The World This Week Nov 26 – Nov 30, 2012

Equity View:

The four-day logjam in Parliament ended last week after the UPA government conceded the Opposition demand to debate the policy on FDI in multi-brand retail in both Houses under rules that entail voting. Also, the Union Cabinet is likely to consider the proposal for setting up a National Investment Board (NIB) this week. Such a mechanism intends to expedite decisions on approval/clearances of projects with investment of Rs 1,000 crore and above. So the Prime Minister, Finance Minister, Environment Minister and some other ministers are expected to be part of it and it is expected to push through some very big infrastructure projects like the dedicated Freight corridor, which is the railway corridor that would be developed between Mumbai and Delhi. There are going to be some very large UMPP’s (Ultra mega power projects) which are going to be taken up by National Investment Board. The information about the exact number of projects and the size would continue to come from the government gradually. We believe the announcement on the same could happen in the next one week. That would also be taken as a big positive as far as capex activity is concerned. FY 13 Q2 GDP number came in at 5.3% which was in line with consensus expectation. The average of Q1 and Q2 is around 5.4% and for the next two quarter’s average will be around 6% which would give us a full year average of around 5.7% growth in GDP. The fall in Q2 GDP was largely due to softness in agricultural GDP growth. The agriculture GDP growth came at around 1.2% - 1.3% which is much lower than 2.9% which was witnessed last year. The monsoons were quiet weak this year and hence there has been some softness in the agricultural production. A further softness in agricultural production can be witnessed even in 3rd Quarter. Hence, the 3rd quarter numbers would not be significantly higher than this quarter’s number. The capital formation growth for this Q2 FY 13 came at 4% on a year on year basis versus a flat number that we saw in Q1 FY 13. Although, it’s very early to say whether the capex cycle has really revived, but we might have already seen the worst and capex formation would actually revive going forward. We expect the inflation number to touch anywhere in between 7 - 7.5% for the month of December month. If the number continues to be between that then it will give RBI the necessary cushion to go ahead and cut interest rates in the review on 30th January 2012. We don’t expect a repo cut to happen on 16th December 2012 review. However, we do expect a CRR cut considering the fact that liquidity is extremely tight and the system is running almost a Rs. 1 lac crore deficit in terms of liquidity. In Eurozone, we had a settlement on a further bailout of Greece which is scheduled to happen this week with a very soft set of terms imposed by the IMF and the European Union. As we’ve been maintaining earlier that during this calendar year one big thing that we have observed is that the leadership of Euro area especially Germany and France are very keen to keep the Euro Area together and although there are few negative news coming from Greece, Portugal, Italy and Spain, but eventually the idea is that the Euro should be held together, and hence some kind of compromises would have to be made as and when situation becomes volatile. The effect of this on Indian equity markets will be seen in short term volatility; however we do not expect Europe to have a big negative impact on the Indian equity markets similar to calendar year 2011.

Bharti Infratel Ltd, telecommunications tower unit of Indian phone carrier Bharti Airtel is coming up with its IPO for it’s tower business. The issue will open on December 10 for cornerstone or institutional investors and to the public on December 11. The issue will close on December 14. The issue closes on December 13 for Qualified Institutional Buyers (QIB) bidders. They plan to raise around Rs. 4500 crores through this issue. The prospects of the tower business have been going through a difficult time for last several years. There seems to be some revival in the telecom industry, especially after the 2G auctions pricing power seems to be returning back to the industry. Hence we have a positive view on the telecom industry in the short to medium term. However, in terms of the tower business we are not very really sure whether this can create a lot of value for the subscriber so our rating for the IPO is neutral.

News: DOMESTIC MACRO:

The Indian economy grew by 5.3% in the July-September period of the current financial year (2012-13), pulled down by poor performance of manufacturing and agriculture sectors, showing persistent signs of slowdown.

India's consumer price index (CPI) for industrial workers was at 9.6 percent in October, higher than an annual rise of 9.14 percent in September.

The government bowed to intense opposition pressure and agreed on Thursday to a vote on its decision to let foreign supermarkets set up shop in India, taking a major step towards ending a deadlock that has paralysed parliament for days.

India's fiscal deficit during the April-October period rose to 3.68 trillion rupees, or 71.6 percent of the budgeted full fiscal year 2012/13 target. During the same period in the previous fiscal year, the deficit was 74.4 percent of the budget target.

GLOBAL MACRO

EURO

Greece's international lenders agreed to reduce Greek debt by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020, via a package of steps.

Credit ratings agency Moody's cut its rating for the euro zone rescue funds ESM and EFSF to Aa1 from Aaa following its downgrade of France earlier in November, the agency said on Friday.

German Chancellor Angela Merkel said on Sunday that Greece's creditors may look at writing down more of its debt but not before the current bailout programme has run its course.

US

Gross domestic product expanded at a 2.7 percent annual rate in 3rd quarter, the Commerce Department said on Thursday, with export growth also helping to offset the weakest consumer spending and first drop in business investment in more than a year.

President Barack Obama said on Wednesday he hoped to reach an agreement with Congress before Christmas to avoid the looming "fiscal cliff" and shrink the budget deficit, and ramped up efforts to rally the public to press Republicans for action.

China

China is certain to hit the government's economic growth target of 7.5 percent for 2012 and could even exceed it, Commerce Minister Chen Deming said on Wednesday.

Satadru Mitra Varun Goel Jharna Agarwal

Abbas Naheed Kinjal Mehta

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