the week gone by was not great. CPI inflation was greater than 6%, WPI was about 2%
which was at a multi month high but that does not matter as CPI is the new instrument that the RBI will closely
look at.
• The CPI is above 6% at 6.03% which is higher than the upper tolerance. There is expectation for CPI to come
down to probably 4% in the next 2-3 months primarily because of higher base last year. However, in the coming
December-January inflation is expected to be close to 6% or above. The fact that inflation has already hit 6% a
good 4-5 months before the base turns favorable is not really very positive.

4. EQUITY VIEW
• The appointment of new RBI governor who was the chief architect of the monetary policy framework is also not
giving a lot of confidence to the market considering that the market is always short sighted, myopic and only wants
rate cuts. However, from the point of view of policy and credibility of India’s Institutions on a global perspective it is
an excellent move.
• The only way to create long term wealth in any asset class is to rein in inflation. In the near term this may seem
bitter but it needs to be endured.

5. EQUITY VIEW
• Globally, yields have been rising. The US ten year is at 1.6%, the 10 year German is at -0.04% which was earlier
less than -0.1, Japan is at -0.08% and UK is at 0.62%. In the last 3 weeks the US 10 year has moved from 1.4 to
1.6. There is also a possibility of the US Fed raising the rates anywhere between 10 and 25 basis points. Oil is at
50 dollars and if it successfully clears 52 dollars then the next logical target for oil would be 70 dollars.
• Considering that there are a lot of macro headwinds being experienced, it is needless to say that there is need to
be careful with low quality in the portfolio. This is not a market where we expect to sell off but a brutal carnage of
low quality stocks is expected.

6. EQUITY VIEW
• This is the segment that did extremely well, chances are that many people piled on to it and this is a good
opportunity for people to lighten low quality and whenever the market declines, add on high quality because in the
long run the only segment which creates wealth is the segment where the earnings grow and capital productivity
ratios are higher than expected return ratios.
• The target segments should be those with ROEs of 18% and growth of 20%. These segments will not create
excitement but if one expects to see positives in the portfolio in the long run, these are the segments that need to
be focused on.

7. NEWS

8. DOMESTIC MACRO
• After two rain-deficit years, bountiful showers this year have brightened the prospects of strong farm
sector growth. This is likely to add a percentage point to the growth in GDP. The Finance Ministry is
expecting the economy to grow at 7.5 to 8 per cent this financial year. Weak monsoons in the past two
years had dragged down farm sector growth to 1.2 per cent in 2015-16 and -0.2 per cent in 2014-15.
• According to global rating agency Moody’s Investors Service it could consider India for a rating upgrade if
the government is successful in introducing more growth enhancing economic and institutional reforms.
Policies such as relaxation of thresholds for FDI and a change in the monetary policy framework that
fosters credibility will contribute to more stable economic environment.

9. GLOBAL MACRO
• The number of people claiming unemployment benefit in Britain unexpectedly fell in July
despite the shock decision by voters to leave the European Union, suggesting little
immediate impact from Brexit on the labour market. Benefit claimants fell by 8,600 in the
month, compared with an increase of 900 in June, and there was only a small fall in the
number of jobs employers were trying to fill, according to Office for National Statistics.
• The UK government had a smaller budget surplus than expected in July, the first calendar
month since the Brexit vote. Public sector net borrowing was in surplus by £1bn for the
month, less than the £1.2bn seen a year earlier. July is typically a month of surplus for the
public finances, because of revenues from corporation tax.
EURO

10. GLOBAL MACRO
• The Federal Reserve is raising expectations for an interest rate rise this
year, even as early as next month, According to two policymakers the
economic stars now appear to be aligning despite weak U.S. economic
growth in the first half of 2016.
• New York has knocked off London as the world's premier city for foreign
investment in commercial real estate due to fears the vote to leave the
European Union would diminish the British capital's appeal as a global
financial center.
UNITED STATES

11. GLOBAL MACRO
• Oil prices fell as analysts doubted upcoming producer talks would rein in
oversupply, Brent would likely fall back below $50 a barrel as August's more
than 20-percent crude rally looks overblown Soaring exports of refined products
from China also pressured prices, as this was seen as the latest indicator of an
ongoing global fuel glut. China's July exports of diesel and gasoline soared by
181.8 and 145.2 percent respectively compared with the same month last year, to
1.53 million tonnes and 970,000 tonnes each, putting pressure on refined product
margins.
• China's full-year exports are likely to see a bigger drop than last year as
downward economic pressures remain in place, China's exports dropped 1.8
percent last year to 14.14 trillion yuan ($2.14 trillion), while imports plunged
13.2 percent to 10.45 trillion yuan, according to data from the General
Administration of Customs.
CHINA

12. INDICES
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
16/08/16 28,065 12,824 21,275 21,816 12,141 15,121 8,737 16,005 10,801 9,895 10,724 2,076 1,576 5,897
17/08/16 28,005 12,912 21,455 21,837 12,144 15,132 8,710 16,088 10,620 10,099 10,697 2,074 1,577 5,817
18/08/16 28,123 12,968 21,526 22,196 12,085 15,068 8,700 16,203 10,590 10,043 10,779 2,112 1,595 5,816
19/08/16 28,077 13,035 21,418 22,296 12,199 15,126 8,699 16,201 10,537 10,144 10,852 2,115 1,584 5,786
0.04% 1.65% 0.67% 2.20% 0.48% 0.03% -0.43% 1.23% -2.45% 2.52% 1.19% 1.88% 0.46% -1.88%

13. COMMODITIES AND CURRENCY
Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms)
16/08/2016 66.90 86.34 75.02 66.68 3139.00 31295.00
17/08/2016 - - - - 3293.00 31073.00
18/08/2016 66.79 87.26 75.58 66.84 3335.00 31073.00
19/08/2016 66.93 87.97 75.87 66.82 3399.00 31252.00
-0.05% -1.89% -1.14% -0.21% -8.28% 0.14%

14. DEBT
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 6.82 -3
2-Year 6.83 -4
5-Year 7.03 -1
10-Year 7.10 -6

15. KIASL TEAM
Jharna Agarwal
Head- Advisory
Jharna.agrawal@Karvy.com
Nupur Gupta
Lead Advisor
Nupur.gupta@Karvy.com

16. 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”