2. 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:
India's 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.
3. 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.
India's 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, India's 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 MACRO
EURO
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 Bank's 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 year's budget negotiations do not produce
policies that over time decrease the country's debt, Moody's Investors Service said on Tuesday.
China
Imports fell 2.6% on the year in August. Exports grew 2.7%.
China's 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.
4. 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”
