Introduction of GST in the Rajya Sabha has significance because it could have been passed in the Lok Sabha also. However, Rajya Sabha is where the government does not have majority and since it’s a constitutional amendment that requires two thirds majority, convincing all the parties is a key milestone and to that extent, introduction and subsequent passage of the bill in the Rajya Sabha will be important. •Earnings Data for 8 core industries including mining, infrastructure and electricity was received which indicated a growth by 5.2% which augers well. However, one needs to see if this is a onetime occurrence or will it continue. Also, since rainfall was moderate, by the end of July, rural consumption is expected to be strong. To that extent, GDP is likely to grow anywhere between 7.5-8% this year. The government’s earlier projections in the budget carry an upward bias.

1. THE WORLD THIS WEEK
July 25 – July 29, 2016

2. EQUITY VIEW

3. EQUITY VIEW
• Introduction of GST in the Rajya Sabha has significance because it could have been passed in the Lok Sabha
also. However, Rajya Sabha is where the government does not have majority and since it’s a constitutional
amendment that requires two thirds majority, convincing all the parties is a key milestone and to that extent,
introduction and subsequent passage of the bill in the Rajya Sabha will be important.
• Earnings Data for 8 core industries including mining, infrastructure and electricity was received which indicated a
growth by 5.2% which augers well. However, one needs to see if this is a onetime occurrence or will it continue.
Also, since rainfall was moderate, by the end of July, rural consumption is expected to be strong. To that extent,
GDP is likely to grow anywhere between 7.5-8% this year. The government’s earlier projections in the budget carry
an upward bias.

4. EQUITY VIEW
• On the international front we have a very peculiar situation where after the yields plunged to historic lows, they
sprang back. The US GDP has been weak at 1.2% which is negative for yields so yields are likely to go down
further. However, the much anticipated fiscal and monetary stimulus of quantitative easing is not coming through.
One was expecting that from Japan which did not happen, from the European Central Bank which also did not
happen and the FED has not supported it vocally. The growth is anemic and the bond yields have crashed, prices
are at historic highs, almost 12 trillion dollars of global debt is now giving negative yields but at the same time the
expectations of bond investors that quantitative easing will happen is not really taking shape. This can lead to very
interesting consequences that bond markets after staying in this zone for may be 2-4 weeks might start
responding by the correction in bond prices which means yields might normalize.

5. EQUITY VIEW
• Looking at the 10 year US treasury which is a benchmark that one closely watches, on a YoY basis it was down by
75 basis points while the FED has increased the rates by 50 basis points in the last one year. This is a very
peculiar dichotomy that on one hand the central bank is raising rates by 50 basis points and on the other hand the
10 year is down by more than 75 basis points during the same time period.
• Logically what should happen over the medium and long term is that the cost of debt should go higher and cost of
credit should normalize which means that yields will continue to rise. This is a very temporary phenomenon that
we are witnessing but if one is speculating on bond prices, then medium and long term is of little consequence. As
we stand today, one expects that volatility in bond prices will start over the next 4-6 weeks. One has to watch the
global market because that is where the biggest headwinds might crop up.

6. EQUITY VIEW
• On the domestic front, results have not been very encouraging. It has been a mixed bag. The banks continue to be
in a spot of bother. IT strangely has delivered 2-3% lower volume growth. However, from medium to long term
perspective, since valuations are not stretched it is not much of a concern.
• All in all results have been a mixed bag unlikely to improve materially over the next quarter. Quarter 2 and 3 may
be better than quarter 1 since festivals are in the early part of October which means stocking will happen in
September and therefore results of many companies will be better. What we need to see on a broader perspective
is whether earnings will catch up. Earnings for Sensex as a group are lower than the estimates. The Sensex group
of companies has to do most of the heavy lifting in the remaining quarters.

7. EQUITY VIEW
• Markets are trading at higher valuations and couple that with very benign credit conditions, it is a deadly recipe for
some kind of an accident to happen. However, this does not mean that there is need to stay away from the market
but new money should be committed on declines because we are generally quite convinced about the overall
make up of the economy. Only thing is if the markets correct by 5-10% it will be a good idea to start nibbling in.

8. NEWS

9. DOMESTIC MACRO
• India's infrastructure output grew an annual 5.2 percent in June, its fastest pace in two months, driven by
a surge in output of cement, coal and electricity, government data showed. Cement production surged
10.3 percent year-on-year in June, faster than a 2.4-percent rise a month ago. Coal output expanded 12
percent year-on-year compared with a 5.5 percent growth in May.
• Indian factory activity grew at its fastest pace in four months in July as export orders jumped, but prices
remained muted, giving room to the central bank to ease policy further if needed, a private survey
showed. India's manufacturing economy is reviving at the beginning of the second half of 2016 after the
slowdown seen in the April-June quarter, as growth in both production and new orders continued to
strengthen in July.

10. GLOBAL MACRO
• British manufacturers slammed on the brakes last month after the Brexit vote and growth
eased in the euro zone, surveys indicated, with factories in China, Japan and elsewhere
in Asia offering only crumbs of comfort. The latest UK Purchasing Managers' Index,
compiled by Markit, will give the Bank of England more impetus to cut interest rates after
it surprised markets by holding fire in July.
• Shockwaves from Britain's vote to leave the European Union are reverberating through
the economy with surveys published, showing a sharp dive in consumer confidence and a
slowdown in the construction sector. An index of consumer confidence plunged nearly five
points to 106.6 in July - matching a fall seen in October 2014 - to touch its lowest level in
a monthly survey in three years.
EURO

11. GLOBAL MACRO
• Banks tightened lending standards for commercial and industrial loans in the
second quarter, according to a survey of loan officers. At the same time,
lending standards to households were little changed overall compared to the
previous quarter. According to most of the banks reasons for more stringent
standards in lending to businesses were "a less favorable or more uncertain
economic outlook, worsening of industry-specific problems, and reduced
tolerance for risk.
• U.S. economic growth unexpectedly remained tepid in the second quarter as
inventories fell for the first time in nearly five years and business investment
weakened further, offsetting robust consumer spending. Gross domestic
product increased at a 1.2 percent annual rate after rising by a downwardly
revised 0.8 percent pace in the first quarter.
UNITED STATES

12. GLOBAL MACRO
• Activity in China's manufacturing sector eased unexpectedly in July as
orders cooled and flooding disrupted business, an official survey showed,
adding to fears the economy will slow in coming months unless the
government steps up a huge spending spree. The official Purchasing
Managers' Index (PMI) eased to 49.9 in July from the previous month's 50.0
and below the 50-point mark that separates growth from contraction on a
monthly basis.
• China insurance industry profits fell 54.05 percent in the first half of the year
to 105.6 billion yuan. China insurance premium income was up 37.29
percent in the first half to 1.88 trillion yuan, while assets rose 15.42 percent
to 14.27 trillion yuan at end-June according to China Insurance Regulatory
Commission.
CHINA

13. INDICES
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
25/07/16 28,095 12,400 20,843 21,729 12,267 15,681 8,684 16,420 10,755 9,487 10,605 2,056 1,620 5,908
26/07/16 27,977 12,421 20,611 21,570 12,266 15,647 8,657 16,239 10,796 9,479 10,536 2,057 1,599 5,924
27/07/16 28,024 12,496 20,757 21,762 12,238 15,724 8,613 16,117 10,838 9,536 10,554 2,061 1,597 5,960
28/07/16 28,209 12,573 20,925 21,817 12,520 15,592 8,741 16,183 10,848 9,466 10,542 2,073 1,613 5,970
29/07/16 28,052 12,661 21,091 21,679 12,405 15,478 8,725 16,299 10,813 9,406 10,595 2,077 1,607 5,951
-0.15% 2.10% 1.19% -0.23% 1.12% -1.29% 0.48% -0.74% 0.54% -0.85% -0.09% 1.01% -0.80% 0.73%

14. COMMODITIES AND CURRENCY
Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms)
25/07/2016 67.24 88.35 73.80 63.37 3,067 30,688
26/07/2016 67.37 88.17 74.17 64.58 3,007 30,764
27/07/2016 67.24 88.30 73.89 63.57 3,023 30,777
28/07/2016 67.06 88.43 74.36 64.07 2,923 31,025
29/07/2016 67.03 88.30 74.27 64.69 2,863 30,939
0.31% 0.06% -0.64% -2.08% 6.65% -0.82%

15. DEBT
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 6.85 2
2-Year 6.87 -1
5-Year 7.04 -6
10-Year 7.16 -9

16. KIASL TEAM
Jharna Agarwal
Head- Advisory
Jharna.agrawal@Karvy.com
Nupur Gupta
Lead Advisor
Nupur.gupta@Karvy.com

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