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The World This Week: July 1 - July 5, 2013


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The World This Week: July 1 - July 5, 2013

  1. 1. The World This Week July 1 – July 5, 2013
  2. 2. Equity View: 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 estate sectors.
  3. 3. News: DOMESTIC MACRO:  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. GLOBAL MACRO EURO  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 from stable. United States  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 economic activity. China  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. Indices: 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%
  4. 4. Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 01/07/2013 59.14 90.05 77.06 59.48 6099 25816 02/07/2013 59.41 90.38 77.60 59.53 6092 26231 03/07/2013 60.10 91.07 77.95 59.65 6179 26211 04/07/2013 60.09 91.57 78.07 60.25 6356 26258 05/07/2013 60.33 90.78 77.80 60.14 6342 26146 06/07/2013 6500 26098 -1.97% Rupee Depreciated -0.80% Rupee Depreciated -0.95% Rupee Depreciated -1.10% Rupee Depreciated 6.57% 1.09% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 7.66 9 2-Year 7.67 9 5-Year 7.75 14 10-Year 7.50 5
  5. 5. Satadru Mitra Varun Goel Jharna Agarwal Abbas Naheed Kinjal Mehta Disclaimer The information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock Broking Limited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use of this information and views mentioned here. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above- mentioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on investments Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian regulations. Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 . (Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034) SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O): INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”