2. Equity View:
The equity markets last week were flattish, moving up by only around 0.2%. The big news of the week
was tightening of the rupee liquidity by the RBI. RBI carried out an increase in Marginal Standing Facility
to 10.25% from 8.25% which is a significant 200 bps increase. At the same time the Liquidity adjustment
facility through repo has been capped at Rs 75,000 Crs. It essentially means that if banks have to borrow
overnight for an amount more than Rs 75,000 Crs, they would need to borrow at 10.25% v/s a 7.25%
which is the repo rate which was applicable earlier. This has been done with an intention to stem Rupee
depreciation.
As we have seen for the last 2 to 3 months, the Rupee has weakened significantly against most of the
global currencies especially against the Dollar. Rupee has weakened against dollar to the extent of
around 10%. The current step by the RBI is a preventive measure to stop any further pressure on the
Rupee. So far however, we have not seen any significant appreciation in the Rupee. It has largely stayed
at around 59 – 59.5 levels against the Dollar. We do believe that this measure will provide some kind of
cushion in the short term. Although it might end up having a negative impact as far as the growth is
concerned. With this measure we don’t expect any rate cut to happen on the 30th July policy.
We believe that RBI would monitor the Rupee levels for the next couple of months and if Rupee stabilizes
at these levels then these measures might be reversed and RBI might proceed on the monetary easing
stance, but for now there seems to be a hault on the monetary easing activity and to that extent we
would not expect any rate cut for the next couple of months.
In terms of policy news, Government of India made some fresh changes in the FDI regime and 100% FDI
in telecom has been allowed. There have also been proposed changes as far as the Insurance space is
concerned but that is subject to parliamentary approval. There were also some changes made to the
defense procurement policy where selectively FDI will be allowed in that space.
In terms of the results season, we have seen most of the private sector banks come up with their results
while their headline profitability numbers were quite good with a range between 20% – 40%. We have
seen pressure on the asset quality front. Most of the private sector banks have also reported increase in
gross Non-Performing Assets (NPAs) and we believe that next couple of quarters might also see some
pressure on the asset quality.
In terms of global news, we have seen US markets make fresh lifetime highs on the back of the robust
earnings season. US banks have delivered very strong earnings growth this quarter. The US stock market
rally has also been backed by the US Fed comments that they are in no hurry to reverse the QE stance
and they would watch the labour market data and the inflation data before carrying out any tapering in
the QE activity. That has helped in subsiding most of the concerns that markets across the world had
regarding any premature withdrawal of QE III.
3. News:
DOMESTIC MACRO:
India's headline inflation picked up for the first time in five months in June to a level of 4.86 percent
as compared to 4.70 percent in May.
BoFA-ML and Macquarie cut India's economic growth forecast for the fiscal year ending in March
2014 to 5.5 percent & 5.3 percent respectively from the average of 6.0 percent.
India relaxed foreign direct investment (FDI) rules in a broad swathe of industries including
telecoms, single brand retail and oil and gas in a bid to lure capital inflows, prop up a sliding
currency and revive growth.
GLOBAL MACRO
EURO
Greece faces September funding gap as it needs another 10 billion Euros ($13.1 billion) by
September to plug a funding gap which could threaten the disbursement of further aid.
USA
Moody's Investors Service upgraded the outlook for U.S. government debt to 'stable' from
"negative" and affirmed the United States' blue chip Aaa rating.
The US city of Detroit in Michigan files for bankruptcy and has become the largest American city
ever to file for bankruptcy, with debts of at least $15bn.
China
China's annual GDP growth slowed to 7.5 percent in April to June compared with 7.7 percent in the
January – March Period – it’s the ninth quarter in the last 10 that expansion has weakened.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
15/07/2013 20,034 6,103 10,635 13,472 6,323 9,614 7,030 9,429 6,824 7,783 8,863 1,652 1,548 3,995
16/07/2013 19,851 6,014 10,569 12,821 6,252 9,399 7,158 9,383 6,809 7,635 8,929 1,651 1,457 3,997
17/07/2013 19,949 5,984 10,488 12,524 6,320 9,370 7,400 9,370 6,878 7,496 8,983 1,660 1,447 4,011
18/07/2013 20,128 6,029 10,513 12,779 6,429 9,510 7,456 9,441 6,904 7,537 9,100 1,675 1,484 4,038
19/07/2013 20,150 5,993 10,687 12,543 6,352 9,320 7,441 9,346 7,097 7,478 9,161 1,643 1,456 4,127
0.58% -1.80% 0.49% -6.90% 0.46% -3.06% 5.85% -0.89% 4.0% -3.92% 3.36% -0.54% -5.94% 3.30%
5. Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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