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The World This Week October 24 - October 28 - 2016

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The world this week October 24 - October28 - 2016

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The World This Week October 24 - October 28 - 2016

  1. 1. THE WORLD THIS WEEKTHE WORLD THIS WEEK October 24 – October 28, 2016
  2. 2. EQUITY VIEW
  3. 3. EQUITY VIEW • A year back i.e. diwali to diwali large cap had remained pretty subdued. Large cap indices whether Nifty or Sensex gave about 5-6% returns that too on the back of 6 monthly returns of 10%. Therefore, very clearly returns in the first half of the year were not great then they were better and for the last one month returns remained subdued. • Midcaps were pretty strong with returns of about 19-20%. Small cap returns were also in double digits. The six monthly returns were nearly 18-20% and YTD 2016 is also good. Thus if we see from new year to new year midcaps have shown great numbers unlike the large caps. • Large caps will continue to underperform in comparison to midcaps. However the expected return this year will not be 5-6%. We can expect at least lower double digit returns because in the two quarterly earnings season that we have seen so far results have been positive and hence valuations have come down. This gives hope that large cap indices should at least give 10-12% returns for the year down the line. .
  4. 4. EQUITY VIEW • The growth rate for midcaps has been strong which is actually giving a good earnings growth rate and keeping PEG ratio in momentum. Midcaps should also give about 15-20% compounded returns. Over the next one year also 15% returns is expected. There is expectation for 10-12% returns for large cap and 15-20% for mid and small cap indices. This is the sort of broad outlook one can have diwali to diwali. • In the past month large caps have been negative mainly because of the impending US elections. A debate is going on with respect to the results of the elections. Initially Hilary had a good lead but recently Donald is making up quite well which is creating some sort of a panic in the market that if Donald wins, the markets would crash globally. This would also affect certain sectors like IT and Pharmaceutical in India. • Domestic macros core sector data has been surprising showing a growth of 5% against 3.2%. This data is very volatile so one month gives no indication whether the recovery has begun or not. However, if such a number remains steady for the next couple of months and if inflation remains benign then these two things can lead to a massive benefit for the Indian economy.
  5. 5. EQUITY VIEW • Auto numbers will release today which will continue to be strong. In October i.e. the diwali month there was lot of inventory build up. November might be disappointing but it is too early to discuss. October numbers were very good. Some of the leading players like Maruti and Hero Motor Corp should come out with fantastic numbers. Thus we continue to remain bullish on auto and other segments like consumer durables and quasi infra segment. • The sectors with good private demand and consumption should be focused on rather than aiming for early or• The sectors with good private demand and consumption should be focused on rather than aiming for early or bottom up stock picking. Financial, Automobile and Consumer Durable sectors should be focused on while investing. Investment horizon should at least be 2-3 years and focus should be on midcaps. • Large caps will continue to give safety and stability to the portfolio but returns will continue to be around 10-12%. Thus if one has a risk appetite for staying invested for 2-3 years, focus should be on midcaps.
  6. 6. NEWS
  7. 7. DOMESTIC MACRO • Gold prices stayed firm on Wednesday (i.e. 26th October) as stronger physical demand for the precious metal, ahead of India's late-October festival season, offset a steady U.S. dollar. Demand for bullion is expected to pick up ahead of festivals such as Dhanteras and Diwali, which is also a time when gold is traditionally given as a gift. A recovery in physical demand provided the foundation for the rally that carried over into later trading," HSBC analyst James Steel said in a note.analyst James Steel said in a note. • The Reserve Bank of India (RBI) relaxed guidelines on what domestic interest rate futures can be offered on Friday (i.e. 28th October), allowing banks to hedge their short-term interest rate exposure. Until now, banks could not hedge their interest rate risk on active government bond benchmarks other than 91-day treasury bills. Registered exchanges can select the underlying instrument or interest rate of new contracts, subject to RBI approval, the central bank said in a circular.
  8. 8. GLOBAL MACRO • With a more than trillion euro fuel injection and no interest rates worthy of the name, the euro zone economy is stirring, more data confirmed on Friday (i.e. 28th October), leaving policymakers hunting for signs the nascent recovery is sustainable. • The European Central Bank will provide stimulus until a sustained inflation rebound, even as its unprecedented measures come with side effects and face constraints, two EURO policymakers said on Friday (i.e. 28th October), just as the bank is contemplating more easing. Facing stubbornly low inflation, the ECB will decide in December whether to extend its 80 billion euro per month asset buys beyond its scheduled end next March, having to balance diminishing costs with increasing side effects.
  9. 9. GLOBAL MACRO • U.S. labor costs maintained a steady pace of increase in the third quarter, showing little signs of a significant pickup in wage inflation. The Employment Cost Index, the broadest measure of labor costs, increased 0.6 percent after a similar gain in the second quarter, the Labor Department said on Friday (i.e. 28th October). That left the year-on-year rate of increase at 2.3 percent. • New orders for U.S. manufactured capital goods unexpectedly fell in September UNITED STATES • New orders for U.S. manufactured capital goods unexpectedly fell in September amid weak demand for computers and electronic products, which could temper expectations for an acceleration in business spending in the fourth quarter. The Commerce Department said on Thursday (i.e. 27th October) that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.2 percent after three straight months of strong gains. The so- called core capital goods orders increased by an upwardly revised 1.2 percent in August.
  10. 10. GLOBAL MACRO • Activity in China's manufacturing sector expanded at the fastest pace in more than two years in October, adding to views that the world's second-largest economy is stabilising thanks to a construction boom. The official Purchasing Managers' Index (PMI) stood at 51.2 in October, compared with the previous month's 50.4 and above the 50-point mark that separates growth from contraction on a monthly basis. CHINA basis. • China's new home prices rose in September at the fastest rate on record as buyers rushed to close contracts before new restrictive measures took effect in October. The property market, accounting for around 15 percent of gross domestic product, contributed handsomely to third quarter economic expansion of 6.7 percent.
  11. 11. INDICES Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 24-10-2016 28,179 13,585 22,432 22,722 12,725 15,000 8,521 16,343 10,253 10,335 12,441 2,029 1,551 5,616 25-10-2016 28,091 13,544 22,336 22,779 12,783 14,921 8,451 16,419 10,167 10,293 12,381 2,027 1,548 5,584 26-10-2016 27,837 13,421 22,193 22,347 12,834 14,870 8,441 16,236 10,111 10,151 12,311 2,008 1,537 5,567 27-10-2016 27,916 13,282 21,892 22,330 12,704 14,787 8,488 16,255 10,032 10,075 12,222 1,999 1,531 5,525 28-10-2016 27,942 13,408 22,168 22,384 12,756 14,874 8,515 16,374 9,995 10,286 12,296 2,008 1,552 5,505 -0.84% -1.30% -1.17% -1.49% 0.24% -0.84% -0.07% 0.19% -2.52% -0.48% -1.16% -0.99% 0.04% -1.96%
  12. 12. COMMODITIES AND CURRENCY Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 24-10-2016 66.86 81.67 72.80 64.43 3402.00 29959.00 25-10-2016 66.88 81.77 72.79 64.06 3378.00 30002.00 26-10-2016 66.76 81.36 72.82 64.13 3341.00 30095.00 27-10-2016 66.89 81.69 72.94 63.93 3283.00 30072.00 28-10-2016 66.86 81.30 72.91 63.44 3326.00 30049.00 0.01% 0.46% -0.15% 1.54% 2.23% -0.30%
  13. 13. DEBT Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 6.46 -12 2-Year 6.56 -1 5-Year 6.71 -2 10-Year 6.89 4
  14. 14. KIASL TEAM Shantanu Awasthi Head- Advisory Shantanu.awasthi@Karvy.com Nupur Gupta Lead Advisor Nupur.gupta@Karvy.com
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