- The document discusses concerns over Larry Summers potentially becoming the next US Federal Reserve Governor and tightening interest rates more sharply. It summarizes the impact on emerging markets in recent months. - It also provides updates on upcoming Federal Reserve and RBI meetings, GDP forecasts, recent macroeconomic data from India, and performance of key indices and commodities for the period.

1. 11
The World This Week
September 10 – September 13, 2013

2. 2
Equity View:
There was a lot of concern amongst the equity markets that Lawrence (Larry) Summers would tighten
interest rates in the U.S. much more sharply than the other candidates. In the last 3 months, we have
seen a big correction and depreciation in emerging market currencies and stock markets largely on the
back of concerns that U.S. monetary regime will change from a very easy liquidity driven regime to a
more hawkish kind of a regime in the next couple of years, especially with the expectation that Larry
Summers would become the next U.S. Federal Reserve Governor. Today morning he announced that he
was no longer in the race considering the political opposition to him which was expected in the U.S.
Senate.
In the short term we would believe that it would have a positive bearing not just on the equity markets
but also on the Indian rupee. We have a Federal Reserve meeting on the 17th and 18th of this week,
where we expect the beginning of the tapering process. The current expectation is that Fed may reduce
its bond-buying program from $85 billion currently to $75 billion from next month which is the consensus
expectation at this point of time. We also have the RBI meeting on 20th of this month and there is this
expectation building up of the Marginal Standing Facility (MSF) reducing by 100 bps i.e. from 10.25% to
9.25%; however we believe that the repo rate will continue to be unchanged for now, and we believe
that RBI would maintain a cautious stance as far as the inflation is concerned in the short term.
We have quite a few data points on the macroeconomic front coming out last week. The Index of
Industrial Production (IIP) data coming at 2.6% was a big positive surprise. This was largely driven by
Capital Goods data, as we’ve seen in last several months Capital Goods data tends to be extremely
lumpy. This IIP data was largely driven by 16% growth in Capital Goods. However, we don’t think there
has been a sustainable turnaround as far as the Infrastructure and Capital Goods creation activity in the
country is concerned. Hence we would not assign too much importance to this data. We believe that the
industrial activity remains extremely muted. There is a need to be cautious on the whole industrial space
for now.
We also witnessed the Prime Ministers Economic Advisory Council lowering the FY14 GDP growth
forecast to 5.3% from 6.4% expectation that we had earlier in March. As of now most of the economists,
especially those attached to Broking houses, have had a GDP growth forecast between 4% – 5%. For now
we have forecasted GDP growth of around 5%. If we don’t see a significant reversal of Monetary Policy in
India, we would expect that even that 5% growth would be difficult to come by. Hence, we would wait for
another quarter and see what actions RBI takes before changing the GDP growth forecast.

3. 3
News:
DOMESTIC MACRO:
 Overseas investors have pumped in nearly Rs 6,000 crore in the Indian capital markets in a
fortnight ended September 13, mainly on the back of new RBI Governor Raghuram Rajan
announcing various measures to boost the depreciating local currency and revive economic
growth.
 India’s factory output (Index of Industrial Production, or IIP) rose 2.6% in July and retail inflation
decelerated in August for the second consecutive month to 9.52%.
GLOBAL MACRO
EURO
 Germany trade surplus has shrunk to 14.5 bn euros from 15.8 bn euros in June as exports dropped
by 1.1% and imports going up by 0.5%. Also in France, the trade deficit widened as the trade deficit
in UK which doubled to that of June and stood at 3.085bn pounds.
 Euro zone employment fell by 0.1% from the 1st Quarter to stand at 145 mn. This is 1% lower than
in the second quarter of 2012. The big political event for the 2nd half of the month are the
elections scheduled in Germany which the markets will be watching closely.
USA
 The U.S. economy created 169,000 jobs last month which was lower than the expected 180000.
The jobless rate fell to 7.3 percent, the lowest since December 2008, and less than estimates that it
would hold steady at 7.4 percent. America's budget deficit shrank in August compared to a year
earlier, with government accounts helped by tax hikes and an improving economy.
China
 Chinese stock markets rose to a 3 month high led by banks after the Chinese premier said he would
accelerate financial reform. The Shanghai Index has risen 16% since reaching this year’s low as data
ranging from exports to industrial output showed growth is accelerating. This portent to improved
economic growth in the last quarter of this calendar year.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
10/09/2013 19,997 5,526 11,040 11,584 5,988 7,852 6,835 9,267 8,031 8,355 8,697 1,480 1,242 4,535
11/09/2013 19,997 5,599 11,049 11,793 5,949 7,960 6,759 9,372 8,012 8,633 8,678 1,488 1,276 4,527
12/09/2013 19,782 5,597 10,850 11,574 5,839 7,861 6,780 9,360 7,915 8,414 8,533 1,478 1,283 4,471
13/09/2013 19,733 5,629 10,943 11,589 5,749 8,039 6,714 9,375 7,802 8,459 8,582 1,515 1,318 4,421
-1.32% 1.88% -0.87% 0.04% -3.98% 2.38% -1.76% 1.17% -2.85% 1.25% -1.33% 2.32% 6.11% -2.51%

4. 4
Commodities and Currency:
Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms)
09/09/2013 - - - - 7291 30860
10/09/2013 64.21 100.82 85.20 64.28 7224 30482
11/09/2013 63.9 100.46 84.65 63.68 6896 30222
12/09/2013 63.66 100.70 84.72 64.10 6873 30181
13/09/2013 63.78 100.70 84.66 63.88 6914 30181
14/09/2013 - - - - 6903 29624
0.67% 0.12% 0.63% 0.62% -5.61% -4.10%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 9.22 -5
5-Year 8.40 -58
10-Year 8.48 -15

5. 5
Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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