The World This Week: July 15 - July 19, 2013


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The World This Week: July 15 - July 19, 2013

  1. 1. The World This Week July 15 – July 19, 2013
  2. 2. Equity View: The equity markets last week were flattish, moving up by only around 0.2%. The big news of the week was tightening of the rupee liquidity by the RBI. RBI carried out an increase in Marginal Standing Facility to 10.25% from 8.25% which is a significant 200 bps increase. At the same time the Liquidity adjustment facility through repo has been capped at Rs 75,000 Crs. It essentially means that if banks have to borrow overnight for an amount more than Rs 75,000 Crs, they would need to borrow at 10.25% v/s a 7.25% which is the repo rate which was applicable earlier. This has been done with an intention to stem Rupee depreciation. As we have seen for the last 2 to 3 months, the Rupee has weakened significantly against most of the global currencies especially against the Dollar. Rupee has weakened against dollar to the extent of around 10%. The current step by the RBI is a preventive measure to stop any further pressure on the Rupee. So far however, we have not seen any significant appreciation in the Rupee. It has largely stayed at around 59 – 59.5 levels against the Dollar. We do believe that this measure will provide some kind of cushion in the short term. Although it might end up having a negative impact as far as the growth is concerned. With this measure we don’t expect any rate cut to happen on the 30th July policy. We believe that RBI would monitor the Rupee levels for the next couple of months and if Rupee stabilizes at these levels then these measures might be reversed and RBI might proceed on the monetary easing stance, but for now there seems to be a hault on the monetary easing activity and to that extent we would not expect any rate cut for the next couple of months. In terms of policy news, Government of India made some fresh changes in the FDI regime and 100% FDI in telecom has been allowed. There have also been proposed changes as far as the Insurance space is concerned but that is subject to parliamentary approval. There were also some changes made to the defense procurement policy where selectively FDI will be allowed in that space. In terms of the results season, we have seen most of the private sector banks come up with their results while their headline profitability numbers were quite good with a range between 20% – 40%. We have seen pressure on the asset quality front. Most of the private sector banks have also reported increase in gross Non-Performing Assets (NPAs) and we believe that next couple of quarters might also see some pressure on the asset quality. In terms of global news, we have seen US markets make fresh lifetime highs on the back of the robust earnings season. US banks have delivered very strong earnings growth this quarter. The US stock market rally has also been backed by the US Fed comments that they are in no hurry to reverse the QE stance and they would watch the labour market data and the inflation data before carrying out any tapering in the QE activity. That has helped in subsiding most of the concerns that markets across the world had regarding any premature withdrawal of QE III.
  3. 3. News: DOMESTIC MACRO:  India's headline inflation picked up for the first time in five months in June to a level of 4.86 percent as compared to 4.70 percent in May.  BoFA-ML and Macquarie cut India's economic growth forecast for the fiscal year ending in March 2014 to 5.5 percent & 5.3 percent respectively from the average of 6.0 percent.  India relaxed foreign direct investment (FDI) rules in a broad swathe of industries including telecoms, single brand retail and oil and gas in a bid to lure capital inflows, prop up a sliding currency and revive growth. GLOBAL MACRO EURO  Greece faces September funding gap as it needs another 10 billion Euros ($13.1 billion) by September to plug a funding gap which could threaten the disbursement of further aid. USA  Moody's Investors Service upgraded the outlook for U.S. government debt to 'stable' from "negative" and affirmed the United States' blue chip Aaa rating.  The US city of Detroit in Michigan files for bankruptcy and has become the largest American city ever to file for bankruptcy, with debts of at least $15bn. China  China's annual GDP growth slowed to 7.5 percent in April to June compared with 7.7 percent in the January – March Period – it’s the ninth quarter in the last 10 that expansion has weakened. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 15/07/2013 20,034 6,103 10,635 13,472 6,323 9,614 7,030 9,429 6,824 7,783 8,863 1,652 1,548 3,995 16/07/2013 19,851 6,014 10,569 12,821 6,252 9,399 7,158 9,383 6,809 7,635 8,929 1,651 1,457 3,997 17/07/2013 19,949 5,984 10,488 12,524 6,320 9,370 7,400 9,370 6,878 7,496 8,983 1,660 1,447 4,011 18/07/2013 20,128 6,029 10,513 12,779 6,429 9,510 7,456 9,441 6,904 7,537 9,100 1,675 1,484 4,038 19/07/2013 20,150 5,993 10,687 12,543 6,352 9,320 7,441 9,346 7,097 7,478 9,161 1,643 1,456 4,127 0.58% -1.80% 0.49% -6.90% 0.46% -3.06% 5.85% -0.89% 4.0% -3.92% 3.36% -0.54% -5.94% 3.30%
  4. 4. Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 15/07/2013 60.05 90.71 78.47 60.51 6517 26717 16/07/2013 59.39 89.89 77.72 59.54 6551 26613 17/07/2013 59.36 89.69 77.98 59.77 6423 26625 18/07/2013 59.71 90.58 78.21 59.59 6447 26582 19/07/2013 59.79 91.03 78.52 59.74 6491 26800 20/07/2013 6462 26799 0.43% Rupee Appreciated -0.35% Rupee Depreciated -0.06% Rupee Depreciated 1.29% Rupee Appreciated -0.84% 0.31% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 8.77 115 2-Year 8.30 57 5-Year 8.29 49 10-Year 7.94 42
  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”