2. Equity:
Concerns are again emerging in the peripheral Eurozone countries. Greece has been finding it difficult to bring its budget
deficit under control and European and IMF officials are expected to make an announcement on that this week. This is
something which needs to be closely watched. In the US, the Q1 GDP growth has been pegged at 1.8% which is lower than
previously estimated. The consumer spending data was also on the lower side. The dollar weakened on the back of
negative news flow and dollar index moved down 76.5 to 74.5 leading to a bounce back in commodity prices
Crude oil prices continue to remain high. Brent crude price had corrected from $125 to $110 per barrel in early May.
However, the price is now around $115 which remains to be a cause of concern for the Indian equity markets.
In India, we have seen a hike in the petrol prices by Rs.5 and there is expectation that the diesel prices will also be hiked by
Rs.5 in the next government meeting on June 9. The net impact of this diesel price hike would be 75bps rise in inflation. We
expect the inflation to remain high at around 9% in the near term.
On the results front, we saw numbers from Tata Steel and Tata Motors. Tata Steel posted good results with significant
improvement in the performance of their European subsidiary Corus. Corus EBITDA margins improved and we expect the
full impact of steel price hikes to reflect in the numbers next quarter. Tata Steel continues to be our top pick in the metal
space. Tata Motors standalone numbers were disappointing. There was a negative surprise on in the margins front. The JLR
volumes continue to be very robust which led to the tripling of Tata Motors for the full year.
On the monsoon front, the monsoons have hit Kerala two days in advance. IMI expects rainfall to be 98% of the long term
average, which will be a positive for the markets.
3. NEWS:
DOMESTIC MACRO:
The food price index rose 8.55 percent picking up pace from an annual rise of 7.47 percent a week ago.
The fuel price index climbed 12.11 percent, unchanged from a week earlier.
Headline inflation at 8.66 percent in April remains considerably above the RBI's comfort level and will pressure
rates higher.
The economy is expected to have grown 8.5 percent in fiscal year 2010/11 that ended in March, just below the 8.6
percent estimated by the government. India is likely to revise down its growth forecast for the current fiscal year,
currently 9 percent.
India's fiscal deficit in FY12 could rise to 5.1-5.5 percent of gross domestic product, above the government's target
of 4.6 percent, due to subsidy burden and lower tax collection, Citigroup Global Markets
India's foreign exchange reserves rose to 308.534 billion from $307.493 billion in the previous week
GLOBAL MACRO
U.S.:
New U.S. claims for unemployment benefits unexpectedly climbed to 424,000 last week from a revised 414,000 in
the prior week, pointing to a painfully slow improvement in the nation's job markets.
Gross domestic product growth was unrevised at annual rate of 1.8 percent, below economists' expectations for a
2.1 percent pace.
China:
China's foreign exchange reserves increased by $138 billion in the first quarter on hefty growth in the capital
account surplus which grew by 82 percent a year earlier.
Goldman Sachs has trimmed its economic growth forecasts for China to 9.4 percent this year, from 10 percent
previously, citing a recent run of surprisingly weak data, high oil prices and supply constraints.
4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Kanika Khorana
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