There was a sharp fall in equity markets around the world whch led to fall in the Indian Equity markets as well. Nifty declined at 3.3% last week.

1. The World This Week
September 19 – September 23, 2011

2. Equity View:
There was a sharp fall in equity markets around the world which led to a fall in the Indian equity markets as well. Nifty
declined by 3.3% last week. Developed countries like US, Eurozone and Japan are seeing significant slowdown in
growth and could be moving towards a recessionary environment.
In last week’s FOMC meeting, Fed decided to replace $400 bn worth of short term maturity bonds with long duration
bonds which could help flatten the yield curve. This could put downward pressure on longer-term interest rates and
lower cost of mortgage and auto loans which could help spur some demand. However, the markets were disappointed
as there was no indication of further quantitative easing although Fed Chairman continues to mention that Fed has
several tools available at their disposal to spur growth and they will use it as and when required. With a sharp slowing
down in growth and political bickering in Washington, Monetary stimulus is expected to play a bigger role in reviving US
growth than what has been done so far by Fed. Market participants are developing the view that Fed seems to be
running out of tools to counter the possibility of recession in US.
Eurozone continues to grapple with solvency and liquidity issues. There are renewed concerns about default by Greece
and the sovereign debt rating of Italy was downgraded this week. There has been a sharp counter-trend rally in dollar
as the risk aversion trade plays out coinciding with significant corrections in global equities, commodities and precious
metals. The path ahead for Europe is either full integration or disintegration. If Euro zone goes for the latter, we will
have individual countries floating their currency and Greece would depreciate its currency and Germany would
appreciate Deutsche Mark. The probability of such an event is negligible.
Last week rupee depreciated to a 28 month low of Rs 49.88, but due to the RBI intervention in the currency market,
rupee closed at 49.43 per dollar. The sudden weakness of the INR has been led by the recent risk aversion globally. The
non-occurrence of QE3 has resulted in correction of commodity prices, bullion and metals. The correction in crude has
not resulted in an immediate benefit to our country because of rupee depreciation. Last week FIIs withdrew from the
Indian equity markets. Equity market correction has continued on the back of FII selling. We have seen rupee
depreciating close to 12% from the levels of 44 in August, further compounding the downside for foreign investors.
However, the year till date FII flows still remain positive.
The lowest that we expect the Indian markets to fall to is 4100 (Nifty levels). This is equivalent to 10 times 1 year forward
P/E. This was also the lowest level that the markets traded at in 2008. This would however be the worst case scenario
considering that Greece would default and there would be turmoil as big as 2008. We currently do not expect such a
situation to arise.
Commodity View:
Gold corrected by around 4.5% last week. The sell off last week was ignited when the Federal Reserve sought to flatten
the yield curve by selling short-term debt and buying long-term securities. Although that move was expected, the Fed’s
statement of “significant risks” to the U.S. economy shook investor confidence. Combined with a negative
manufacturing reading out of China and persistent problems in Europe regarding a possible Greek default, investors
started selling without discrimination. Only U.S. Treasuries and the dollar rose. Gold fell in this break as investors
sought to sell winning positions to their raise cash or meet margin calls in other markets. Any nervous buyers who had
profits sought to pocket those as prices were caught in the downdraft. Many investors have craved a buying

3. opportunity (particularly Indian traders due to festival season ahead) and the recent fall creates a monumental window
of opportunity to get in on gold. We are bullish on gold in the long term.
Decline in Crude was cushioned on account of rising concerns that the global economy might go into another recession.
Crude oil which is priced in dollars faced heavy selling pressure as traders drove down prices to levels not seen since
early August. Crude Oil posted a low this week at $77.5/barrel; the subsequent rally was probably related to short-term
oversold conditions and position squaring ahead of the week-end.
Real Estate View:
Residential:
In the residential space, strong pre-launch sales continue to keep the developers far from any correction. Though sales
are down to almost 35% since last quarter, there is no correction visible. The over-supplied locations are stagnant and
would be similar for the coming 2 quarters. Entry points anywhere from Rs. 3000 - Rs. 6000 per sqft in cities like Pune,
NCR, Hyderabad, Chennai and Bangalore are still considered lucrative by first time home -buyers depending on their
usage. The retail investors (2nd home buyers) and HNI investors are delaying their decision to invest due to
expectations of correction. Mumbai stands still tall with prices on their peak in over-supplied market also. Correction
again is reported only on media and not on ground level.
Commercial:
Still in the shadows of over-supply and cautious expansion approach by corporate, this segment has gone through
correction. Rates per sqft have seen almost 30% down-trend and will be stagnant for the coming 2-3 quarters. Surely,
the segment is at the down-tip of the cycle, and is the best opportunity for companies looking for long term holding of
real estate office space. We feel it is an excellent time to buy smaller office spaces at CBD areas
News:
DOMESTIC MACRO:
 India's foreign exchange reserves marginally rose to $316.763 billion as on Sept.16, from $316.497 billion in the
previous week.
 India's food price index stood at 8.84% in the year to Sept. 10, previous week it was 9.47%
 The fuel price index climbed 13.96% in the year to Sept. 10, previous week it was 13.01%
 The RBI on Friday said Governor D. Subbarao will announce the second quarter review of the monetary policy
for 2011/12 on October 25.
 The IMF forecast India's economy to grow 7.8 percent in 2011 and 7.5 percent in 2012, down from its June
forecasts of 8.2 percent and 7.8 percent, respectively.
GLOBAL MACRO
Euro:
 A situation where Greece cannot pay back its public debt can no longer be excluded, European Central Bank
Governing Council member Klaas Knot was quoted as saying on Friday.
 The Bank of England's first round of asset purchases gave the economy a significant boost but any future
quantitative easing may not have the same impact, the Bank of England said in its quarterly bulletin.

4. US:
 President Barack Obama in a rallying call to his Democratic base urges higher taxes to curb deficit by $3 trillion
 Fed Chairman Ben Bernanke Is working on how the Fed can explain its economic goals to the public, the main
agenda would be to detail the changes in unemployment and inflation it would take to make the central bank
turn away from its low interest-rate policy
China:
 The IMF said it expected China's economy to grow 9.5 percent in 2011 and 9.0 percent in 2012. That's down
from its June forecast for China of 9.6 percent economic growth in 2011 and 9.5 percent in 2012.
 China's nearly year-long tightening campaign is near an end, but those who expect Beijing to shift to a looser
stance soon could be disappointed as inflation risks linger and the economy continues to hold up well despite
the global malaise.

5. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Neha Arora Kanika Khorana
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