2. Equity View:
The markets hit fresh time highs again last week. This was essentially led by Oil & Gas and public sector
Banking space due to expectation of reforms in the respective areas. Diesel deregulation continued
increasing prices and in the next few months there would be no under-recoveries meaning zero diesel
subsidies. With zero under-recoveries in petrol already, we expect this move in Diesel to provide major
relief to Oil & Gas companies both upstream and downstream. The downstream companies would not
have to bear any subsidy at all and the upstream companies’ overall subsidy burden will reduce
significantly therefore we continue to be bullish on Oil & Gas companies.
Also, the PSU banks have been doing quite well in expectation of the improved asset quality in future.
These banks have a large exposure to infrastructure projects thus fresh approvals and unblocking of more
infrastructure projects would address some NPA concerns which could also lead to rerating of the Public
sector banks in general.
We expect the markets to rally especially moving towards the Budget season in expectation of a large
number of reforms announcements. One of the big announcements towards reforming labor laws was
made in Rajasthan yesterday for the first time in last 50 years. Labor law had been one of the most
problematic areas for corporate sector as it was rigid and restricted them from freely hiring and firing
labor concerning their social benefits thus created a large burden in functioning. Rajasthan government
has taken lead in revamping these laws. If they are amended and given approval by the central
government, this state could become a role model for other states to change these laws. This may
provide stimulus to the corporate sector.
The coming week is expected to release some key data points. With respect to the export-import
numbers, we expect the export growth to be between 4 and 5% and import to contract as a result of
which the trade deficit should stay between $10 Bn and $15 Bn which is well within the limits of the
Finance ministry.
The CPI is expected to come around 8-8.5% and we expect inflation to stay around these levels for next
few quarters. There could be some uptick in the seasonal food and vegetable prices as the rainfall is likely
to be deficient. We would believe that by January 2015, CPI would end by 8% which is within the target of
RBI.
IIP growth on the other hand, has been muted in the last two years. The industrial growth activity in the
country in the last year was almost zero. However the eight core industries which constitute almost 40%
of IIP showed a growth of 4.5% in last week which gives optimism that core industries like electricity and
power are showing signs of improvement and going forward the industrial activity should also revive. We
expect an increased growth of 1-2% in IIP. Therefore we suggest a participation in equity markets at this
point as there is a lot of scope for returns.
3. News:
DOMESTIC MACRO:
Highlights of the RBI’s Second Bi-monthly Monetary Policy Statement, 2014-15 :
The statutory liquidity ratio (SLR) reduced by 50 basis points (bps) from 23.0% to 22.5% of their net
demand and time liabilities (NDTL) with effect from the fortnight beginning June 14, 2014.
The liquidity provided under the export credit refinance (ECR) facility reduced from 50% of eligible
export credit outstanding to 32% with immediate effect.
A special term repo facility of 0.25% of NDTL introduced to compensate fully for the reduction
in access to liquidity under the ECR facility with immediate effect.
India’s growth in output of the eight core sectors jumped by 4.2% in April as compared to 2.5% in March.
India's HSBC manufacturing Purchasing Managers' Index rose to a three-month high of 51.4 in May from
51.3 in April.
India’s Consumer Price Index for Industrial Workers rises to 7.08% in April from 6.70% in March.
Government is considering reducing its stake in all public sector banks to between 51-58%.
GLOBAL MACRO
EURO
European Central Bank (ECB) lowers its benchmark interest rate to 0.15% from 0.25%, cuts the interest rate
on its deposit facility to -0.1% from 0% and lowers its rate on emergency overnight loans by 35 bps to
0.40%; also opens a 400bn euro liquidity channel tied to bank lending.
Eurozone consumer price inflation rose by a seasonally adjusted 0.5% in May, down from 0.7% in April.
Eurozone unemployment rate fell to 11.7% in April from 11.8% in March.
United States
US trade deficit rose to $47.2 bn in April, up 6.9% from an upwardly revised March deficit of $44.2 bn
US Markit services PMI came in at 58.1 in May, up from 55 in April, while composite PMI rose to 58.4 in
May, up from April's 55.6.
China
IMF cuts China’s economic growth forecast for 2015 to 7% from 7.3%.
China's exports dropped 0.3 percent in September from a year earlier, sharply confounding market
expectations for a rise of 6 percent, and marking the worst performance in three months.
5. Varun Goel Jharna Agarwal
Nupur Gupta Ridhdhi Chheda
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