Equity View:Last week, we witnessed a flattish week for both Nifty and Sensex. We had a big sell off last Friday,especially on back of GDP data that came out, although the number was more or less in line withexpectations. The GDP number was 4.8% for fourth quarter of last fiscal and for the full year it camearound 5%. As far as our own view is concerned, we believe that FY14 should have a GDP growth ofaround 6%. The good thing is that the slowdown in GDP growth seems to be over. What we saw was acontinuous 7 quarters of decline in the GDP growth and we had the worst quarter in Q3 of FY13 with GDPgrowth of 4.5%. This quarter growth has bounced back slightly but still remains in and around the samearea. So we believe that the upturn will be slow and gradual and we would see the next two quarters ofgrowth between 5% – 5.5% and later on we would see a growth of 6% and 6% plus in the next twoquarters, taking the full year’s average to around 6%.The recovery that we have seen so far has been led by investment growth, although there are severalinfrastructure projects which are stalled. There are small steps which have been taken by theGovernment of India to kick start these processes, i.e. the reforms in the power space and the big bangproject in the form of dedicated Industrial corridor between Delhi and Mumbai which seems to begetting active. We are going to see a lot of work on that front in the times to come.In terms of consumption demand, there’s a clear pressure on discretionary consumption demand. Wehave seen significant pressure on discretionary incomes and hence companies like Automobiles whichnecessitate a discretionary consumption have taken a hit in terms of volume growth. We have the autosales number for the month of May which came out on the 2nd June 2013, where most of the companiesdelivered negative numbers. Maruti Suzuki delivered a 15% Y-o-Y degrowth in sales volume which isnegative for the overall cars space.The big surprise though was the huge bounce back in tractor sales and we believe that with theexpectation of a normal monsoon, tractor companies should really do well this year, especiallyconsidering the fact that last year was a year of drought and agricultural production had taken a cut.Reports of monsoons seem to indicate normal monsoon for this year. It seems that Kerala has alreadyseen the onset of monsoons and in the next two weeks it is expected that more and more parts of thecountry will get covered by that. So if the monsoons remain normal we would see a sharper bounce backin agricultural growth, which will also support full year GDP numbers.The earning season is almost over, we have seen most of the companies coming up either with numbersin line or better than expectations. For the Sensex companies we have seen 11% growth in profit on ex-energy basis. If we include the energy companies, specially the Oil and Gas companies, the profit growthbecomes higher at 13% on a Y-o-Y basis. So as far as Sensex companies are concerned we have seen avery decent and a healthy growth in profits.
In terms of broader markets there’s still a lot of stress for the market as a whole. If we consider CNX500,the profit growth will be very low, almost nearing zero and we believe that things will get better in thenext few quarters as EBITDA margins continue to improve. We’ve been talking about a significant cool offin commodity prices which is benefitting the bottom-line of most of the companies. So we feel that in thenext two quarters we could see a good expansion in profits primarily on the back of EBITDA marginexpansions and reduction in interest rates..News:DOMESTIC MACRO: Indias fiscal deficit during the 2012/13 fiscal year that ended in March was 4.9 trillion rupees, orequivalent to 4.9 percent of the countrys gross domestic product. The deficit is lower than thedownwardly revised estimate of 5.2 percent provided by the government in the federal budget inFebruary and is narrower than 5.8 percent a year ago. Indian economy grew at 4.8 percent from a year earlier in the January-March quarter, slightlyfaster than an upwardly revised 4.7 percent growth in the previous three months, which was thelowest in fifteen quarters.GLOBAL MACROEURO After three years of deep spending cuts, the European Union confirmed a shift in policy onWednesday, telling countries they must focus on structural economic reforms to boost growth,while not abandoning budget discipline. EU ministers agreed on Tuesday to allocate 31.5 billion euro in development funding to African,Caribbean and Pacific countries over the next seven years, a slight rise in support despite thedomestic austerity in many EU member states.US Gross domestic product, a measure of the countrys total economic output, expanded at a 2.4percent annual rate during the first quarter, down a tenth of a point from an initial estimate, theCommerce Department said. Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 354,000,the Labor Department said on Thursday. Claims for the prior week were revised to show 4,000more applications received than previously reported.China The International Monetary Fund cut its growth forecast for China this year to 7.75 percent from 8percent, citing a weak world economy and exports, adding to concerns that the worlds second-largest economy is losing momentum.
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