The World This Week November 7 - November 11 - 2016
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Post on 16-Jan-2017
THE WORLD THIS WEEK November 7 November 11, 2016 EQUITY VIEW EQUITY VIEW In the last week there were corrections in the market. Large cap indices have fallen close to 4-5% where as mid cap indices have fallen almost by 7-8% till date. These corrections happened on account of two major events which were 1) US Presidential Elections 2) Demonetization of 500 and 1000 rupee notes. The objective of demonetization is to fight against black money or unaccounted money. Almost 25% of Indias wealth is in the form of black money which ranks among the top five in the world with China and Russia being the top two. Hence this move is highly significant. The 25% black money in the country has induced the interest rates to remain artificially high in the system. EQUITY VIEW There is almost 100 trillion worth of deposits into the Indian banking system and roughly around 17lakh crores of the currency is in circulation of which 86% is in 500 and 1000 rupees notes. The amount of currency which is in circulation but does not come back into the banking system is like derived profit for the Reserve Bank. Hence it is expected that even if one third of this currency does not come back into the system it would literally be equal to if not greater than the fiscal deficit of the country. This is something big. The money that comes back into the system for instance the 5 lakh crores worth of money which came back into the banking system with SBI alone accounting for 1 lakh crores is surplus liquidity for the banking system. Thus there would be negatives for quite a few sectors particularly the cash sensitive sectors. However, it would be positive for banking and in the long run it would be positive for the rate sensitive sectors. EQUITY VIEW When there is inflow of such large sums of money into the system, inflation and interest rates come down because credit growth is around 10-12% but deposit growth rate is high. In order to reduce the deficit, interest rates will come down and as rates come down the whole money would be pumped back into the economy. This leads to revival of the economic cycle. In the near term it is going to be negative for cash sensitive sectors which include real estate developers, gems and jewelry, travel and tourism, hospital and to some extent housing finance companies. Sectors like infrastructure, automobiles and banking will become positive in the medium to long term. GDP will also be negatively affected because spending has reduced. GDP will show negative growth for a quarter or two but in the long run i.e. FY 18 FY 19 it will become positive. EQUITY VIEW In the near term there is going to be uncertainties on account of US Presidential Elections and Donald Trumps victory. He is a pure trade man who believes in protectionism. With him winning and coming in to power dollar zoomed. US bond yields crashed and came down to 2% which also meant that emerging market economies would crash which they did whether it was Indonesian Rupiah or Malaysian Ringgit or even Indian Rupee which lost more than 60 bps in one day. Emerging market currencies fell, the dollar index shot up and US yields also shot up because Trump is believed to be a man who would stroke inflation and all his polices would be inflationary in nature. It is too early to comment on what his polices would be but, based on current opinions one must have a cautious view on the IT sector and a positive view on pharmaceutical and commodities. Since he wants to revive the infrastructure sector it will give a boost to the commodities cycle. EQUITY VIEW Based on US elections one can be positive on pharmaceutical and infra sectors. In between there were small events such as October PMI coming at a 2 year high, China gaining growth, India IIP at .7% indicating some expansion coming into picture but the two key events are much bigger and it overshadows the smaller events. Markets in the near term should remain cautious and if one really wants to guess with regards to levels, 7800-8000 would be a support zone in the near term. Last week during the panic period Nifty touched 8000 which can be considered as a near term support. However, rather than thinking about near term, one has to focus on the long term. On account of the two events FY18 and FY19 will become good for the Indian markets and long term remains bullish. NEWS DOMESTIC MACRO Industrial production grew a meagre 0.7% in September mainly due to poor show by manufacturing and mining sectors coupled with decline capital goods output. The factory output for the April-September period of the current financial year declined by 0.1% compared to 4% growth in the year-ago period, as per the data released by Central Statistics Office. Indias wholesale inflation rose to 3.39 percent in October year-on-year, marginally lower than the previous months 3.57 percent. Food inflation moderated to four month low of 4.34 percent aided by fresh arrival of seasonal vegetable supplies, official data showed. GLOBAL MACRO The German economy likely expanded moderately in the third quarter despite the sense of uncertainty created by Britain's vote to leave the European Union - a sense now added to by Donald Trump's victory in the U.S. presidential election, according to the Economy Ministry. More Chinese banks want to set up shop in London despite the Brexit vote which has prompted foreign lenders in the capital to consider bases in continental Europe. British and Chinese government officials met in London to unveil a "strategic plan" to deepen financial and economic ties between the two countries. EURO GLOBAL MACRO The International Monetary Fund said it looks forward to working with the Trump administration and believes the United States will remain fully committed to the Fund and other international institutions. President Barack Obama said he would reassure US allies during his trip overseas this week that Republican President-elect Donald Trump plans to maintain core US strategic relationships around the world, including with Nato. UNITED STATES GLOBAL MACRO GChina's economy largely showed further signs of steadying in October as expected, but disappointing retail sales growth and fears of U.S. trade frictions under incoming President Donald Trump are increasingly clouding the outlook. China's producer prices jumped more than expected in October as prices of coal and other raw materials surge in the midst of a supply crunch and a pickup in the economy. Consumer prices also beat expectations, accelerating to a six-month high, though analysts say the room for further rises is limited. CHINA INDICES Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck 7/11/2016 27,459 12,915 21,889 22,151 12,451 14,329 8,605 15,437 9,816 10,455 11,787 1,982 1,478 5,401 8/11/2016 27,591 12,961 22,255 22,335 12,478 14,345 8,590 15,247 9,848 10,493 11,904 1,989 1,476 5,419 9/11/2016 27,253 12,722 21,693 22,374 11,956 14,172 8,409 15,472 9,525 10,378 11,906 1,964 1,325 5,265 10/11/2016 27,518 12,932 21,539 23,186 11,947 14,422 8,467 15,664 9,456 11,006 12,098 2,017 1,351 5,262 11/11/2016 26,819 12,464 20,563 22,604 11,446 14,172 8,193 15,477 9,254 10,773 11,825 1,974 1,297 5,131 -2.33% -3.49% -6.06% 2.04% -8.07% -1.09% -4.80% 0.26% -5.72% 3.04% 0.32% -0.39% -12.26% -4.99% COMMODITIES AND CURRENCY Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms) 7/11/2016 66.73 82.93 73.84 63.88 2940 30421 8/11/2016 66.71 82.71 73.65 63.91 2996 30292 9/11/2016 66.80 83.43 74.97 65.05 3000 30292 10/11/2016 66.43 82.51 72.71 63.02 3024 30648 11/11/2016 67.03 84.18 73.12 62.94 2967 30389 -0.45% -1.50% 0.99% 1.47% -0.92% 0.11% DEBT Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 6.44 -15 2-Year 6.40 -15 5-Year 6.57 -16 10-Year 6.72 -12 KIASL TEAM Shantanu Awasthi Head- Advisory Shantanu.awasthi@Karvy.com Nupur Gupta Lead Advisor Nupur.gupta@Karvy.com 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. 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This Week – 6B This Week – 6B Years 7 & 11 @ Parish Mass - Monday, 9.15am Remembrance Day Ceremony -11am -Monday 11 th November.