Good set of earnings continued in the last week. ICICI Bank came up with good set of numbers with profits growing
by 20%, Net Interest income also growing by 20%, the NIIMs growing at 3.3% which was above expectations. We
have revised our view on private sector banking space from neutral to positive as AXIS, ICICI, Indusind and Yes Bank
all came up with better than expected results. A lot of pessimism and negativity on these banking stocks was
overdone in the last couple of months. However we continue hold a positive stance on them for the next one year.
We continue to remain cautious on the public sector banks except a few bottom-up ideas.
From the macroeconomic perspective, the current account deficit (CAD) problem which was bothering the Indian
markets and Indian currency for a long time now, seems to be getting addressed. The gold import data for the last
couple of months has been extremely muted. On the back of that, we believe if the current run rate continues for
the remaining part of the year, the CAD for the year should be around $50-60 Bn which is less than 3% of GDP which
would give a lot of cushion and respite to the rupee in the immediate short term. The rupee has been under
pressure throughout this year on the back of expectations of CAD moving towards $80-90 Bn however, it does not
look likely. RBI has also pushed some measures which have helped in raising dollar deposits in the last couple of
months. FCNR deposits have rallied around $8-9 Bn and we believe that some more money is going to come
through that window. Also, if the Indian Government bonds get added to the MSCI Index there would be some
money coming that way.
Exports continue to show a lot of strength and resilience on the back of depreciating currency. Textile and
machinery exports from India have done really well in the last couple of months which has also added some cushion
to the EXIM data. Thus we believe that the bulk of the negativity and weakness in the rupee is probably over.
In terms of global markets S&P made a new lifetime high last week on Friday. The US equity markets continue to
move up on the back of strong macroeconomic recovery. The debt ceiling discussions have been pushed to
February and the new Federal Reserve Governer is going to take charge in January. The consensus expectation is
that the tapering is now pushed back to either December or January so, there are no concerns related to tapering
atleast for the next couple of months.
In terms of FII data back home, FIIs have put in around 14000 Crs in the last 16 trading sessions. So there have been
significant amount of inflows by FIIs and continuous buying in the markets. We continue to maintain a Sensex target
of 22,400 by the year end which is a 10% upside from the current levels and we believe the markets continue to be
supportive in the short to medium term.
On the Political front, we have seen that in the last few months there has been a big change in the expectation of
improved governance after the next year’s elections. As opinion poll results have continued to come in, it has
clearly showed a trend or strength towards Narendra Modi-led BJP. Most of the foreign investors have built a more
constructive stance and most of the global commentators like Christopher Wood are coming up and explicitly
putting a view that BJP-led NDA government would be fairly constructive for the markets. As more and more
opinion polls come and that view gets strengthened we are going to see more traction in the Indian equity markets.
So some of the political news that has been coming in has also been supporting the market and we believe that
once the next round of Assembly election results are out and markets get more conviction in the hypothesis running
currently we are going to see further upside in the markets in the anticipation of a stronger government in MarApril. This also is a supporting factor for the markets.
To sum up, we don’t believe that the markets have topped out and that one should be coming out of equities.
Sensex is at the same level after 6 years as it was around Diwali 2007 and considering inflation, it has actually made
a negative real return. Also, from a multi-year macroeconomic recovery point of view, if we are going to see
improved levels of governance then we are going to see a bounce back as far as GDP is concerned; there are clear
signs that GDP growth is bottoming out at 4-4.5% levels. Thus there is no good reason to believe that there is no
scope for upside in the markets. To reiterate, we see a 10% upside from here for the year end in our target.
Indian gold premiums hit another record high because of a supply crunch ahead of the Diwali festival next
week, caused in large part by government measures to restrict imports of the precious metal.
India is likely to implement its planned 500 billion rupee debt swap plan only after the government's yearly
borrowing programme concludes in February.
The Reserve Bank of India is widely expected to raise its key repo rate by 25 basis points on Tuesday - its
second consecutive monthly hike - as it tries to tackle rising inflationary pressures.
Markit's euro zone Flash Composite Purchasing Managers' Index (PMI) fell to 51.5 from September's twoyear high of 52.2, below all forecasts that predicted an uptick to 52.5.
The economy grew 1.1 percent in the second quarter, and the economy minister predicted rising exports
would compensate for a leveling off in domestic consumption, sustaining a recovery in Euro zone.
According to financial data firm Markit, U.S. factory output contracted in October for the first time since
late 2009 and the overall pace of growth was the slowest in a year.
U.S. Treasury debt prices rose, with benchmark yields hovering near three-month lows, as investors shifted
their focus to the Federal Reserve meeting next week, where it might signal it will stick to the current size
of its bond-purchase stimulus.
China's house prices in September rose 9.1 percent from a year earlier, the sharpest rise since January
2011. House prices in the country's largest cities rose much faster than the national average. They were up
16 percent in Beijing, 17 percent in Shanghai and about 20 percent in the southern cities of Guangzhou and
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