The employment data came out from U.S. on Friday. The monthly payroll addition was around 1,95,000
which is better than 1,75,000 which was broadly expected. The economic recovery in U.S. continues to
strengthen with every passing month. The unemployment rate is now down to 7.6% and the
unemployment or the pay rolls number which have been coming out month on month have largely been
surprising the market on the positive. This points to the earlier statements by the U.S. Federal reserve
that they would look at tapering QE III, if they believe there is sufficient recovery in the job market and
the unemployment numbers continue to come down.
So far U.S. continues to be on track of a strong macro economic recovery with GDP growth also bouncing
back with strong improvement in the real estate market. The mortgage market there has seen a sharp
uptick with new house construction and housing sales continue to look up on a month on month basis.
We believe that the U.S. macro economic recovery will continue to play out in the next few months and
we would look at more and more positive surprises from U.S. This has led to a significant boost in the
dollar index. We have seen dollar strengthening against the major currencies of the world including
Japanese Yen and Euro. We have also seen most of the emerging currencies like the Indian rupee
depreciating against the dollar. Rupee touched the level of 60 against the Dollar last week with almost a
10% depreciation since 1st Jan 2013. Other emerging market currencies like Brazilian, Riyal, Turkish and
Russian currencies have also weakened. This is largely on the back of more strong Current Account Deficit
(CAD) in these countries and slowdown in economic growth.
We believe that bulk of the depreciation in rupee has already played out. In the short term there could
be volatility but we would not expect very significant depreciation in rupee from these levels. As far as
the bearing of weak rupee on the equity market is concerned, like we have been maintaining earlier, we
continue to like export oriented-companies in the IT and pharma space. We believe that these are the
companies which will benefit continuously from this very sharp depreciation in rupee that we have seen
unfolding in the last two quarters. So pharma continues to be a top pick at this time and we also like
some names in sectors like IT.
We will have the Q1 earnings season starting in India from the 12th with Infosys coming up with its
numbers. We expect both topline and bottom line growth in Infosys to be muted. The Q-o-Q revenue
growth in dollar terms is likely to be between 1% and 1.5%. We expect companies like TCS and HCL tech
to deliver better Q-o-Q volume growth numbers. Recently there has been a successful merger of tech
Mahindra and Mahendra with Satyam making it the 5th largest IT Company in India by revenue size. We
believe that Q-o-Q revenue growth would be very robust in case of Tech-Mahindra and should be
upwards of 3.5% - 4% and that company continues to be a top pick in IT space. As far as other results are
considered we expect banking, pharmaceutical and FMCG names to deliver strong growth. We are
looking at earnings growth in each of these sectors of around 15% on a Y-o-Y basis. But for the market as
a whole on an ex-energy basis, we expect 10% earnings growth which would be driven by the sectors
which are mentioned before. We continue to remain cautious or negative on infrastructure and real
Foreign direct investment (FDI) inflows into India rose an annual 25 percent in April to $2.32 billion, the
highest in the calendar year.
Indian factory activity remained weak in June as output contracted for the second month running and
order books shrank for the first time in over four years.
The European Central Bank declared it would keep interest rates at record lows for an extended period (i.e
more than 12 months) and may yet cut further, responding to turbulence caused by the U.S. Federal
Reserve's exit plan from money-printing.
Ratings agency Standard & Poor's on Friday revised Portugal's sovereign credit outlook down to negative
U.S. private employers stepped up hiring in June and new applications for unemployment benefits fell for a
second straight week last week, pointing to a steadily improving labor market picture.
U.S. new motor vehicle sales were poised to record their strongest month in more than 5-1/2 years in June
and factories saw a second straight month of gains in new orders in May, indicating some pick-up in
China's factory activity shrank for a second straight month in June and reached its lowest in nine months.
The HSBC/Market Purchasing Managers' Index (PMI) for June retreated to 48.2, the lowest level since
September 2012 and down from May's final reading of 49.2 representing a slowdown in the Economy.
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
1/7/2013 19,577 6,073 10,915 13,383 6,209 9,364 6,594 8,954 6,155 7,906 9,039 1,668 1,591 3,663
2/7/2013 19,464 6,050 10,832 13,278 6,257 9,307 6,591 9,001 6,115 7,868 8,948 1,660 1,562 3,647
3/7/2013 19,178 5,948 10,745 12,969 6,079 9,078 6,608 9,022 6,078 7,623 8,712 1,616 1,488 3,618
4/7/2013 19,411 5,981 10,816 13,007 6,154 9,078 6,785 9,071 6,244 7,601 8,785 1,620 1,511 3,703
5/7/2013 19,496 5,992 10,818 13,038 6,160 9,123 6,846 9,083 6,226 7,648 8,916 1,620 1,513 3,683
-0.42% -1.33% -0.88% -2.57% -0.79% -2.57% 3.82% 1.45% 1.16% -3.27% -1.36% -2.82% -4.86% 0.54%
Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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