2. Equity View:
Equity markets in India and across the world continue to be in an upward movement on the back of
positive news coming out of US and Europe. Greek elections results came out last night and the results
have been favorable in which the pro bailout parties are expected to form a majority on their own. The
important thing is that single largest party gets 50 bonus seats because of which there is a chance of clear
majority between two leading pro bailout and pro Eurozone parties. With this election, a big uncertainty
that the world had about whether Greece is going to exit from Euro has come down significantly. We
continue to wait for the government formation exercise in the next one week but as of now this is a big
positive as far as equity market sentiment is concerned.
In the last week we saw big data points in terms of inflation and IIP. We believe that going forward its
very clear that between growth and inflation, RBI is going to probably favor growth because growth
seems to be falling off a cliff. We have last 4 quarters of consistent fall in GDP of around more than 0.5-
0.6%. From 8% GDP growth in Q4 2011 fiscal, we are down to around 5.3% which is a very significant
deceleration in growth. Going forward the focus of all the policy makers - be it on the monetary or fiscal
side - will be on reviving growth. We were expecting a repo rate cut and more importantly a CRR cut
which did not happen in today’s RBI Policy. The CRR cut was more important at this point of time because
it would have added liquidity in the system very quickly and would enable banks to pass on the Interest
Rate Cuts to the economy at large.
On Wednesday we have a US Fed meeting which will continue till Thursday. There are a lot of
expectations about the stimulus package which could come from Fed. There is no clear detail as to what it
would look like and whether it would happen this week or early next month. The issue is that US is
running a very tight election calendar. There are elections in the US in November and if any stimulus has
to be given it has to be given between now and next month, otherwise it would get too late for the
stimulus package to have any real impact on the economy.
The markets continue to expect monetary easing across the world. We have already seen China going
ahead and taking the lead in terms of rate cuts. In the developed part of the world we have already seen
US Federal Reserve is ready for any stimulus measures if required and we shall come to know that on
Wednesday and Thursday.
News:
DOMESTIC MACRO:
The Congress party named Finance Minister Pranab Mukherjee as its nominee for president on Friday, capping a week
of political turmoil that exposed the fragility of a coalition government that has lurched between crises as the
economy sputters.
The 7.55% rise in the wholesale price index (WPI) was witnessed for the month of May over a year earlier as both
food and fuel price pressures have intensified.
India's exports fell 4.16% year-on-year to $25.7 billion. Imports declined an annual 7.36% to $41.9 billion, leaving a
trade deficit of $16.3 billion for the month of May.
Industrial production rose just 0.1% in April from a year earlier, revised figures showed 3.2% fall in March.
3. GLOBAL MACRO
Euro:
On Friday, a rare fight broke out between Germany and France which traditionally maintain a united front as the euro
zone's most powerful countries. German Chancellor Angela Merkel criticized France's economic performance, a swipe
at Socialist President Francois Hollande who has called for more emphasis on economic growth and less on budget
austerity.
The yield on Spain's 10-year bond topped 7% on Thursday, a danger level that triggered international aid deals for
Greece as well as Ireland and Portugal.
Italy's banks are not in a situation similar to Spain's banks because they have much less exposure to the real estate
market, Standard & Poor's primary credit analyst Renato Panichi told Reuters.
Fitch Ratings on Tuesday downgraded 18 Spanish banks less than a week after the agency cut the country's sovereign
debt rating, underscoring the potential for lenders' assets to deteriorate further.
US:
U.S. manufacturing output contracted by 0.4% in May for the second time in three months and families took a
dimmer view of their economic prospects in early June in signs the American economy's recovery is on shaky ground.
4. Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kishan Jakotia Kinjal Mehta
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