The Indian equity markets corrected by 1.3% last week after rising nearly 17-18% year-to-date. Exports grew 10.1% in January while imports rose 20.3%, resulting in a trade deficit of $14.8 billion. Auto sales reached an all-time high for most companies in February. The RBI deputy governor said further foreign investment liberalization could occur once the current account deficit improves.

1. The World This Week
Feb 27 – Mar 02, 2012

2. Equity View:
Indian Equity Markets corrected by 1.3% during the last week from the previous week close. This was after the upwards rally
of almost 17-18% that was witnessed since the beginning of the calendar year 2012. Export-Import data for the month of
January was announced last week. Exports rose by 10.1% to $25.3 billion from last year, while imports rose by 20.3% to $40.1
billion from last year, leaving a trade deficit of $14.8 billion.
The monthly auto sales number for the month of February came out at all time high for majority of the auto companies.
Mahindra & Mahindra recorded a growth of around 30% year on year in sales volume. Bajaj Auto’s sales volumes were
subdued at 6%; Tata Motors recorded a growth of 10% in sales volumes. We remain bullish on auto stocks in anticipation of
interest rate cuts. The automobile sector would be a big beneficiary of any reduction in interest rates as the financing cost
would reduce, especially for the four wheeler and commercial vehicle segments.
On the currency front, we continue to maintain our view that Rupee-Dollar rate would continue in the range of around
Rs.50/$ and as such do not expect any significant appreciation in Rupee from the current levels. Hence, we would continue to
be positive on spaces that would gain from rupee weakness going forward.
The ONGC auction offer was not well received by the investors; as a result of which LIC had to bail out the issue to the extent
of 95% of the shares being offered for auction. We continue to maintain cautious and slightly negative stance on Oil & Gas
companies both in upstream and downstream space because of the current subsidy sharing arrangement and also the lack of
clarity in the terms of the policies which were formulated last year for diesel and petrol prices deregulation.
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U.P. elections results would be announced on 6 March 2012 and various exit polls are suggesting that Samajwadi Party
would be a big beneficiary of this change in government. From a stock market perspective, a tactical bullish call on ADAG
stocks could be maintained for the short term. If Mr. Mulayam Singh is able to form the government on its own in U.P. then it
would benefit the ADAG stocks because of Mr. Anil Ambani’s proximity with Mr. Mulayam Singh. However, we have been
maintaining negative stance on ADAG companies for quite some time and believe that the poor balance sheet quality and the
growth concerns about the ADAG group companies would continue in the long term.
Mr. Ben Bernanke, the FED Chairman gave a speech last week wherein he didn’t mention any thing about QE3 which was
taken in a negative way by the broader markets. In his speech he mentioned that US economy has bounced back very sharply
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with a GDP growth of 3% in the 4 quarter. Mr. Bernanke also mentioned that there have been positive developments in
European markets and the unemployment rate in US is down to around 8.3% from the 10% that was witnessed at the peak of
the crises. The commentary on the growth outlook for US has been changed from “very weak” to “weak”. He also mentioned
that the interest rates would remain low in US till end of 2014. Hence, we expect that the easy monetary conditions would
continue in US for some more time.
As far as QE3 is concerned there is no clarity as when it would come. As of now the markets are keenly watching on the fiscal
announcements and the tax cut announcements that are expected from the current government. Our own stance is that QE3
might happen only when the new President comes that is towards the end of this year. One important observation that came
from the speech was that Mr. Bernake was not too worried about inflation and according to him the crude price hike is only
temporary in nature which would soon reverse as soon as the tension in Iran boils down.

3. News:
DOMESTIC MACRO:
India's infrastructure sector output grew 0.5% in January from a year earlier, sharply lower than the upwardly revised
annual growth of 4.6% in the previous month.
India's economic growth slowed to 6.1% in the three months to December, the weakest annual pace in almost three
years, as high interest rates and rising raw material costs constrained investment and manufacturing.
The HSBC manufacturing Purchasing Managers' Index (PMI), compiled by Markit, eased to 56.6 in February from 57.5
in January, which was an eight-month high. The index has held above the 50 mark that separates growth from
contraction for almost three years, although the outlook painted by official data is not as rosy..
A further liberalisation of overseas investment by companies can perhaps happen after India's current account
condition improves, H.R. Khan, a deputy governor at the Reserve Bank of India, said on Friday. The current account
gap for the current fiscal year that ends on March 31 is projected to widen to 3.6% of GDP from 2.7% a year ago,
according to estimates released by the Prime Minister's Economic Advisory Council.
India's January exports rose 10.1% to $25.347 billion, while imports rose 20.3% to $40.1 billion, leaving a trade deficit
of $14.8 billion.
GLOBAL MACRO
Euro:
Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to 49.0 last month from January's 48.8, in
line with a flash reading. But it has now been below the 50 mark that divides growth from contraction since July.
The euro zone will decide whether to increase its debt crisis firewall before the end of March after the European
Central Bank said its extraordinary support measures would not be repeated, putting the onus squarely back on
governments to act.
Greece has not yet triggered payment on controversial bond insurance contracts but market participants still expect
Athens' efforts to reduce its debt burden to prompt an eventual payout on credit default swaps.
Standard & Poor's on Monday cut Greece's long-term ratings to 'selective default', the second ratings agency after
Fitch to proceed with a widely expected downgrade after the country announced a bond swap plan to lighten its debt
burden.
US:
U.S. auto sales rose nearly 16% in February and the annual sales rate leapt to 15.7% its best level in four years, helped
by a surprising sales gain by General Motors Co (GM.N) and strong results from Chrysler Group LLC and Ford Motor
Co.
China:
China was the top foreign holder of U.S. securities as of June 30, 2011, with some $1.72 trillion worth out of a total
$12.52 trillion held worldwide, the U.S. Treasury Department reported on Wednesday.

4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Abbas Naheed Kanika Khorana
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