2. Equity View:
Last week, the Indian equity markets closed on a flattish note. The result season continued last week with
many companies coming up with their quarterly results. The leaders so far have been the private sector
banking names like ICICI Bank, Axis Bank, HDFC Bank etc. as they delivered a good set of numbers. We
continue to see a significant credit growth of around 16 – 20%, which is higher than the slowdown which
was witnessed in corporate lending. The asset quality of private sector banking names continues to be
stable. Although we have not seen a very significant improvement, but there is no deterioration too,
which indicates that the worst of the NPA cycle in private sector banking space is over.
Punjab National Bank and Bank of Baroda came up with poor numbers when they announced their
quarterly results last week. We continue to maintain a cautious stance on the public sector banking space
in the light of the fact that their asset quality continues to deteriorate. There are more and more assets
which are being classified as non-performing assets and re-structured assets. We still don’t know how
much more stressed the PSU banks will be in the next few months. Hence, the bias remains clearly
towards the private sector banking space.
In terms of the macro events, RBI would come up with its Monetary Review Policy tomorrow, i.e. the 30th
of October 2012. It is difficult to say whether RBI would cut repo rate this time as the inflation for the
month of September came at 7.8% which was higher than the previous 3 months. We believe that RBI
would do a CRR cut of anything between 25-50 basis points and the repo cut would happen in next few
months. RBI has been carrying out monetary easing in some form or the other for the last 7 months. In
the month of August, RBI had cut the CRR and then it was followed by a cut in SLR in September. RBI has
been continuously easing although it prefers non-repo tools i.e. CRR and SLR; it is very much likely that it
would use non-repo tools for further easing even tomorrow.
Most of the big banks both in public and private space have already cut their housing loan rates and auto
loan rates during the last month in anticipation of further monetary easing by the RBI. In light of several
fiscal policy measures which are announced by the government last month, we believe that it should give
enough firepower to RBI to carry out the necessary action in the rate cuts.
News:
DOMESTIC MACRO:
Prime Minister Manmohan Singh gave his cabinet an overdue facelift on Sunday, bringing in younger
ministers in a bid to breathe new life into his aged, scandal-tainted government ahead of state and Lok
Sabha elections. He rejigged about a third of his 30-member cabinet, and reshuffled a number of key
portfolios, including, oil, foreign policy, railways and justice. As part of the image makeover, he also
brought in a raft of new, younger state ministers who will not have cabinet-level posts.
Key appointments are: Salman Khurshid (foreign), Veerappa Moily (oil), Ashwani Kumar (law and justice),
Dinsha Patel (mines) Jyotiraditya Scindia (power) and Sachin Pilot (corporate affairs).
3. GLOBAL MACRO
EURO
Markit's Composite Purchasing Managers' Index (PMI) for the euro zone, which polls around 5,000
businesses across the 17-nation bloc, fell to 45.8 this month, its lowest reading since June 2009. The
index has now been below the 50 mark that separates growth from contraction since February.
German Finance Minister Wolfgang Schaeuble ruled out public investors accepting a debt restructuring,
or "haircut", on their Greek bonds but said in an interview to be aired on Sunday that a debt
repurchasing programme could be considered.
US
Gross domestic product grew at a 2 percent annual rate, the Commerce Department said on Friday in its
first estimate of the third quarter, a pick-up from the second quarter's 1.3 percent pace.
US’s manufacturing sector managed to grow this month with Markit's manufacturing PMI index edging
up to 51.3, but falling overseas demand and uncertainty surrounding U.S. elections and fiscal policy
suggested the sector's recent struggles would continue in the months ahead.
The Federal Reserve on Wednesday stuck to its plan to keep stimulating U.S. growth until the job market
improves even as it acknowledged some parts of the economy were looking a bit better. In a statement
after a two-day meeting, the central bank repeated its vow to keep rates near zero until mid-2015 and its
pledge to keep supporting growth while the recovery strengthens.
China
HSBC Flash Manufacturing PMI rose to a three-month high of 49.1 in October. PMI data for China
suggested the world's second biggest economy, a key world exporter, is slowly recovering from its
weakest period of growth in three years, with new orders and output at their highest in months.
China's yuan touched its strongest ever level on Thursday and crept within a whisker of its strong-side
limit, as dealers said short covering added to strong corporate demand for yuan. The spot exchange rate
hit a strong point of 6.2422 per dollar last week.
4. Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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