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The World This Week - September 02 - September 06, 2013


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The World This Week - September 02 - September 06, 2013

  1. 1. 11 The World This Week September 02 – September 06, 2013
  2. 2. 2 Equity View: Last week we saw a 3.5% gain in Sensex and more importantly a bounce back in Rupee with the Rupee closing around 65 levels against the Dollar v/s the 68 levels which it had breached last Tuesday. This is on the back of some new announcements and measures being introduced by the new RBI governor Mr. Raghuram Rajan. Raising money by Indian banks outside India has been made a bit easier. Various measures which have been announced definitely provide a short term cushion for the Rupee. But we still want to “wait and watch” as to what levels the Rupee actually stabilizes upon. As we’ve been maintaining earlier, stability in other asset classes be it Equity or Debt will emerge only once Rupee has declined. Last week we also saw the announcement of extension of ‘Joint currency Swap Line’ between India and Japan from $15 bn to $50 bn. This will also provide some short term cushion to the Rupee and we believe that in the short term the downward pressure on the Rupee should subside and Rupee should look towards some stability. The big announcement that we are expecting from U.S. Fed on 16th and 17th of this month is one in which we would know what quantum of tapering is being carried out for the ongoing QE3 program. For now we continue to expect that there will be some tapering, the extent of that is difficult to predict. On the whole markets are expecting that from $85 bn a month of mortgage buying, Fed may taper the same down to $60 bn or $70 bn a month. There would be some tapering although the quantum of that is still unknown. There is some level of discounting which is already done by the markets across the world. We believe that a small tapering would result in a non-event as that has been already discounted by the market. We also have the Indian Monetary policy with the new Governor on the 20th of September. There are no signs that there would be any easing as far as the interest rates are concerned and we expect the interest rates to stay high for next few months. We would expect some more measures as far as the oil prices are concerned and that would result in further inflation pressures. Therefore we would not expect any kind of reversal of monetary tightening that the RBI had carried out in the last few months. We believe that the high interest rates are there to stay in the short term. As far as the Equity markets are concerned, we saw a very sharp bounce back in most of the Banking names last week. It was the Private Sector Banking names that bounced to the extent of 10% – 20%. We still don’t believe that we’ve seen the worst as far as Banking space is concerned. Our recommendation remains the same - we would neither recommend buying banking stocks nor selling them. We still would want to wait as to what kind of announcements happen from U.S. Fed and what kind of measures RBI announces towards the second half of this month. We believe that there will be definite asset quality pressures in most of the Banking names in this quarter. As growth has slowed down, we would see further stress in most of the big corporate accounts. Our view on banking space remains cautious. As far as the preferred sectors are concerned, we continue to like IT and Pharma followed by FMCG and Telecom. We saw an announcement by Telecom Regulatory Authority of India (TRAI) last week which talked about cut and spectrum based prices which would definitely be a big positive for the Telecom space. We believe that going forward the macros of the Telecom space are getting quite better. We would see some kind of stabilization as far as a competitive scenario is concerned.
  3. 3. 3 We’ve already seen pricing power return to most of the larger players and if the sector pricing also comes down that would further push profitability for most of the companies. Hence, we are overweight on Telecom sector at this point of time. News: DOMESTIC MACRO:  Indian factory activity shrank for the first time in more than four years last month with the HSBC Manufacturing PMI sank to 48.5 in August from 50.1 in July, the lowest reading since March 2009.  New Reserve Bank of India (RBI) chief Raghuram Rajan kicked-off his term with announcing a spate of measures to support the embattled rupee. • Rajan outlined the plan to attract more funds from non-resident Indians (NRIs) as part of a broader push to lure inflows by offering a swap window to banks for fresh dollar deposits mobilized from non-resident Indians. • The central bank will also offer forex swap into rupees at a concessional rate below market levels for banks that raise dollar funds through overseas borrowings. • Overseas borrowing limit for the banks has been doubled than it was earlier. • Banks should gradually be allowed to decrease their mandatory holdings of government securities, which would free up capital for lending. GLOBAL MACRO EURO  Greece's economy shrank 3.8 percent in the second quarter, the smallest annual decline in nearly three years which was better than an initial estimate in August of a 4.6 percent contraction.  Euro zone sentiment turned positive for the first time in more than two years in September with index tracking investor sentiment in the euro zone swung to 6.5 points, its highest level since May 2011, from -4.9 points in August. USA  The U.S. manufacturing sector grew last month at its fastest pace in more than two years, with the Institute for Supply Management's (ISM) index rising to 55.7 in August from 55.4 the prior month.  U.S. job creation probably picked up in August and is seen steady at a 4-1/2-year low of 7.4 percent resulting Federal Reserve to start scaling back its massive monetary stimulus this month. China  China's factory activity expanded for the first time in four months in August with final Markit/HSBC (PMI) climbed to 50.1 in August, up sharply from July's 47.7.
  4. 4. 4 Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 02/09/2013 18,886 5,376 10,239 10,398 5,715 7,159 6,539 9,038 8,039 8,031 8,357 1,401 1,209 4,478 03/09/2013 18,235 5,276 10,082 9,871 5,452 6,899 6,284 8,840 7,925 7,809 8,054 1,360 1,156 4,388 04/09/2013 18,568 5,330 10,331 10,077 5,502 6,999 6,294 9,070 8,096 8,024 8,222 1,387 1,151 4,488 05/09/2013 18,980 5,420 10,419 11,015 5,752 7,243 6,469 9,050 7,857 8,117 8,388 1,411 1,213 4,390 06/09/2013 19,270 5,451 10,416 11,333 5,713 7,443 6,491 9,149 7,856 8,148 8,573 1,437 1,211 4,414 2.03% 1.40% 1.73% 9.00% -0.03% 3.97% -0.73% 1.22% -2.27% 1.46% 2.58% 2.56% 0.19% -1.43% Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 02/09/2013 65.86 102.51 87.05 66.84 7590 31908 03/09/2013 66.88 103.94 88.09 67.18 7530 32621 04/09/2013 67.02 104.31 88.23 67.18 7738 32060 05/09/2013 66.04 103.10 86.99 66.18 7702 31792 06/09/2013 65.96 102.91 86.58 66.09 7612 30860 07/09/2013 7659 31326 -0.15% Rupee Depreciated -0.39% Rupee Depreciated 0.54% Rupee Appreciated 1.13% Rupee Appreciated 0.91% -1.82% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 9.27 -27 2-Year 9.00 -27 5-Year 8.98 -36 10-Year 8.63 03
  5. 5. 5 Satadru Mitra Varun Goel Jharna Agarwal Abbas Naheed Kinjal Mehta Disclaimer The information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock Broking Limited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use of this information and views mentioned here. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above- mentioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on investments Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian regulations. Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 . (Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034) SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O): INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”