The week of January 18-22 saw high volatility in markets with indexes touching 20-month lows but recovering. Banking and financial sectors corrected as banks cleaned up non-performing assets. Crude oil prices are expected to bounce back to $35/barrel in the short term after hitting a bottom of $25-27/barrel. The US Federal Reserve may not raise interest rates this week due to global economic concerns. Domestically, the gold monetization scheme received a poor response.

1. The World This Week
January 18 – January 22, 2016

2. Equity View:
The week goneby signified a huge amount of volatility in the markets with index touching 20-month low
levels and bouncing back. Banking and Financial sector corrected to a great extent indicating that large
part of problems is out from the system with banks proactively cleaning up NPAs.
NPA’s work in the industry as follows - If a loan repayment is not done within 90 days then it is declared
as gross NPA and banks need to keep aside a provision for NPA between time frame of 90 days to 150
days. Thus, it is not declared as a loss but it certainly lowers the profitability as well as the capital of the
banks. If such a thing happens in a high growth period then it may damage more to the banks but since
we are in an atmosphere of a tepid growth the additional capital can be allocated to provisions for NPA’s
which are ranging between 90 – 150 days and this move would not hurt the profitability of banks so
much. Provisions are not considered as real losses thus when things start picking up, loans write-off will
also be at a much faster pace. The rules have changed but asset quality will remain same so long term
investor must not worry more about this and it is quite evident that investor with short term horizon will
rush to exit as it has short term impact on profitability.
The crude oil is expected to bounce back in an immediate short term period. It may hit the bottom levels
of $25 - $27/Bbl but there is an expectation that it might rebound to levels around $35/Bbl. We expect
that US Fed may not go ahead with a hike in interest rates in the policy meet scheduled this week on the
back of global panic and hard landing on China.

3. News:
DOMESTIC MACRO:
The government will pay banks a 2.5 percent commission to unlock the country's massive stash of gold
under a new monetisation scheme, the RBI said, as the ambitious plan received a poor response from
banks and customers.
Crude oil fell on continuing oversupply woes and profit-taking on Monday, reversing from early gains that
followed a surge at the end of last week on short-covering
GLOBAL MACRO
EURO
Fading growth and inflation prospects will force the European Central Bank to review its policy stance in
March, President Mario Draghi said on Thursday, a strong signal that more easing could be coming within
months.
Hundreds of British civil servants received unauthorised access to potentially market-sensitive data earlier
this week before it was officially released, the country's statistics watchdog said on Friday.
United States
U.S. home resales rebounded strongly in December from a 19-month low and prices surged, indicating the
housing market recovery remained intact despite signs of a sharp deceleration in economic growth in
recent months.
Morgan Stanley economists are clinging to their forecast of a 20 percent chance the U.S. economy will slip
into recession in 2016 on evidence of contraction in the factory sector and signs of slowing among services
industries.
China
Financial markets need more clarity on how Chinese authorities are managing their currency, particularly
the relationship of the yuan to the U.S. dollar, IMF Managing Director Christine Lagarde said on Saturday.
China's yuan barely moved against the dollar on Friday and was set to end this week flattish, with dealers
slightly reducing bearish positions against the yuan and the central bank keeping daily guidance rates in a
tight range.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
18/01/16 24,188 10,062 16,700 17,038 11,514 12,145 7,390 15,345 10,827 6,667 9,074 1,774 1,178 5,809
19/01/16 24,480 10,238 16,890 17,324 11,597 12,491 7,414 15,573 10,840 6,672 9,162 1,797 1,198 5,837
20/01/16 24,062 10,032 16,606 16,917 11,586 12,341 7,311 15,410 10,736 6,466 8,950 1,754 1,156 5,770
21/01/16 23,962 10,003 16,296 17,143 11,633 12,220 7,208 15,174 10,814 6,386 8,813 1,747 1,162 5,799
22/01/16 24,436 10,193 16,891 17,625 11,761 12,545 7,246 15,545 10,868 6,662 9,073 1,780 1,184 5,810
1.02% 1.30% 1.15% 3.45% 2.15% 3.29% -1.96% 1.30% 0.38% -0.08% -0.02% 0.31% 0.44% 0.02%

4. Commodities and Currency:
Date USD GBP EURO YEN
Crude (Rs.
per BBL)
Gold (Rs.
Per
10gms)
18/1/2016 67.75 96.45 73.41 57.38 1984 26022
19/1/2016 68.06 96.56 74.17 58.30 1984 25981
20/1/2016 67.98 96.20 74.48 58.24 1923 26238
21/1/2016 67.56 96.42 73.50 57.37 1794 26450
22/2/2016 67.59 96.48 73.61 57.68 2010 26227
0.24%
Rupee
Appreciated
-0.04%
Rupee
Depreciated
-0.28%
Rupee
Depreciated
-0.52%
Rupee
Depreciated
1.31% 0.79%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 7.24 2
2-Year 7.26 -3
5-Year 7.66 -6
10-Year 7.77 -4

5. Phani Sekhar Ponangi Jharna Agarwal
Nupur Gupta Mihir Vaidya
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