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The world this week June 30 July 05


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The world this week June 30 July 05

  1. 1. The World This Week June 30 – July 05, 2014
  2. 2. Equity View: The week ahead is the budget week with the budget on 10th July and the railway budget on 8th July. The following are the key expectations from the budget:  From the taxation perspective, we expect the government to give a very clear road map for GST. We believe that the backbone which is the IT network, is required for all states to implement GST is already been put in place. There is a lot of concern as yet in terms of how that thing will eventually work out and what kind of split in terms of revenue will happen. So those are the things, which will be worked out in the course of the next few quarters and we would believe that by 1st April 2015, GST should come into existence.  The other big tax reform which is expected is the direct tax code. We believe that this is something which has been hanging for a long time, while it is not expected that it will be carried out in this budget but a road map for it will be laid out and again by the beginning of the next fiscal, we would expect even the direct tax code to come into existence.  In terms of personal taxation, there is a lot of talk about medical reimbursements, conveyance reimbursements and the tax slabs are likely to see some change. The limits are likely to be pushed upwards by 50k to 1Lac rupees. Also as per 80CC, 1lakh worth of investments, are being allowed as of now. Those limits can also be extended. There is a lot of talk that 1L can go upto 2L.  To boost housing, the tax exemption on the interest component of housing loan, that limit is currently set at 1.5 L. That limit can also go up. All these things together, will give some disposable income in the hands of the individual tax payer and that should give a boost to the consumption space.  As far as the other sectors are concerned, key announcements which are expected in terms of FDI is that Defense should see a 100% FDI. Insurance, pension and e-commerce, these are again sectors, which can see enhancement of limits as far as FDI is concerned.  There will also be some expectations in terms of announcement of new road cess. So every litre of petrol and diesel that is being bought currently, it could see a road cess of around 1-2 Rs. This will be a revival of the road cess which happened during the Vajpayee era and that’s when the Golden Quadrilateral was built using the money which was collected in form of petrol and diesel cess. So we believe that this government will again go back to that model of recovering the seed capital for highways and road projects through this model.  There is also a talk that there might be cess on the railway which will go into improvement of railway infrastructure.  In terms of broader policy announcements as far as the infrastructure space is concerned, those are largely out of the realm of the budget. We believe that government would keep making separate announcements and legislations to boost up infrastructure activity.
  3. 3.  There is already a talk that land acquisition bill will probably get modified and some of the conditions which were put in the land acquisition bill, which had made land acquisition, especially large tracks of land for big industries, difficult to come by, those things will probably get modified and we might see an amendment to the land acquisition bill, anytime in the next 2-3 months.  Another major sector which requires immediate reforms is the labor side and the Rajasthan government has already made the first step in terms of initiating modifications of the labor laws. Labor laws have not been touched in India for almost 50 years because of which there are strong labor unions. They become a big impediment to the growth of the manufacturing space all across the country. We believe that, initiation of reforms in the labor side will happen, may be not during the part of the budget but outside the budget sometime soon.  Reworking under what qualifies as work under MNREGA which is Rural employment guarantee scheme. The focus would be to create durable assets in rural India through use of skilled labor. It is quiet likely that the conditions for which money is being paid would be reworked and some concrete assets might be built using that.  The most important development which everyone is waiting to watch is what happens on the Fiscal side. The fiscal deficit has been all over the place. The first two months of this fiscal has seen a significant increase in the fiscal deficit compared to last year. That is largely because of huge unpaid bills which have rolled over from the last fiscal. We would expect finance minister to give a clear road map in terms of what is expected in terms of fiscal deficit for the next 3 years. We would believe that the fiscal deficit which was pegged at 4.1% in the interim budget should be pegged closer to 4.5% in the final budget. This is a more feasible and attainable number compared to 4.1% which was given in the interim budget. We would also believe that the finance minister would lay out a road map that by FY17 or FY18, the fiscal deficit should be brought under 2% of GDP which is something which can be sustained for longer period of time.  Announcements in terms of specific sectors and stock market perspective, we would believe that excise duty cuts have already been announced in the automobile space in the last interim budget and those have already been extended. There could be some further relief as far as consumption space is concerned specially on the durable side. In terms of other sectors, there could be some changes with the taxation as far as MAT (Minimum Alternate Tax) is concerned which could help some of the companies in the infrastructure space. This is broadly what is really expected in the upcoming budget. Again as we have been saying that budget at the end of the day is just a accounting statement. Already we have seen enough announcements from the government’s side which has demonstrated that it means business is committed to do significant reforms and removing populist measures and subsidies. So all those things will be taken positively by the market even if these things mentioned above don’t find a place in the budget, there would be 5-7% correction in the market. Any correction should be used as a buying opportunity. We continue to maintain our year end Sensex target of 29,300 and of course our long term target of 1,00,00 by 2020. We continue to advise our clients to go aggressively into equity and increase their allocation to equity in short to medium term.
  4. 4. News: DOMESTIC MACRO:  Government extends the validity period of industrial license to three years with a provision for further extension of two years to improve ease of doing business in India.  RBI to conduct an INR 20,000 cr term reverse repo auction today to address ‘evolving liquidity condition’.  India’s Services PMI rose to a 17-month peak of 54.4 in June from a reading of 50.2 in May.  RBI restores the limit on Indian corporates’ overseas direct investments under the automatic route to 400% of networth, compared with the earlier limit of 100%. GLOBAL MACRO EURO  The European Central Bank leaves its main interest rate unchanged at a record low of 0.15%, holding off fresh policy action while it waits for stimulus measures announced last month to take effect.  Euro zone’s services PMI fell to 52.8 in June from 53.2 in May. United States  US factory orders fell 0.5% in May as compared to an increase of 0.8% in April.  US non-farm payrolls rose by a seasonally adjusted 288,000 in June following an upwardly revised 224,000 in May; the unemployment rate ticked down to a five-and-a-half year low of 6.1% in June from 6.3% in May.  US trade deficit narrowed 5.6% in May to $44.4 bn after hitting a two year high of $47 bn in April. China  China’s HSBC services PMI rose to 53.1 in June from 50.7 in May. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 30/06/14 25,414 9,379 15,249 17,475 8,870 16,200 6,676 11,462 9,346 13,100 11,151 2,319 2,077 5,266 1/7/2014 25,516 9,434 15,743 17,559 8,957 16,406 6,699 11,418 9,259 13,366 11,090 2,325 2,099 5,237 2/7/2014 25,841 9,507 15,966 17,745 9,075 16,681 6,774 11,633 9,263 13,634 11,198 2,370 2,107 5,247 3/7/2014 25,824 9,491 16,093 17,695 9,129 16,674 6,793 11,763 9,294 13,560 11,065 2,350 2,076 5,254 4/7/2014 25,962 9,546 16,096 17,825 9,095 16,629 6,815 11,819 9,311 13,441 11,249 2,370 2,099 5,266 2.16% 1.78% 5.55% 2.00% 2.54% 2.65% 2.08% 3.12% -0.37% 2.61% 0.88% 2.23% 1.04% -0.01%
  5. 5. Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 30/6/2014 60.0933 102.3269 82.0094 59.28 6809 28093 1/7/2014 60.137 102.8343 82.283 59.27 6752 28149 2/7/2014 59.9745 102.8982 82.022 59.05 6748 27964 3/7/2014 59.7225 102.4539 81.5415 58.62 6672 27901 4/7/2014 59.7939 102.6601 81.3203 58.6 6629 27859 0.50% Rupee Appreciated -0.32% Rupee Depreciated 0.85% Rupee Appreciated 1.16% Rupee Appreciated -2.64% -0.83% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 8.46 -3 2-Year 8.42 6 5-Year 8.65 3 10-Year 8.67 -8
  6. 6. 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”