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The World This Week October 31 - November 4 - 2016


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The World This Week October 31 - November 4 - 2016

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The World This Week October 31 - November 4 - 2016

  1. 1. THE WORLD THIS WEEK October 31 – November 4 , 2016
  3. 3. EQUITY VIEW • There was some relief post the announcement made by the FBI with regards to the controversy where in the FBI had found Hilary Clinton’s emails on a private server. The FBI announced that it had no reason to revisit its July decision which had led to a sharp decline in Hilary Clinton’s Lead over Donald Trump which in turn had led to a scare in the global markets. • The announcement has given some relief across global markets and the Indian market was also seen opening. 8th November happens to be the voting day and hence volatility in the markets can be expected. It is difficult to predict what will happen however, investors must understand how to respond to whatever the outcome may be. • Considering that Hilary Clinton might sail through, today and for a few hours tomorrow, markets might be positive. However, some amount of volatility is also expected in the late hours of trading today and tomorrow.
  4. 4. EQUITY VIEW • If Hilary wins there may be some jubilation in the markets, never the less, it all comes back to when the US Fed is going to raise rates and how soon. However if trump wins then a lot of negative press and overreaction can be expected because the entire media has been against Trump and to that extent they will portray as if the world has come to an end. • From an investors point of view it may be an excellent opportunity because that short window of gloom and boom might present great opportunities. If we look at history Republicans have always been good for the stock markets.
  5. 5. EQUITY VIEW • The basic difference in the approach of Democrats and Republicans is that Republicans believe in tax cuts and to that extent they believe that cutting taxes would induce greater investment. Democrats on the other hand believe in redistribution of income which means they are not big on tax cuts; instead they believe spending is going to lead to economic growth. This has been the case with democrats in the white house for the last 8 years which was disappointing because that was expected from them at least in the 2nd innings of Obama. But they ended up spending on things like healthcare which have been hugely controversial. • For the past thirty years it has been observed that when Republicans were in the saddle, the stock markets did well rather it had been good for the markets. If Trump invokes fear and negative press it is a good time for investors to buy.
  6. 6. EQUITY VIEW • In the domestic market the results season has been lackluster. One was keenly looking at how the financial sector would behave; performance of the banking sector has been horrible. Looking at the performance of some banks such as Union Bank and Central Bank, there doesn’t seem to be any bottom for PSU banks. • Banking continues to be a promising story in the long term perspective but approach is always to buy on declines and never chase rallies. Banking happens to be high beta so when markets are going up banking performs better than markets and it looks impractical if you are not part of banking and looks good if stock portfolio rises every day. However, one must understand that it cuts equally ferociously the other way also. Thus banking is for the patient investor who can wait and buy on declines.
  7. 7. EQUITY VIEW • Inflation has hit a year low which is has given some comfort. This is largely due to base effect and with oil dangerously purged around $50-55$ and with global events which can contribute to commodity rally one way or another, it is too early to take a call on inflation. • India at this point is a side show considering what is happening globally. There is pressure on bonds as well and a lot of things are in the pause mode. One first needs to see what happens in the US presidential elections and then one needs to see how policy shifts from monetary to fiscal.
  8. 8. NEWS
  9. 9. DOMESTIC MACRO • Reserve Bank of India (RBI) issued draft guidelines on how Indian subsidiaries of multinational companies can hedge their currency exposure risk in the country. According to RBI, subsidiaries looking to hedge their exposure outside of exports and imports could do so through all foreign currency-rupee derivatives, over-the-counter, and exchange-traded products. • India moved a step closer towards rolling out a Goods and Services Tax (GST) next April after a council of central and state finance ministry officials approved four main rate bands under the new sales tax. The long-delayed tax, which would transform Asia's third largest economy into a single market, could boost revenues through better compliance while making life simpler for business that now pay a host of central and state levies.
  10. 10. GLOBAL MACRO • British Prime Minister Theresa May will use her first bilateral trade trip since taking office to try to boost ties with India before leaving the European Union. According to May's office the visit would focus on breaking down barriers to trade and investment and paving the way for a free trade deal as soon as possible after Brexit, which is not expected to happen before 2019. • The Bank of England scrapped its plan to cut interest rates, which it said could now move up or down, and raised its forecasts for 2017 growth and inflation sharply due to the slide in sterling since Britain's vote to leave the EU. EURO
  11. 11. GLOBAL MACRO • U.S. employers maintained a strong pace of hiring in October and boosted wages for workers, which could effectively seal the case for a December interest rate increase from the Federal Reserve. The solid labour market fundamentals were also underscored by revisions to August and September data, which showed 44,000 more jobs created than previously reported. Average hourly earnings rose 10 cents or 0.4 percent in October. • The U.S. labour market is close to full strength and the economy could at some point overshoot the Federal Reserve's goals for employment and inflation, according to Fed Vice Chairman Stanley Fischer. UNITED STATES
  12. 12. GLOBAL MACRO • China's services sector grew at the strongest pace in four months in October as new business picked up, encouraging companies to hire more workers, a private survey showed. Beijing is increasingly counting on the services sector to create jobs and drive growth as it looks to shift its economic model more toward consumption from a traditional reliance on investment and exports. • 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
  13. 13. INDICES Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 01/11/2016 27,877 13,441 22,275 22,250 12,786 14,825 8,446 16,335 9,913 10,663 12,315 2,019 1,546 5,466 02/11/2016 27,527 13,194 22,033 21,993 12,737 14,659 8,378 15,985 9,803 10,578 11,976 2,001 1,513 5,404 03/11/2016 27,430 13,015 21,991 21,917 12,633 14,592 8,389 15,808 9,726 10,509 11,756 1,981 1,493 5,376 04/11/2016 27,274 12,840 21,810 21,781 12,430 14,342 8,507 15,150 9,790 10,256 11,690 1,959 1,457 5,393 -2.16% -4.48% -2.09% -2.11% -2.78% -3.26% 0.73% -7.25% -1.24% -3.82% -5.08% -3.01% -5.80% -1.34%
  14. 14. COMMODITIES AND CURRENCY Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 31/10/2016 - - - - 3256.00 30049.00 01/11/2016 66.71 81.56 73.18 63.68 3133.00 30551.00 02/11/2016 66.83 81.89 73.95 64.37 3114.00 30477.00 03/11/2016 66.69 82.25 74.15 64.95 3030.00 30598.00 04/11/2016 66.72 83.14 74.05 64.62 2979.00 - -0.01% -1.93% -1.20% -1.48% 8.51% -1.83%
  15. 15. DEBT Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 6.59 13 2-Year 6.55 -1 5-Year 6.73 2 10-Year 6.84 -5
  16. 16. KIASL TEAM Shantanu Awasthi Head- Advisory Nupur Gupta Lead Advisor
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