The World This Week - September 30 - September 27, 2013


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The World This Week - September 30 - September 27, 2013

  1. 1. The World This Week Sept 30 – Oct 5, 2013
  2. 2. Equity View: Last week was a positive week for the markets with 1.3% gains in Nifty. As we have been discussing earlier, we will see the beginning of the earnings season this week starting with the IT companies. Infosys will be the first one to declare its Q2 results. We expect a decent set of Revenue Growth in terms of Dollars as well as decent Bottom-Line Growth for most of the IT companies. We would expect a Dollar Revenue Growth somewhere between 13% – 15% which would be extremely healthy after a much muted Dollar Revenue Growth for companies in the last couple of years. There has been around 15% depreciation of the Rupee against the Dollar which would also help most of the IT companies face the margin challenges. Hence we expect a very healthy Profit-Growth from most of the IT companies. The top picks continue to be Tech Mahindra and TCS and we expect IT as a space to continue to do well over the period of next 3 -4 quarters. This is on the back of a very robust U.S. BFSI sector revival and we are expecting good Revenue Growth in Dollar terms to continue. There has also been some kind of a bounce back in terms of European Business activity and that will also help most of the IT companies in the short to medium term. We had the Auto Sales numbers coming out in India. The Two-Wheelers sector data was generally ahead of expectations. We are also seeing some kind of an inventory build-up ahead of the festive season. October and November are traditionally strong months for Indian Automobile companies because of the festive season and this year too we have seen a decent amount of inventory build-up at the dealer level. It is yet to be seen whether that translates into actual sales numbers on the ground; however so far the signs are encouraging. The Four-Wheeler numbers continue to be disappointing and we expect that as far as car sales numbers are concerned they would stay muted for some more time. There is a lot of talk in the market that government is going to come up with some kind of discounts or some kind of interest rate subsidy for financing Auto loans. We have not yet heard of what kind of a plan is to be executed for the same but there is an expectation that something shall happen to boost the Auto space. In terms of other Macro Economic data, we have key data points coming up in terms of Current Account Deficit (CAD) numbers. The Q1 CAD was around $21 Bn which was broadly in line with expectations. The good news however is that for Q2 – gold imports have come down very significantly because of which the CAD numbers are expected to be almost half of what they were in the previous quarter. We are expecting our second quarter CAD to be around $10 - $11 bn. This would definitely boost the Rupee in the short to medium term and this also allays a lot of concerns about the short term direction of the Rupee. This coupled with the fact that Dollar-Index has been weakening for the last 2 weeks because of concerns about debt negotiations and debt ceiling discussions, we would believe that Rupee would find some kind of stability around these levels and probably if the CAD continues to playout the way it has been playing out for the last 2 -3 months, we would have experienced the worse in terms of how the Rupee has played out. That’s good news for most macro parameters and also good news for both Equity and Debt markets in the short to medium term.
  3. 3. As far as U.S. is concerned, there is still no clear solution to the dead lock that we are seeing about the debt ceiling discussions. The 17th of October continues to be a deadline and we believe that there’s a lot of posturing happening and eventually a deal would happen. We are not expecting a big event as far as the markets are concerned and hence while we would continue to monitor the events, we don’t believe that there’s a possibility of something turning out to be a very big negative as far as Equity and Debt markets are concerned in the short to medium term. News: DOMESTIC MACRO:  The finance minister may have to slice at least 200 billion rupees from government spending to prevent a budget blow-out, which could threaten to send the country's credit rating into "junk" status  The Current Account Deficit (CAD) for the three months through June was $21.8 billion, or 4.9 percent of gross domestic product, driven by sluggish exports and high gold imports in April and May before the government hiked tariffs on the metal to a record 10 percent.  The HSBC Manufacturing PMI, compiled by Markit, rose to 49.6 in September from 48.5 in August, but remaining below the watershed 50 mark that separates growth from contraction. GLOBAL MACRO EURO  In Portugal, the government raised its 2014 growth forecast to 0.8 percent from 0.6 percent. It expects the economy will shrink 1.8 percent this year, less than its previous estimate of 2.3 percent. The unemployment will be 17.4 percent this year, lower than an earlier projection of 18.2 percent. United States  Lagarde said growth in the United States has already been hurt by too much fiscal consolidation, and will be below 2 percent this year before rising by about 1 percentage point in 2014, assuming political standoffs are resolved.  The United States has been picking up some of the slack, with the economy having grown 2.5 percent in the second quarter. Manufacturing, too, appears to be gaining momentum after having contracted as recently as May. China  China is the largest single holder of U.S. government debt, a side effect of its managed exchange rate policy, which requires it to purchase massive amounts of dollars from Chinese trading companies to hold back the yuan from appreciating.China's foreign exchange reserves stood at $3.58 trillion in the third quarter.  HSBC PMI edged up to 50.2 from August's 50.1, hitting a five-month high and showing slight growth, but still a let-down for investors as it was below last week's flash reading of 51.2.
  4. 4. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 30/9/2013 19,380 5,606 10,997 10,964 5,773 7,707 6,838 9,464 7,839 8,371 8,216 1,523 1,170 4,437 1/10/2013 19,517 5,638 11,096 11,257 5,809 7,824 6,841 9,490 7,846 8,346 8,165 1,514 1,202 4,454 3/10/2013 19,902 5,716 11,360 11,641 5,892 8,045 6,781 9,581 8,034 8,675 8,366 1,538 1,226 4,555 4/10/2013 19,916 5,731 11,467 11,611 5,913 8,005 6,799 9,573 8,022 8,730 8,404 1,530 1,246 4,549 2.77% 2.23% 4.28% 5.90% 2.42% 3.88% -0.57% 1.15% 2.33% 4.29% 2.28% 0.47% 6.46% 2.53% Commodities and Currency: Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 30/9/2013 62.777 101.4162 84.6745 64.15 6715 30186 1/10/2013 62.3555 101.203 84.5365 63.51 6803 29929 3/10/2013 61.9348 100.4397 84.236 63.43 6809 29455 4/10/2013 61.405 99.2857 83.679 63.25 6751 29728 2.23% Rupee Appreciated 2.15% Rupee Appreciated 1.19% Rupee Appreciated 1.42% Rupee Appreciated -0.54% 1.52% Debt: Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 9.26 -2.3 2-Year 8.41 -26.42 5-Year 8.62 -15.8 10-Year 8.62 -8.8
  5. 5. Satadru Mitra Varun Goel Jharna Agarwal Abbas Naheed Kinjal Doshi 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”