The month of July came at 3/3% which was much below consensus expectations. This shows signs of slowdown

1. The World This Week
September 12 – September 16, 2011

2. Equity View:
IIP for month of July came at 3.3% which was much below the consensus expectations. The April till date IIP is around
5.6% which is much below as compared to 9.0% for the corresponding period last year. This shows signs of slowdown in
the industrial activities, even this month the capital goods number were negative & this continues to be concern for
capital formation activity in the economy.
Reserve Bank of India announced the Mid- Quarter Monetary policy review last week. Reserve Bank of India increased
the REPO rate by 25 basis points to 8.25%, Reverse repo increased by 25bps to 7.25% and Margin Stabilization Facility
(MSF) rate raised to 9.25%.
Inflation has risen to a 13-month high in August at 9.8%. Going ahead, we could witness moderation as base effect
would come into play. Though, inflation might continue to remain above 9%, but we believe that from a statistical
perspective 9.8% would be the peak. The recent hike in petrol might add another 15-20 basis points to the overall
inflation; but we continue to expect inflation to be below the 10% mark.
Interest Rates might be close to peaking out. Downside risks to growth are increasing with a significant slowdown seen
in capital goods and infrastructure activity. There are early signs that discretionary consumption growth might also be
slowing down. Four- wheeler and durables have been witnessing slowdown in the past few months. Exports have
shown slower growth in the month of August. The developed part of the world remains perilously close to
recession/severe slowdown in the short term and hence export growth might continue to slow down. We believe that a
peaking of inflation combined with slowdown in growth might force RBI to an extended pause if not put a definitive
end to the rate tightening cycle after last week’s hike.
From an equity market perspective, we continue to be positive on private sector banking names as they will be the first
to benefit from any peaking of interest rate activity. We continue to maintain a cautious view on capital goods and real
estate space as the slowdown there has been deeper and it would take a few quarters for demand to recover.
Euro Zone Views
There have been murmurs in the market about the disintegration of EU. Will this be another disaster equivalent to the
failure of Lehman Brothers? Will Greece default amount to another global meltdown in financial markets and
consequently a crash?
We believe the impact of Greece default will not be of same order or magnitude as that of Lehman Brothers because of
the very awareness about it. When Lehman Brothers went bankrupt, no one knew about it till the day it actually filed
for bankruptcy whereas likely chances of Greece going bankrupt is far well known & may be avoided, it is already
factored in the prices of Greek bonds, credit default swaps etc. Market participants are questioning whether Greece
will continue to be a part of EU. The German & French president/chancellor have firmly maintained that neither will
they allow Greece to default nor would they permit its disintegration from EU.
The banks that hold large amounts of Greek Debt have been downgraded and questions are being raised on their
survival. Presently, French & German governments have enough cash of their own to shore off their banks’ balance
sheets if the situation demands so. Concerns similar to Greece are being raised about Spain, Ireland and Italy. This is
essentially due to a lack of investor confidence, because of Greece’s known insolvency. But one needs to understand
the difference between crisis of solvency and crisis of liquidity.

3. Illiquidity means having sufficient net worth but not enough cash to pay off debt immediately whereas insolvency is
negative net worth i.e. liabilities are more than the assets. We maintain that troubled economies like Spain, Italy,
Ireland and France are witnessing a crisis of liquidity but are being penalized as much as crisis of insolvency. Portugal is
on the borderline while Greece is facing the crisis of Insolvency.
On that backdrop it is quite possible that European Central Bank would come in with everything it has in its hand as a
final resort to save the run on the bonds of these economies. Lack of market access to Spain, Portugal & Italy might be
counter weighted by the ECB and it may continue to buy bonds from these countries which would lead to quantitative
easing in European Union.
News:
DOMESTIC MACRO:
 India's inflation climbed to 9.78% in August from 9.22% in July, highest in more than a year as prices of food and
manufactured goods surged.
 India's food price index fell to 9.47 week ended Sept 3rd from 9.55% previous week and the fuel price index
climbed 13.01% week ended Sept 3rd from 12.55% previous week.
 India's monsoon rains were one percent above normal in the week to Sept. 14, weakening from 39 percent
above average in the previous week, the weather office said on Thursday, easing concerns heavy rains could
damage planted crops.
 The Reserve Bank of India (RBI) raised interest rates for the 12th time in 18 months and surprised markets by
sticking with its anti-inflationary stance even as growth slows in Asia's third-largest economy and policymakers
elsewhere focus on reviving flagging demand.
Repo rate – 8.25%
Reverse Repo Rate – 7.25%
GLOBAL MACRO
Euro:
 Growth of the euro zone's economy will almost halt at the end of this year as weak global conditions hurt
exports and the sovereign debt crisis hits household consumption and investment, the European Commission
predicted on Thursday.
 For the 27-nation European Union, European Commission forecasted growth of 0.2 percent in the third and
fourth quarters of this year, the same rate as in the second quarter.
US:
 New U.S. jobless claims rose last week unexpectedly to 428,000 in the week ending Sept.10, their highest since
June.

4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Neha Arora Kanika Khorana
Disclaimer
The information and views presented here are prepared by Karvy Private Wealth 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. Mumbai office Address: 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”