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The World This Week Oct 21 - Oct 26


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The World This Week Oct 21 - Oct 26

  1. 1. The World This Week Oct 21 – Oct 26, 2013
  2. 2. Equity View: 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.
  3. 3. 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. News: DOMESTIC MACRO:  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. GLOBAL MACRO EURO  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. United States  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  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 Shenzhen.
  4. 4. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 21/10/2013 20,894 5,946 12,018 12,327 5,930 8,781 6,909 9,762 8,502 9,174 8,873 1,587 1,393 4,819 22/10/2013 20,865 5,988 11,950 12,350 5,879 8,878 6,904 9,779 8,544 9,185 8,848 1,614 1,390 4,839 23/10/2013 20,768 5,986 11,863 12,420 5,902 8,930 6,914 9,703 8,465 9,143 8,770 1,593 1,370 4,796 24/10/2013 20,725 5,996 11,936 12,461 5,931 9,032 6,924 9,651 8,315 9,086 8,735 1,575 1,355 4,723 25/10/2013 20,684 5,965 11,794 12,445 5,946 8,887 6,860 9,573 8,443 8,975 8,693 1,568 1,324 4,769 -1.01% 0.32% -1.86% 0.96% 0.27% 1.20% -0.71% -1.93% -0.69% -2.17% -2.03% -1.19% -4.98% -1.04% Commodities and Currency: Date 21/10/2013 22/10/2013 23/10/2013 24/10/2013 25/10/2013 USD GBP EURO YEN 61.49 99.41 84.12 62.66 61.78 99.66 84.49 62.86 61.53 99.75 84.75 63.18 61.41 99.53 84.82 62.99 61.63 99.94 85.14 63.48 -0.22% -0.53% -1.19% -1.29% Rupee Rupee Rupee Rupee Depreciated Depreciated Depreciated Depreciated Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 8.51 -33 2-Year 5-Year 8.39 8.55 -2 1 10-Year 8.58 3 Crude (Rs. per BBL) Gold (Rs. Per 10gms) 6737 6742 6794 6633 6570 31181 31228 31589 31700 31879 2.48% -2.24%
  5. 5. Satadru Mitra Varun Goel Nupur Gupta Jharna Agarwal Kinjal Doshi 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 abovementioned 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”