The document provides an overview of the Indian and global macroeconomic environment and financial markets for the week of August 04-09, 2014. Some of the key points summarized are: - The RBI reduced statutory liquidity ratio requirements, adding Rs. 40,000 crores in liquidity, while keeping interest rates unchanged. Bond yields have cooled off as a result. - Inflation has been trending downward, but food and vegetable prices remain high. The RBI governor has reiterated the targets of reducing CPI to 8% by January 2015 and 6% by January 2016. - Fiscal deficit is projected to be 4.5% of GDP for the current year versus the target of 4

1. The World This Week
August 04 – August 09, 2014

2. Equity View:
RBI did not cut interest rates in its policy last week while the SLR was reduced by 50 bps which would add
around 40,000 Crs of liquidity by next fortnight. This is the second SLR cut carried out in the last two
policies and we believe while the governor is not cutting interest rates yet, there are efforts being made
to provide comfort to liquidity scenario. As a result of this, bond yields cooled off from its peak two
months back. Overall we do not expect interest rates to go up any further considering the fact that
inflation has also been cooling off. Both WPI and CPI have been showing a downward trend in the last 2-3
months. This is expected to stay at these levels since the food and vegetable prices are still running high.
In terms of policy direction, Raghuram has clarified that he would stick to his target of bringing down CPI
to 8% by Jan 2015 and 6% by Jan 2016. As long as RBI is focused to achieve these targets esp. on the CPI,
we believe it would be difficult to cut interest rates in the short term. Though towards the end of this
year once inflation regime becomes more comfortable we might see a rate cut. The liquidity environment
remains conducive thus bond yields may drift downwards if the fiscal deficit continues to reduce.
RBI policies in the last 4-5 months have made India’s macro-economic picture lot more stable compared
with last year as we continue to add to the forex reserves at $320-Bn vs. $275-Bn last September.
Government of India and RBI raised money from NRIs in the last six months and some SWAP lines were
also opened which add to the context in Forex thus we do not believe there is a big threat on the Rupee
whereas in short term, there has been a depreciating bias but this is more in line with the global
currencies.
In terms of global news, there is a lot of talk across the world about whether the US will raise interest
rates sooner than expected and whether that would lead to turbulence in the short to medium term. We
believe that even though US unemployment rate has been going down, there is no immediate
expectation of a rate hike in the US atleast till middle of next year and there is no reason why the global
markets will be perturbed about that. This view is similar to the market consensus. Thus the volatility
prevailing in the global markets is only short term.
US is now intervening militarily in Iraq to stabilize the situation and in Ukraine, there have been
continued tensions but we do not see that impacting global markets in a big way. The global crude prices
also remained benign fluctuating between $105-$110/Bbl which is comfortable considering the fact that
these prices have been here from last two years now. This has provided cushion to India’s fiscal deficit as
the subsidy on diesel is only Rs. 1.5/ltr vis-à-vis Rs. 12/ltr in January last year. We expect the prices to
remain in this range since the demand is not growing at a very fast pace then in the next 2-3 months the
diesel subsidy would be zero. This could elevate a lot of pressure as India spent almost Rs 60,000 Crs on
diesel subsidy last year. We have a 4.5% of Fiscal deficit target this year vs. 4.1% mentioned by the
Finance minister in this year’s budget.
The Q1 results season has been almost in line with expectations with a profit growth of 13-14% with most
of Tier-I companies, the revenue growth has been subdued at around 10-12%. We believe all the macro
economic data points such as IIP, PMI manufacturing, PMI services, auto sales, cement dispatch numbers
are pointing at a small revival in the economy. This recovery would take roots in the next few quarters
due to which GDP growth could be above 5%. We also expect dollar staying around levels of Rs. 60 in

3. short to medium term which is an extra cushion for IT and Pharma sector. Private sector banks also
published good numbers. There is some stress for public sector balance sheets but one has to be
selective in picking stocks in this space. Most companies in the Infrastructure sector delivered
disappointing numbers as a lot of projects are still stalled which would take time to revive. Lot of projects
would start getting forest and other environmental clearances online. While our infrastructure sector
view remains positive, in the short term earnings could be disappointing probably for one more quarter.
However every correction is a buying opportunity from a long term perspective.
News:
DOMESTIC MACRO:
 India’s HSBC Services PMI stood at 52.2 in July, down from June's 17-month peak of 54.4,as there
was moderation in business flows and market sentiment as against the previous month.
 As per RBI data, overseas direct investment by Indian companies fell by over 53% year-on-year to $1.16 bn
in July 2014.
 India Ratings increases its FY15 GDP growth estimate marginally to 5.7% on a good show by the industrial
sector, but says the government will not be able to meet its ambitious fiscal deficit target of 4.1%.
 Cabinet allows 100% foreign investment in railway infrastructure projects, and 49% indefence; but
clarifies that FDI will not be allowed in the railway operations sector.
GLOBAL MACRO
EURO
 European Central Bank (ECB) keeps its main interest rate on hold at the record low of 0.15%; ECB President
Mario Draghi also says the central bank will "closely monitor" the possible repercussions to an escalation of
the Ukraine crisis on the Euro zone’s economy.
 UK visible trade deficit increased to 9.4 bn pounds in June from 9.2 bn pounds in May.
United States
 US labor productivity increased 2.5% at a seasonally adjusted annual rate in the June quarter after
plummeting 4.5% in the first quarter; labor costs rose just 0.6% in Q2 after surging 11.8% in the first
quarter.
 US consumers credit rose by $17.3bn in June, down from a $19.6bn gain in the prior month.
 US wholesale inventories increased 0.3% in June after a downwardly revised 0.3% gain in May.
China
 China’s exports surged 14.5% year-on-year to $212.9 bn in July while imports decreased 1.6% to $165.6
bn, resulting in a record trade surplus of $47.3bn; much higher than the surplus of $17.8bn recorded in
the same month last year.

4. Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
4/8/2014 25,723 9,197 15,558 17,450 8,542 14,599 7,182 12,134 9,794 13,001 10,647 2,130 1,893 5,523
5/8/2014 25,908 9,273 15,887 17,498 8,627 14,578 7,204 12,204 9,829 13,173 10,705 2,132 1,944 5,539
6/8/2014 25,665 9,201 15,773 17,180 8,592 14,561 7,115 12,108 9,894 12,922 10,634 2,129 1,919 5,545
7/8/2014 25,589 9,151 15,759 17,162 8,656 14,522 7,105 12,086 9,768 12,903 10,683 2,122 1,913 5,481
8/8/2014 25,329 8,962 15,544 16,904 8,516 14,159 7,112 12,092 9,731 12,496 10,522 2,060 1,839 5,465
-1.53% -2.55% -0.09% -3.13% -0.30% -3.02% -0.97% -0.34% -0.65% -3.88% -1.17% -3.28% -2.87% -1.04%
Commodities and Currency:
Date USD GBP EURO YEN
Crude
(Rs. per BBL)
Gold
(Rs. Per 10gms)
4/8/2014 61.02 102.69 81.91 59.41 6380 27993
5/8/2014 60.87 102.67 81.70 59.38 6432 27914
6/8/2014 61.34 103.44 81.96 59.80 6368 28114
7/8/2014 61.41 103.42 82.17 60.04 6415 28375
8/8/2014 61.56 103.50 82.41 60.64 6475 28576
-0.88%
Rupee
Depreciated
-0.78%
Rupee
Depreciated
-0.61%
Rupee
Depreciated
-2.03%
Rupee
Depreciated
1.49% 2.08%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 8.72 6
2-Year 8.76 26
5-Year 8.73 23
10-Year 8.86 10

5. Varun Goel Jharna Agarwal
Nupur Gupta Ridhdhi Chheda
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