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The World This Week:Aug15 - Aug19'2011


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Equity market sentiment across the world continues to be uncertain & volatile at this point of time. Ever since the US downgrade by S&P, there is continued concern about US macroeconomic conditions gradually worsening. Indian equity markets have fallen approximately 14% in last month which is in line with the fall of Dow Jones in US.

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The World This Week:Aug15 - Aug19'2011

  1. 1. The World This WeekAug 15 – Aug 19, 2011
  2. 2. Equity View:Equity market sentiment across the world continues to be uncertain & volatile at this point of time. Ever since the USdowngrade by S&P, there is continued concern about US macroeconomic conditions gradually worsening. Indian equitymarkets have fallen approximately 14% in last month which is in line with the fall of Dow Jones in US.In addition to this, there is renewed concern in terms of sovereign debt crisis that some of the peripheral Eurozone countriesare facing. At this point of time there is no definite solution which has been found out. European leaders including theGerman Chancellor & the French President have come up with statements saying that there is no immediate expectation ofeuro bonds which means that the uncertainty in Europe might continue for some more time.In terms of global developments there is a speech expected by the Fed Chairman on 26th August 2011 where world would bewatching for any sign of Quantitative Easing III. If QE3 comes about it will lead to more liquidity into the global financialsystem & part of it also goes into risk assets being revalued again because of excess money in the system.As far as our view is concerned on Indian equity, there is no fundamental deterioration of macroeconomics as suchhappening in India. But as we saw in 2008, if any broad based equity market correction across the world happens then evenIndia would also not be spared. Hence, we maintain a cautious view in the immediate short term. Global uncertainties havelargely factored into the prices of Indian Equities. However because of any specific negative news there might be sharpcorrection in the near term which will make it very attractive time to invest in the equity markets. If there is a 10% correctionat current level it will be essentially be at the same level in terms of valuations as in the worse times of 2008, whichsignificantly is a better buying opportunity. Levels of 4200-4300 on the Nifty would be when we would recommendaggressive investing.Outlook for those sectors & companies which are dependent on global growth to a large extent has definitely deteriorated asa part of that we are going underweight on IT & commodities. All our portfolios Alpha, Gamma & K-series are hedged byusing protective puts.In short term we suggest buying with downside protection, if one is worried about short term losses. For long term it is anattractive valuation and hence one can buy with no protection & ignore losses in the next 1-2 months. Strategy to invest nowwill be buying with a protective put about 200-300 points below nifty’s levels as there is still potential for further correction.
  3. 3. Gold View:Gold has seen an increase of around 6.71% in the last one week. Domestically we are seeing pressure on the Rupee which isaiding the INR denominated gold prices. On the futures side on MCX, gold has crossed INR 28,000 for the near month. In thequarter ending June there has been gold purchase of $45 million globally, of which 52% comes from China & India. Demandin the next two quarters is likely to remain robust for Asian economies and hence we expect the prices to go up.We also expect the scrap sales to increase in Delhi, Chennai etc. which has put pressure on the near term banks purchases forbullion dealers. The gold bank sale which was at a premium has now come down at a discount which is ranging between $3-10 depending on the rates at different centers. There can be correction because of pressure on these scrap sales. Also lowchances of QE3 coming in next week can be a factor supporting gold. Thus we have a bullish stance on gold.Investment Recommendations:In the current scenario of uncertainty on the equity markets, we strongly recommend investing in to fixed incomeinstruments and gold.  Fixed Income Instruments – Interest rates in India currently are at high levels in absolute terms and we expect it to be closer to the peak now. Hence we would recommend locking in high interest rates by investing in NCDs, Fixed Deposits & Fixed Maturity Plans. Alternate to this one can also look at fixed income oriented structured product with features of high coupon and relatively unlinked to the market.  Gold – Call on quantitative easing as well as global uncertainties are driving the prices of gold up. In times of such global uncertainties, gold can be used as a trading asset as its downside remains limited. For the prices of gold to actually fall, uncertainties have to reduce by a huge magnitude, which is unlikely at least for the next 2-3 quarters.News:DOMESTIC MACRO:  The Indian stock markets have been affected by the U.S. market sentiments in the short term, even though the countrys economy is robust and its growth story is intact, the finance minister said in a statement released after market hours on Friday.GLOBAL MACROChina:  The U.S. Treasury showed that China, the largest foreign U.S. creditor, increased its Treasury holdings in June by $5.7 billion to $1.166 trillion.Euro:  The euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France, raising fears of a longer-term dip that could derail efforts to resolve the blocs debt crisis.US:  U.S. industrial output posted its best gain in seven months in July as the auto sector bounced back from supply disruptions wrought by Japans devastating earthquake in March .
  4. 4. Swapnil Pawar Varun Goel Jharna AgarwalPalak Nanjani Neha Arora Kanika Khorana DisclaimerThe 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 andwe 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 theirown investment decisions based on their specific investment objectives and financial position and using suchindependent 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 Karvyaccepts 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 todisclose their individual stock holdings and details of trades, if any, that they undertake. The team renderingcorporate analysis and investment recommendations are restricted in purchasing/selling of shares or othersecurities 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 tothem. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this couldchange the applicability and incidence of tax on investmentsKarvy Private Wealth (A division of Karvy Stock Broking Limited): Operates from within India and is subject to Indianregulations. Mumbai office Address: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), offBandra 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, PMSRegistration No.: INP000001512”