The World This Week November 21 – November 25, 2011

Equity View: Last week, we witnessed high volatility in the equity markets across the globe with the Indian equities correcting by almost 3.5%. Net FII investments in India turned negative for the current year as heavy outflows were witnessed in the last couple of weeks. Rupee further depreciated, slipping to an all time low of around 52.5 levels. This led to some RBI intervention on Thursday & Friday but it was not officially announced. The objective of RBI intervention is to hold the rupee around the current levels. We do not expect the rupee to depreciate further from the current levels unless some global catastrophe occurs, however we are also not expecting it to bounce back to 45 levels in the short term. A new round of volatility was witnessed in Europe due to the increasing bond yields. The Italian bond yields have risen beyond 7%. The current 2-year, 5-year & 10-year yields are at an all time high. In a very difficult bond auction last week, Germany failed to find enough bids for the 10-year bonds which was a major negative. Investors are getting worried about the rising borrowing costs in most of the Euro zone countries. At this point some serious immediate steps need to be taken to prevent further volatility. It is expected that the European Central Bank & European political leadership backed by France & Germany would be taking the desired steps to prevent the contagion from spreading further. In India the Government announced opening of foreign direct investment in the retail space up to 51% in multi brand retail & 100% in single brand retail. This reform has been facing severe political opposition. The Parliament was closed for almost a week since the beginning of the winter session and it is expected that only half of the states would probably allow the retail FDI to come in. In the coming week on Wednesday, the GDP data for Q2 will be announced. The consensus expectation is around 7.2% - 7.3%. This number is very significant since it will help one know the kind of investment growth that can be expected as there is serious weakness in terms of infrastructural activity in capital goods space. News:

DOMESTIC MACRO:

The government on Thursday approved 51 percent foreign direct investment in the supermarket sector, paving the entry of firms such as Wal-Mart, Tesco and Carrefour into one of the world's largest untapped markets.

India's food price index slips to 4-month low to 9.01% from last week’s 10.63%.

India's foreign exchange reserves fell to $308.624 billion on Nov. 18, from $314.339 billion in the previous week.

The RBI has removed the limit of $100 million placed on net supply of foreign exchange in the market through rupee swaps.

India's fiscal deficit in the current fiscal year will exceed 4.6 percent of the gross domestic product target, though the final figures would depend on the actual expenditure, Planning Commission deputy chairman Montek Singh Ahluwalia told on Monday.

GLOBAL MACRO

Euro:

A "disastrous" German bond sale on Wednesday sparked fears that Europe's debt crisis was starting to threaten even Berlin, with the leaders of the euro zone's two biggest economies still at odds over a longer-term structural solution.

Moody's warned France, euro zone's second largest economy might lose its coveted AAA status because of sustained rise in its debt yields coupled with weakening economic growth.

US:

Moody's Investors Service on Wednesday warned that its top credit rating for the United States could be in jeopardy if lawmakers backtrack on $1.2 trillion in deficit cuts planned over 10 years.

A U.S. congressional "super committee" on Monday failed to reach a deal on reducing federal government deficits, the co-chairs of the panel said.

China:

In factory towns across China's export powerhouse in the Pearl River Delta, a vicious cycle of slowing orders from the West and increasing wage pressures has led to a series of major strikes that could reverberate through the economy.

Swapnil Pawar Varun Goel Jharna Agarwal Palak Nanjani Neha Arora Kanika Khorana

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