The World This Week Oct 08 – Oct 12, 2012

Equity View:

The equity markets fell during the last week with the Nifty moving down by almost 1.2% in the whole week. In terms of FII data we have almost seen Rs. 9,000 Crores coming into Indian equity markets in the month of October so far. The total number for the full year stands at around Rs. 90,000 Crores which is one of the highest numbers we have seen in a long time. The Index of Industrial Production (IIP) for the month of August grew at 2.7 percent versus a paltry -0.2 percent (revised from 0.1) in July. In the April-August period, we have seen flat to single digit numbers. Industrial production expanded an annual 0.4 percent in the April – August period which signals an extremely weak industrial growth. We believe that as we move forward, the growth would start to bounce back. The growth has bottomed out in last few months. Combining the PMI data with the IIP data we have stayed almost flattish for a long time and it looks like we might see a small uptick going forward. We expect RBI to cut interest rates during its policy review on 30th October 2012. We expect cut in interest rates; and combining this with the earlier cuts in CRR and repo rate that the RBI has done in its earlier reviews should lead to a bounce back in industrial growth. The government raised price of the most used nitrogenous fertilizer Urea by Rs 50 per tonne during last week and we expect more action on the fertilizers front from the government. Last week, crude oil prices moved up by 4% in the global markets. Brent crude oil prices have gone up to around $ 115 per barrel. Rising Crude oil prices is one of the biggest risks to the Indian equities for the next few months. We are expecting commodity prices to cool down since the demand in various parts of the world has been cooling off; especially the demand in China has been coming down on back of a slowdown industrial activity and export activity. Infosys announced its quarterly results on Friday. Infosys posted a year on year growth of 24% in net profits. However, Infosys has reduced the full year EPS guidance from $3.3 per share to $2.97 per share. The company continues to exhibit signs of slowing business activity and there is continuous pressure on the margins. We would wait till the next quarter to see if there is some revival in the business activity, till that time Infosys remains as a market performer. Reliance would be coming up with its results on Monday, 15th October 2012. We expect a growth of 20% on quarter on quarter basis. However, we expect de-growth by 6% on year on year basis. The results this quarter would be driven by the increase in the gross refinery margins (GRM). We expect the GRMs to move to $9 per barrel this quarter from $7-7.5 per barrel last quarter. We also expect the worst of Reliance results would be behind us and would see gradual uptick in the next few quarters.

News: DOMESTIC MACRO:

India's industrial production rose by a higher-than-expected 2.7% in August from a year earlier, after contracting by 0.2% in July.

India's annual consumer price inflation fell in September to 9.73%, driven by a marginal fall in fuel and food prices, government data showed on Friday. The consumer price index (CPI) reading for August was at 10.03%.

India still faced a one-in-three chance of a credit rating downgrade over the next 24 months, Standard & Poor's said, although a series of reform steps launched in September had slightly improved the country's prospects.

GLOBAL MACRO

EURO

Standard & Poor's on Wednesday cut Spain's sovereign credit rating to BBB-minus, just above junk territory, citing a deepening economic recession that is limiting the government's policy options to arrest the slide.

Euro zone officials are considering new ways to reduce Greece's huge debts because delays to reforms by Athens and continued recession have put the target of a debt to GDP ratio of 120% in 2020 out of reach, euro zone officials said.

The European Central Bank's supervision of euro zone banks is likely to become operational only in 2014, even if a decision to set it up comes into force from the start of 2013, ECB President Mario Draghi said on Saturday.

US

The United States reported a budget surplus for the final month of the 2012 fiscal year, but the tiny bump in revenues did not prevent the country's deficit from exceeding $1 trillion for the fourth year in a row.

The Labor Department report on Thursday was the latest data to suggest improvement in the jobs market, though the surprisingly large 30,000 drop in new claims may have reflected distortions due to seasonal adjustments that are likely to be smoothed out in coming weeks.

China

China's economic growth is expected to weaken to 7.8% this year, the International Monetary Fund said on Tuesday as it warned of risks to emerging Asia if the euro zone crisis worsens and the United States does not avoid its "fiscal cliff".

Satadru Mitra Varun Goel Jharna Agarwal

Abbas Naheed Kinjal Mehta

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