- Tata Power reported losses for the second time in three quarters due to higher costs from rupee depreciation and changes in accounting practices. - Many power companies are facing difficulties with large projects due to high coal prices and an inability to pass on these higher costs due to frozen tariffs. There may be revisions to tariffs and coal policies to help these companies. - Petrol prices were hiked by Rs. 7.5-8 per liter across India due to rupee depreciation against the dollar since the start of the year. Further falls in crude oil could provide relief but the rupee needs to stabilize first.

1. The World This Week
May 21 – May 25, 2012

2. Equity View:
Last week Nifty closed up by around 0.4% from the last week’s closing. Tata Power came up with its quarterly results on
Tuesday last week. The results were disappointing with Tata Power reporting losses at the consolidated level for the second
time in three quarters. Losses were aggravated by two exceptional items. Firstly, the company wrote down the value of its
Mundra power project by Rs 815 crore to account for higher costs due to rupee depreciation. Secondly, it decided to account
for stripping cost (the cost of preparing a mine) when incurred. This cost was earlier amortised.
The power space, in the last couple of years has been under pressure as many power generating companies have developed
huge Ultra Mega Power Projects in which they are facing a lot of difficulty because of high coal prices. These companies are
not able to pass on the increase in coal prices because the tariffs are frozen. We believe that considering that the power
situation continues to be very grim and we are passing through peak summer, our view is that we should see some kind of
resolution in terms on coal mining issue and coal prices that were fixed earlier. Hence, we might also see some revision in
tariffs which would be a significant positive move for most of the power generating companies. We expect this revision to
happen some where in the middle of next month.
The key event for the week was the steep hike in petrol prices which was around Rs. 7.5 to Rs. 8 per litre across the country;
this was on back of rupee depreciation against dollar since the beginning of the year. Brent Crude is down to almost $105 per
barrel and NYMEX is down to almost $90 per barrel, this fall in prices is a significant positive for India from a medium to long-
term perspective as India imports nearly 80% of its crude requirement, and with Rupee level being high our import bill
continues to be high and we are not able to really benefit by the fall in crude prices. However, once the rupee stabilizes and
comes down to it’s an average level of Rs. 52-53 per dollar we would see some cushion as far as the crude import bill is
concerned. If crude oil continues to fall further on the back of concerns about Euro zone we would see some more pressure on
crude oil prices, which should be a big positive for Indian equity markets.
One key trend that has been witnessed over a period of time, as part of the risk on trade, asset classes like equities,
commodity and crude oil rally together and after a point when crude oil prices become too high, the correlation between
crude oil and Indian equities in particular breaks down. In month of March crude oil prices had moved up significantly and
Sensex as well as Nifty started to move along with it, as crude touched $120-$125 a barrel, the correlation broke and we saw a
negative pressure build up on the Rupee because of the high Crude oil prices. Also, all asset classes have fallen together and
we saw that Indian equities and crude oil have fallen together in the last couple of months and it will soon hit a point where
the correlation again breaks down and further fall in crude oil prices will result in a positive momentum in the Indian equities.
This again is the function of how the Dollar-Rupee plays out, but we believe that we are closer to those levels and another $5-
10 decline in crude oil prices is going to lead to significant cool off in as far as Indian fiscal and current account deficits are
concerned.
News:
DOMESTIC MACRO:
Goldman Sachs said it was cutting its gross domestic product forecast to 6.6% from 7.2% for the fiscal year ending in
March 2013, citing a weaker investment outlook on the back of domestic policy uncertainties. Merrill Lynch also
downgraded its views, to 6.5% from 6.8% previously for fiscal 2012-13, though it cited the fallout from the euro zone
crisis as its main rationale.
State-owned oil marketing companies announced an 11% hike on Wednesday after a six-month freeze on rises,
seeking to recover losses from higher global oil prices and a plunging rupee that have deepened the country's trade
deficit.

3. GLOBAL MACRO
Euro:
Moody's restated French AAA, negative outlook on France's top-notch credit rating on Thursday, saying after Francois
Hollande's May 6 presidential election win that it needed more time to assess how France will manage its public
finances in a time of anaemic growth.
At least half of euro zone governments as well as banks and large companies are making contingency plans in case
Greece decides to leave the single currency area, even though the preferred option is still for Athens to keep the euro.
US:
Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 370,000, the Labor Department
said on Thursday. The four-week moving average, considered a better measure of labor market trends, dropped 5,500
to 370,000.
China:
The World Bank cut its economic growth forecast for China this year to 8.2% on Wednesday and urged the country to
rely on easier fiscal policy that boosts consumption rather than state investment to lift activity.
The HSBC Flash Purchasing Managers Index, the earliest indicator of China's industrial sector, retreated to 48.7 in May
from a final reading of 49.3 in April. It marked the seventh straight month that the index has been below 50,
indicating contracting economic activity.
China aims for annual growth of 10% in exports and imports this year and is running far short of both. The first four
months of 2012 saw exports grow 6.9% on the previous year while imports grew 5.1%.

4. Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kishan Jakotia Kanika Khorana
Disclaimer
The information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock Broking
Limited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sources
that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for
personal information and we are not responsible for any loss incurred based upon it.
The investments discussed or recommended here may not be suitable for all investors. Investors must make their own
investment decisions based on their specific investment objectives and financial position and using such independent
advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please
note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising
from the use of this information and views mentioned here.
The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-
mentioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose
their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis
and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this
recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted
to place orders only through Karvy Stock Broking Ltd.
The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors
are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also
expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and
incidence of tax on investments
Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian
regulations.
Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at:
702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 .
(Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills,
Hyderabad 500 034)
SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O):
INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI
Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”