The World This Week - December 9th to 14th December
The World This Week
Dec 09 – Dec 14, 2013
The last meeting of Fed this year is expected on the 17th or 18th of December. A lot of expectations and
speculations are there that some tapering of the QE which was expected since several months now might
start. Our own sense is that till the time US fiscal issues are resolved in adequate fashion, we would not
see meaningful tapering therefore either no tapering would be there or a very small tapering of US$ 5 Bn
a month from the current US$ 85 Bn of bond buying program is expected. Thus, no significant threat is
expected to the emerging market equities and bonds in the short term. We believe that US is going to
face significant fiscal headwinds going to next year and therefore no meaningful tapering would begin as
of now. Tough we saw the last couple of tapering activities had actually started with negative movement
in Indian equities and currency. However we believe that this time, India is much better prepared both
from a currency and market perspective and hence even the worst case reaction should not be similar to
the one we saw last time in August and September.
In India, there is an RBI meeting on the 18th this month and there are expectations of further Repo rate
hike due to two key data points which came last week. CPI for the previous month came at 11.24% which
is significantly higher than market expectations. We believe the Core CPI which is the number that RBI
tracks has continued to be flattish at 8% thus there could be a 25 bps hike in the Repo which is largely
priced in by both bond and equity markets hence it should be a non-event for the markets. It is important
to note that food and vegetable prices are the leading causes of the elevated CPI that we have seen in
the last few months and this should cool off in the next two months which could bring the CPI number
below 10 however, we would expect both the CPI and WPI to stay at elevated levels with WPI around 6.57% and CPI around 10% in the remaining months of the current fiscal.
A large part of the rate tightening would be finished by the end of this week and we would not expect the
Repo rates to significantly go up after 8% levels. The Trade Deficit data for the last month was around
US$ 9.2 Bn which is better than expectations. Rupee depreciation has led to a significant increase in
exports and we expect good set of numbers to continue going forward hence we would expect the CAD
situation to be largely under control and CAD for the full year would be 3.5% of the GDP which is more or
less in line with government’s expectations. Hence we don’t expect a lot of pressure on the Rupee in the
short to medium term.
Annual retail inflation accelerated to 11.24 percent in November from 10.17 percent the previous month
while India's WPI inflation for November -is seen growing at 7 percent year-on-year.
India's industrial production contracted for the first time in four months with a 1.8 percent slump in
October after growing 2 percent in September.
India's planned 500 billion rupee debt switch programme will be done through the bond market wherein
the government will buy short dated debt maturing in fiscal years 2014/15, 2015/16 and 2016/17, but in
turn selling longer-dated bonds to markets in a bid to spread out redemptions.
An analysis of the third-quarter results of Europe's 30 largest banks found that almost two thirds of the 27
that report detailed quarterly figures said their balance sheets were less risky at the end of September than
at the end of June.
The first Swiss banks have signalled their readiness to work with U.S. officials in a crackdown on wealthy
Americans evading taxes and many more banks are expected to follow in the coming weeks
Annual consumer inflation unexpectedly slowed to 3 percent in November from an eight-month high of
Prices for pre-owned homes and apartments in Beijing rose 19 percent in October from a year ago.
Sensex Midcap Auto Bankex
9/12/2013 21,326 6,420 12,466 13,755 5,802 10,602 6,395
10/12/2013 21,255 6,403 12,455 13,511 5,749 10,286 6,451
11/12/2013 21,171 6,396 12,324 13,459 5,717 10,142 6,487
12/12/2013 20,926 6,383 12,054 13,268 5,675 10,039 6,444
13/12/2013 20,716 6,303 12,034 12,970 5,622
-2.86% -1.82% -3.46% -5.71% -3.11% -7.07% 0.08% -1.22% 1.07% -1.71% -3.58% -6.09% -4.38% 0.11%
Commodities and Currency:
(Rs. per BBL)
Gilt Yield in % (Friday)
Change in bps (Week)
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