The weekly report provides an overview of the global and domestic economic environment and financial markets for the week of January 25-29, 2016. Domestically, industrial production contracted while inflation increased. Globally, concerns over China's economic slowdown and the devaluation of the yuan impacted markets. Key equity indices in India recovered slightly by the end of the week despite a contraction in manufacturing activity in China and warnings from the RBI governor about fiscal discipline.

1. The World This Week
January 25 – January 29, 2016

2. Equity View:
Equity markets corrected further as concerns on China slowdown and devaluation of Yuan gained
momentum. Indian markets, during January, though down fared somewhat better compared to other key
global markets. Keeping global scene in mind, US Fed avoided any monetary tightening during the month.
Domestic macros too did not lend any help to the Indian equities. Retail inflation during the month
inched up higher to 5.6%. To add woes, Industrial production showed a contraction of 3.2%. Corporate
results for December quarter till now have largely been in line with expectations. Revenues continue to
remain subdued with volume pressure seen in segments related to commodities or rural growth.
However soft commodity and crude prices have led to gross margin expansion; also improving the
bottom line. Recent initiatives and reform measures taken by the government should translate into
higher growth over next couple of years. However till that time arrives, focus should remain on domestic
driven growth sectors which have a better visibility of earnings. We believe themes like consumer
discretionary and sectors like Automobiles, FMCG and select financials should out-beat the overall
markets over long term.

3. News:
DOMESTIC MACRO:
 Indian manufacturing activity unexpectedly returned to growth in January as firms raised output on
stronger demand, a survey showed, adding to expectations the central bank will likely leave policy
unchanged this month.
 Reserve Bank of India Governor Raghuram Rajan warned on Friday that straying from fiscal consolidation
and easing up on the fight against inflation would jeorpardise the country's economic stability at a time of
global market turmoil.
GLOBAL MACRO
EURO
 Prime Minister David Cameron and European Council President Donald Tusk failed to reach a deal on
Britain's EU renegotiation after talks in London, but agreed to another 24 hours of "crucial" discussions.
 Britain's benchmark equity index rose on Friday, cheered by the Bank of Japan's decision to adopt negative
interest rates to boost its economy.
United States
 The Federal Reserve will be patient as it decides how trouble overseas could hit the U.S. economy, a Fed
policymaker said in an interview, suggesting the central bank will be slower to raise interest rates this
year.
 Wall Street surged over 2 percent on Friday after the Bank of Japan unexpectedly cut interest rates and
Microsoft led a major rally in technology shares, repairing some of the damage to the S&P 500's worst
January since 2009.
China
 Activity in China's manufacturing sector contracted at its fastest pace in almost three-and-a-half years in
January, missing market expectations, an official survey showed on Monday.
 Mid-tier Chinese banks are increasingly using complex instruments to make new loans and restructure
existing loans that are then shown as low-risk investments on their balance sheets, masking the scale and
risks of their lending to China's slowing economy.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
25-01-2016 24,486 10,217 16,775 17,662 11,919 12,431 7,253 15,696 10,902 6,767 9,052 1,772 1,189 5,821
27-01-2016 24,492 10,248 16,798 17,642 11,896 12,346 7,257 15,804 10,924 6,790 9,034 1,801 1,202 5,837
28-01-2016 24,470 10,211 16,727 17,481 11,798 12,134 7,366 15,906 10,901 6,773 9,114 1,809 1,199 5,810
29-01-2016 24,871 10,417 17,046 17,604 12,183 12,368 7,439 16,305 11,165 6,894 9,258 1,838 1,209 5,928
1.57% 1.96% 1.61% -0.33% 2.22% -0.51% 2.55% 3.88% 2.41% 1.88% 2.28% 3.72% 1.64% 1.85%

4. Commodities and Currency:
Date USD GBP EURO YEN
Crude (Rs.
per BBL)
Gold (Rs.
Per 10gms)
25-01-2016 67.64 96.74 73.12 56.93 2181 26373
27-01-2016 67.98 97.51 73.81 57.45 2052 26731
28-01-2016 68.09 97.02 74.06 57.36 2196 26808
29-01-2016 67.88 97.76 74.07 56.26 2262 26575
-0.34% -1.04% -1.28% 1.19% 3.71% 0.77%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 7.24 0
2-Year 7.27 1
5-Year 7.62 -4
10-Year 7.78 1

5. Phani Sekhar Ponangi Jharna Agarwal
Nupur Gupta Mihir Vaidya
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