RBI in its policy review last week increased the interest rates by 25 bps. In view of the RBI Governor, this
is a fight against CPI inflation. The government and the RBI, is extremely concerned about the elevated
levels of CPI for last 2-3 years. RBI has also set a firm target on CPI of 8% by January 2015 and till the time
inflation begins to fall sustainably below that level, we would expect interest rates to stay high for the
next couple of quarters. A major change in the RBI stance has been that instead of WPI - CPI has become
the key metric of inflation- targeting in the country, which would also be considered for the formulation
of monetary policy.
In light of the above, we have changed our stance on the Banking space from Overweight to equal
weight. Some of the private sector banks also came out with deterioration in asset quality in the last few
months and, there is a need to be little cautious on the volatile balance sheets of these banks.
In terms of corporate results, we have almost come to the end of earnings season which was largely in
line with the expectations of the broader markets. The earnings growth for this quarter has been around
9-10% on the ex-Energy basis which is what the markets had expected. IT and Pharma came up with a
decent set of results. There were some disappointments in the banking space while largely even this was
in line with expectations. Some of the public sector banks have come up with good numbers and, we still
maintain that the public sector banks are expected to show significant outperformance vis-à-vis overall
The US Fed in its policy reduced the extent of monetary stimulus from USD 75Bn to USD 65Bn a month.
This was largely factored in, by the markets thus we did not see huge volatility in both equity and
currency markets across the emerging world in the last week. The US Fed is expected to continue to carry
out calibrated steps to reduce monetary stimulus till the time US economy continues to show strong
recovery. The US GDP growth rate was around a strong 4.1% last quarter and the unemployment number
has also been coming off. Based on these two things, the US Federal Reserve has decided to further
reduce the monetary stimulus. However, we do not expect any further tapering action until next month
when a lot of significant fiscal issues are to be addressed.
Government raises cap on subsidized cooking gas cylinders from 9 to 12 per year.
Finance Minister of India expresses confidence that the Indian economy’s growth rate will increase from
6% in 2014 to 8% in 2016
RBI hikes repo rate by 25 bps to 8%; and said further tightening unlikely soon if retail inflation eases as
projected, it does not foresee further near-term monetary policy tightening.
State Bank of India raises 80.32 billion rupees ($1.28 billion) via share sale to institutional investors to
boost its capital requirements.
Euro zone consumer price inflation dropped in January to 0.7 percent year-on-year in the first month of
2014, down from 0.8 percent in December.
Italy's seasonally adjusted unemployment rate was 12.7 percent in December, just a notch below the
revised 12.8 percent rate for November, remaining near its highest since the 1970s
German tax revenues rose to their highest ever level in 2013 by 3.3 percent to 570.2 billion euros ($773.4
Fed trims asset purchases by another US$10bn to $65bn a month.
The consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4
percent after advancing 0.6 percent in November.
Initial claims for state unemployment benefits increased 19,000 to a seasonally adjusted 348,000, the
Labor Department said.
The official Purchasing Managers' Index (PMI) edged down to six month low level of 50.5 in January from
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