The World This Week - January 6th to January 11th, 2014
The World This Week
Jan 06 – Jan 11, 2014
In India, the results came out on Friday last week which were in line with the expectations. The good
thing was a clear margin expansion which took most of the analysts by surprise. This was led essentially
by efficiency related gains and cost rationalization measures at Infosys. We have upgraded the stock and
have a target price of Rs 4000. As we have been maintaining, IT remains to be one of the top sectoral
picks for this calendar year and we stand by that. The sector should undergo a PE re-rating during the
course of this year. We believe that rupee depreciation along with a significant volume growth from the
US and Europe, have been the key drivers for good results in the IT sector. Almost 80% of the revenue of
top 3 IT stocks comes from the US and Europe combined with almost 60% coming from the North
Americas and 20% from Europe. Both these geographies are showing very strong growth. We also expect
Asia including India to deliver good revenue growth in the coming times.
In the FMCG sector, a continuous PE expansion had been seen in the last two years, based on secular
growth. And, companies are almost negligibly leveraged with high Return on Equity. IT space also
continues to be in this domain and it would not be surprising if companies like TCS and Infosys get traded
almost 20x FY15 earnings. There is still some upside left in most of the Tier-I companies and we continue
to recommend this space.
Indusind Bank came out with a decent set of numbers with a robust NII and top line growth. The only
concern was an increase in provisioning of NPA norms esp. on the Net NPA. Most of the private sector
banks are expected to see some stress as far as the Balance sheet quality is concerned however that is
largely discounted in the price. We believe that Private sector Banks as whole would deliver around 15%
growth which is decent in this challenging environment. So we continue to maintain positive stance in the
private sector banking space.
The WPI and CPI figures are expected in the coming week. WPI is expected to be largely range bound at
around 7-7.5% for the remaining three months of this fiscal. While the CPI numbers could cool off on the
back of a fall in vegetable and food prices which was extremely high last month. Thus we expect the CPI
to come down from the 11% levels of last month to 10% levels this month. The core CPI has been around
8% and we believe that to be in the same range for some more time to come. Thus, the inflation as whole
would remain elevated for the next few months though lower than the last month’s numbers. On the
back of this, we expect the RBI policy on the 28th of Jan ‘14 to be largely stable as we do not expect it to
hike rates at this point due to very muted and fragile growth environment. At the same time, we do not
expect a rate cut as well, as the inflation continues to be extremely sticky.
The trade deficit in India widened to $10.14 billion last month from $9.22 billion in November on waning
The oil ministry is considering a partial rollback of bulk diesel prices as sales have dropped significantly.
Prime Minister pegs the country’s economic growth at 5% for the financial year ending March 2014
India’s foreign exchange reserves rose by $204.9 mn to $295.71 bn.
Data showed annual euro zone inflation dipped to 0.8 percent in December from 0.9 in November.
Britain needs to cut 25 billion pounds ($41 billion) in spending after next year's election to reduce
borrowing as per finance minister George Osborne.
The U.S. unemployment rate fell 0.3 percentage point to 6.7 percent, its lowest level since October 2008,
despite the smallest monthly job gains in three years.
Institute for Supply Management (ISM)'s index fell to 53 last month from 53.9 in November, dropping to
its lowest reading since June 2013 and under expectations for a read of 54.5.
The December trade surplus fell 24.3 percent from a year earlier to $25.6 billion, missing the forecast of
$31.2 billion and lower than 2013 trade surplus of 12.4 percent.
Sensex Midcap Auto Bankex
06/01/2013 20,787 6,683 12,054 12,631 5,802
6,511 10,064 9,184
07/01/2013 20,693 6,658 12,065 12,608 5,814
6,507 10,076 9,066
08/01/2014 20,729 6,697 12,150 12,626 5,780
6,518 10,181 9,074
09/01/2014 20,713 6,644 12,081 12,532 5,751
6,481 10,228 9,116
10/01/2014 20,758 6,581 11,956 12,339 5,677
6,574 10,247 9,314
-0.14% -1.52% -0.81% -2.32% -2.14% -4.13% 0.96% 1.82% 1.41% -1.73% 0.31% -2.54% -5.83% 1.00%
Commodities and Currency:
Gilt Yield in % (Friday)
Change in bps (Week)
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