The World This Week February 20 - February 24 2012
The World This WeekFeb 20 – Feb 24, 2012
Equity View:Nifty corrected by 2.5% during the last week. This was the first negative week for Nifty after seven consecutive weeks ofpositive movement in the Indian equity markets. The markets have rallied up by almost 17% with FII’s inflow of around $5Bnfrom the beginning of the year. We believe there could be a similar kind of upside in the markets going forward and anycorrection should be used as a buying opportunity. We expect monetary easing to start sooner than expected, if not byMarch, then in April the possibility of the first Repo rate cut is vey high. thThis week happens to be a data heavy week. GDP data for Q3 FY11-12 will be released on 29 February 2012. We expect thenumber to be in range of around 6.3% – 6.4%. Also, GDP growth will bottom out this quarter and next quarter onwards wecould witness the GDP growth of around 6.5% and making the full year growth of nearly 7%. India Infrastructure outputnumbers are expected to have some kind of a bounce back in infrastructure creation space especially in Roads and Highways. stThe monthly Auto and Cement sales numbers will be released on 1 March 2012. We expect the two wheeler & tractorsegments to be robust going forward and also expect the commercial vehicles to bounce back strongly from the low levelsthat were witnessed during the months of November and December last year. Hence, we are positive on the Auto space as itwould benefit from monetary easing as and when it starts. thIn Europe, LTRO facility is scheduled by ECB on 29 February 2012 in which around €500Bn would be pumped in to theEuropean Financial System. This liquidity is expected to find its way in to risky assets across the globe. Hence, we expect thiseasy liquidity would continue to boost risky assets like Equities and Commodities of Emerging Markets. As result of this weare clearly biased on the positive side as far as the Indian Markets are concerned and expect the markets to remain positivewith an upside of more than 20% from current levels during the remaining year.US witnessed a healthy macro economic data flow during the last week. The higher US consumer confidence number led torise in US stock markets. S&P was at its peak, levels last seen in year 2008. Also, NASDAQ is at an 11-year high. US economycontinues to be in a healthy shape and any double dip recession in U.S is not expected for at least next two quarters. Alsobeing an election year, we expect the government to be more involved in the domestic issues hence no big flair is expected inthe Middle-East and Iran. After having two costly wars in Iraq and Afghanistan in past, U.S would not go for any kind ofmilitary involvement in the ongoing Iran-Israel crises. With this view the crude prices to really shoot up significantly from thecurrent levels is not likely. As long as Brent crude stays below $130 a barrel it would not really be a big risk for the Indianequity markets.In terms of valuations, we believe that come Sep-Oct 2012, markets would start discounting FY14 earning numbers and ourrough cut estimate for FY14 numbers are around Rs.1,500 earnings for SENSEX and even a multiple of 15 would give usSENSEX valuations of around 22,500. This would be our year-end target for Indian Equities which is a good 20-22% upsidefrom the current levels.News:DOMESTIC MACRO: Indian consumer prices rose 7.65 percent in the year to January, higher than wholesale inflation for the period but still suggesting price pressures were moderating, adding weight to views that the RBI has room to cut interest rates. India is seeking up to 100,000 barrels per day (bpd) of extra oil every year from top supplier Saudi Arabia to feed its growing refining capacity, its oil minister said on Thursday, denying it was trying to replace supply from sanctions-hit Iran.
GLOBAL MACROEuro: Fitch cut Greeces long-term ratings on Wednesday to its lowest rating above a default, becoming the first ratings agency to make the widely expected downgrade after the country announced a bond exchange plan to ease its massive debt burden. Economic output in the 17 nations sharing the euro will contract 0.3 percent this year, the European Commission said a report, reversing an earlier forecast of 0.5 percent growth in 2012. The wider, 27-nation European Union, which generates a fifth of global output, will not manage any growth this year, the Commission forecast. From France to Germany, Britain to Belgium, four of the regions biggest banks lined up to reveal they lost more than 8 billion euros last year from their Greek bonds holdings. Germany is easing its opposition to a bigger European bailout fund by smoothing the way for the worlds leading economies to secure nearly $2 trillion in firepower to prevent further fallout from the euro-zones sovereign debt crisis. World economic powers told Europe on Friday it would have to do more to fight its financial crisis before they agree to provide back-up in the form of a bigger IMF war-chest.US: Obama sought to deflect growing Republican attacks over rising prices at the pump, blaming recent increases on a mix of factors beyond his control, including tensions with Iran, hot demand from China, India and other emerging economies, and Wall Street speculators taking advantage of the uncertainty.
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