The World This Week September 10 - Septemebr 14 2012
The World This WeekSept 10 – Sept 14, 2012
Equity View: Last week, Indian equity markets saw a big set of announcement from the Government of India. The first big step taken by the government was of hiking the diesel prices by Rs 5 per litre and capping the number of subsidised LPG cylinders to six per family per year. On the other hand, petrol and kerosene prices have been left unchanged and a cut in excise duty on petrol prices to extent of Rs 5.30 per litre has been announced. As of now, the subsidy on petrol was almost negligible and diesel still continues to have a subsidy of more than Rs 13 per liter. This is the first big step which government was expected to announce for a long time. The other major announcement made by the government was approval of 51% of foreign direct investment in multi brand retail and aviation. The government announced disinvestment in several PSU units and seeks to raise another Rs. 15000 Crore by disinvestment in all these firms. All the set of reforms which the people and the markets were expecting from the government from a very long time have been delivered in one day itself. This is a very big positive as far as the Indian equity markets are concerned in the medium to long term. Markets have reacted positively to both of these announcements. The Indian equity markets are up around 18% since beginning of the year and are the best performers in the Asia Pacific region. We maintain our stance that Indian equity markets are trading at very reasonable valuations and any set of policy measures by the government is going to get rewarded very handsomely. On Monday, September 17, 2012 RBI is set to announce its mid-quarter monetary policy review. There is a strong possibility of RBI carrying out a repo cut in its policy. A token cut of 25 bps is expected in CRR if the cut doesn’t happen in repo rate. Repo rate cut is almost expected, if the cut doesn’t happen now then it would happen in the month of October because RBI has been demanding from the government some movement on diesel and petrol prices, and some movement on fiscal reforms especially in terms of FDI in retail and aviation and other sectors. The government has delivered all of these during the last week; RBI will find it very difficult to not embark on the path of monetary easing especially when the global markets continue to see monetary easing. (Update: RBI cut CRR by 25 Bps on 17th September) In US, Fed announced that it will launch a fresh round of bond-buying to stimulate the economy, purchasing $40 billion of mortgage debt each month which amounts to $480 billion dollars worth of additional stimulus, in addition to the ‘Operation Twist’ that is being carried out currently. Hence, from an equity market perspective all the enabling factors i.e. a very strong set of global liquidity, a very strong set of fiscal policy by the GOI and also a high probability of monetary measure announcement by the GOI will be triggered and conditions remain extremely benign for Indian equities and we continue to advice of entering in the with new and fresh investments as far as Indian equity markets are concerned.News:DOMESTIC MACRO: Indias wholesale price index (WPI) rose a higher-than-expected 7.55% in August from a year earlier higher than 6.87% in July, mainly driven by higher food prices due to deficient monsoon, government data showed on Friday. The government raised the price of heavily subsidised diesel on Thursday to rein in its fiscal deficit and counter the threat of becoming the first of the big emerging economies to be downgraded to junk. Diesel prices are hiked by 5 rupees; kerosene, petrol prices were left untouched.
The Reserve Bank of India (RBI) on Tuesday relaxed guidelines for Indian companies to raise money overseas through external commercial borrowings (ECB). It raised the maximum limit of ECB to 75% of the average foreign exchange earnings in the past three fiscal years, or 50% of the highest export earnings in any of the three years, or whichever is higher. Earlier, a company could raise a maximum of 50% of its average export earnings in the past three fiscal years. Indias annual exports fell 9.7% to $22.3 billion in August, while imports fell about 5.1% to $38 billion, leaving a trade deficit of $15.7 billion, a trade ministry official told reporters on Thursday, citing provisional trade data. Government allows FDI multi-brand retail, aviation in bold reform push. After months of dithering on the economy, Indias beleaguered government roared back to life in dramatic fashion on Friday, announcing big bang reforms as part of package of measures aimed at reviving growth and staving off a ratings downgrade.GLOBAL MACROEURO The European Union and IMF agreed on Tuesday to ease budget goals imposed on Portugal under a 78- billion-euro bailout deal, giving Lisbon more time to meet the targets as its economy slides deeper into recession. The euro zone debt crisis still has a long way to go before it ends and Europe needs to keep faith in the single currency, International Monetary Fund deputy managing director Zhu Min said on Tuesday. Chancellor Angela Merkel won backing for her stance on the European Central Banks bond buying plans from a key leader of her Bavarian allies on Monday, after others from the southern German party had attacked the scheme as dangerous and possibly illegal.US The U.S. central bank on Thursday said it will launch a fresh round of bond-buying to stimulate the economy, purchasing $40 billion of mortgage debt each month until the outlook for jobs improves substantially. The United States may lose its triple-A debt rating if next years budget negotiations do not produce policies that over time decrease the countrys debt, Moodys Investors Service said on Tuesday.China Imports fell 2.6% on the year in August. Exports grew 2.7%. Chinas economic slowdown is expected to reach its nadir this quarter, with a recovery of momentum delayed until the final quarter, leaving growth for 2012 likely to fall below 8%, a level unseen since 1999, a Reuters poll showed.
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