The World This Week June 02 2014 - June 06 2014


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The World This Week June 02 2014 - June 06 2014

  1. 1. The World This Week June 02 – June 06, 2014
  2. 2. Equity View: The markets hit fresh time highs again last week. This was essentially led by Oil & Gas and public sector Banking space due to expectation of reforms in the respective areas. Diesel deregulation continued increasing prices and in the next few months there would be no under-recoveries meaning zero diesel subsidies. With zero under-recoveries in petrol already, we expect this move in Diesel to provide major relief to Oil & Gas companies both upstream and downstream. The downstream companies would not have to bear any subsidy at all and the upstream companies’ overall subsidy burden will reduce significantly therefore we continue to be bullish on Oil & Gas companies. Also, the PSU banks have been doing quite well in expectation of the improved asset quality in future. These banks have a large exposure to infrastructure projects thus fresh approvals and unblocking of more infrastructure projects would address some NPA concerns which could also lead to rerating of the Public sector banks in general. We expect the markets to rally especially moving towards the Budget season in expectation of a large number of reforms announcements. One of the big announcements towards reforming labor laws was made in Rajasthan yesterday for the first time in last 50 years. Labor law had been one of the most problematic areas for corporate sector as it was rigid and restricted them from freely hiring and firing labor concerning their social benefits thus created a large burden in functioning. Rajasthan government has taken lead in revamping these laws. If they are amended and given approval by the central government, this state could become a role model for other states to change these laws. This may provide stimulus to the corporate sector. The coming week is expected to release some key data points. With respect to the export-import numbers, we expect the export growth to be between 4 and 5% and import to contract as a result of which the trade deficit should stay between $10 Bn and $15 Bn which is well within the limits of the Finance ministry. The CPI is expected to come around 8-8.5% and we expect inflation to stay around these levels for next few quarters. There could be some uptick in the seasonal food and vegetable prices as the rainfall is likely to be deficient. We would believe that by January 2015, CPI would end by 8% which is within the target of RBI. IIP growth on the other hand, has been muted in the last two years. The industrial growth activity in the country in the last year was almost zero. However the eight core industries which constitute almost 40% of IIP showed a growth of 4.5% in last week which gives optimism that core industries like electricity and power are showing signs of improvement and going forward the industrial activity should also revive. We expect an increased growth of 1-2% in IIP. Therefore we suggest a participation in equity markets at this point as there is a lot of scope for returns.
  3. 3. News: DOMESTIC MACRO:  Highlights of the RBI’s Second Bi-monthly Monetary Policy Statement, 2014-15 :  The statutory liquidity ratio (SLR) reduced by 50 basis points (bps) from 23.0% to 22.5% of their net demand and time liabilities (NDTL) with effect from the fortnight beginning June 14, 2014.  The liquidity provided under the export credit refinance (ECR) facility reduced from 50% of eligible export credit outstanding to 32% with immediate effect.  A special term repo facility of 0.25% of NDTL introduced to compensate fully for the reduction in access to liquidity under the ECR facility with immediate effect.  India’s growth in output of the eight core sectors jumped by 4.2% in April as compared to 2.5% in March.  India's HSBC manufacturing Purchasing Managers' Index rose to a three-month high of 51.4 in May from 51.3 in April.  India’s Consumer Price Index for Industrial Workers rises to 7.08% in April from 6.70% in March.  Government is considering reducing its stake in all public sector banks to between 51-58%. GLOBAL MACRO EURO  European Central Bank (ECB) lowers its benchmark interest rate to 0.15% from 0.25%, cuts the interest rate on its deposit facility to -0.1% from 0% and lowers its rate on emergency overnight loans by 35 bps to 0.40%; also opens a 400bn euro liquidity channel tied to bank lending.  Eurozone consumer price inflation rose by a seasonally adjusted 0.5% in May, down from 0.7% in April.  Eurozone unemployment rate fell to 11.7% in April from 11.8% in March. United States  US trade deficit rose to $47.2 bn in April, up 6.9% from an upwardly revised March deficit of $44.2 bn  US Markit services PMI came in at 58.1 in May, up from 55 in April, while composite PMI rose to 58.4 in May, up from April's 55.6. China  IMF cuts China’s economic growth forecast for 2015 to 7% from 7.3%.  China's exports dropped 0.3 percent in September from a year earlier, sharply confounding market expectations for a rise of 6 percent, and marking the worst performance in three months.
  4. 4. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 2/6/2014 24,685 8,651 14,701 17,510 7,842 15,442 6,808 10,221 8,458 12,522 11,163 2,218 1,921 4,860 3/6/2014 24,859 8,705 14,744 17,479 7,955 15,636 6,757 10,170 8,454 13,155 11,360 2,250 1,982 4,861 4/6/2014 24,806 8,866 14,842 17,570 8,019 15,830 6,742 10,175 8,347 13,310 11,217 2,266 2,013 4,812 5/6/2014 25,020 8,956 14,956 17,501 8,077 15,992 6,842 10,192 8,454 13,753 11,437 2,310 2,026 4,868 6/6/2014 25,396 9,099 15,185 17,789 8,207 16,124 6,932 10,334 8,401 13,706 11,988 2,327 2,128 4,854 2.88% 5.18% 3.29% 1.59% 4.66% 4.41% 1.81% 1.11% -0.67% 9.46% 7.38% 4.93% 10.76% -0.12% Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 2/6/2014 59.1385 99.0215 80.6285 58.01 6459 26802 3/6/2014 59.2125 99.1691 80.5645 57.88 6436 26788 4/6/2014 59.336 99.1801 80.764 57.76 6444 26731 5/6/2014 59.2973 99.3408 80.6999 57.83 6432 26673 6/6/2014 59.197 99.5161 80.8345 57.85 6451 26679 -0.10% Rupee Depreciated -0.50% Rupee Depreciated -0.25% Rupee Depreciated 0.28% Rupee Appreciated -0.12% 0.46% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 8.20 -11 2-Year 8.24 -35 5-Year 8.34 -20 10-Year 8.51 -13
  5. 5. Varun Goel Jharna Agarwal Nupur Gupta Ridhdhi Chheda 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”