The World This Week
November 7 – November 11, 2011
Last week in India, the equity markets corrected by 2%. SBI declared their Q2 results last week, which was well below
expectations. There was huge increase in NPAs. We expect this pressure to continue in next 2-3 quarters. Kingfisher
Airlines with debt of around Rs. 8000 Crs is almost on the verge of bankruptcy. Most of this debt is lent by PSU banks. SBI
alone has an exposure of around Rs. 1800 Crs. We expect the pressure on the PSU banks to continue for some more time
and hence our bias would be towards the private sector names in the banking space.
IIP data was released last week. IIP number for the month of September came at 1.9% much below the market
expectations of 3.5%. The average IIP of first seven months of FY12 is around 5.5% which is well below the expectation at
the beginning of the year.
Inflation data would be released on 14
Nov 2011 for the month which is expected to be around 9%. The inflation
number will be critical as it will decide the future RBI policy action considering the growth has already weakened and any
further pressure on the economy growth could emerge as a major concern. We continue to maintain the view that the 25
bps hike which was done on 25
Oct 2011 was probably the last hike done by RBI in the interest rate cycle.
The yield of Italian bonds rose above 7%, well into levels considered unsustainable. It is expected that the European
Central Bank & the European Financial Stability Fund would provide some necessary support.
In Greece, Lucas Papademos was announced as the new interim PM because of which some relief emerged in the
political situation. Bond markets too calmed down in Greece after this announcement.
The US Consumer Sentiment data improved due to some positives in the macro economic data like GDP coming in at
better than expected numbers. We believe that concerns about the US going into an immediate recession can be
discarded in the near future and instead expect growth in the US, though muted.
Real Estate View:
We have seen sales in the residential segment come down by 40%-50%. In the commercial space, yields are getting
compressed and rentals are very low for large transactions. We have witnessed an overall pressure being built on the
developers by the media. The Government is trying hard to address these issues concerning real estate & regulatory bill
is one of the steps taken in that space. There have been talks of a Real Estate Regulatory Bill which will punish the
developers who default as far as development is concerned; however there is long debate to it.
Investors are still holding on their investments in real estate as they are not bullish in the current situation and continue
to wait for some correction. However we feel that first home buyers, who want to buy house for consumption should
consider investing now rather than waiting any more for the opportune time.
Land is still hot, developers & investors are investing in land from anywhere between 10-100 acres. State governments
like UP, Kolkata, Maharashtra are giving long term lease instead of transactional land. Infrastructure spending is doubling
every two years due to which it seems that the present crisis will be taken care of and if in the coming two quarters there
is no correction then the prices are expected to only go up.
India's food price index declined to 11.81% from last week’s 12.21%.
India's foreign exchange reserves fell to $314.665 billion as on Nov. 4, from $320.390 billion in the previous
India's industrial output grew at 1.9%, its slowest pace in two years in September, providing further evidence of
deceleration in the economy and raising the odds of a pause in the central bank's 20-month-long policy
India's October exports rose an annual 10.8 percent to $19.9 billion, while imports for the month rose 21.7
percent to $39.5 billion.
The Reserve Bank of India (RBI) bank will consider injecting liquidity into the banking system only if the current
large deficit persists over a longer time even as the interest cycle may have peaked.
Germany plans net new borrowing of 26.1 billion euros ($35.5 billion) next year, some 4 billion euros more than
this year's estimated borrowing, as a deepening euro zone debt crisis drags on Europe's largest economy and
stalls tax revenue growth.
China's annual inflation rate fell sharply in October to 5.5% from 6.1% in September, giving Beijing more room to
fine tune policy to help an economy feeling the chill of a global slowdown.
President Barack Obama stepped up pressure on Friday on a deficit-cutting congressional "super committee,"
urging its members to act before a Nov. 23 deadline as he left for a lengthy Asian tour.
The United States on Friday welcomed Japan's request to join talks on a pan-Pacific free trade pact but said
Tokyo first must show skeptics it can meet the high standards for open markets.
Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Neha Arora Kanika Khorana
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