The World This Week October 24 – October 28, 2011

Equity View: Last week, the equity markets rallied worldwide with the Nifty up by around 5% & and other Asian markets like Hang Seng up by almost 10%. This was led by the deal announced by the European Union concerning the debt crisis in Eurozone. The total capacity of EFSF (European Union Financial Stability Fund) to stabilize and put a firewall around other weaker euro zone countries was announced at $ 1.4 trillion. It was also agreed that private bond holders in Greece will take a 50% cut in the positions they hold in Greek bonds. With current round of package that was announced we believe that European situation will stabilize and the probability of it worsening in next few months will be extremely low.

In the US, Q3 (July-September) GDP data was declared last week. The economy grew at 2.5% in this period, the best in a year, led by consumers and businesses. Last week, RBI announced the 2nd quarter review of monetary policy. The repo rate was hiked by 25 basis points in line with the expectations with growth continuing to remain under pressure. It was also announced that further rate hike may not be required which was taken as an extreme positive by the markets. In terms of results, Q2 results for capital goods companies were disappointing. Banking & Automobile space showed a decent set of numbers. India's federal cabinet last week approved a National Manufacturing Policy, the first of its kind in the country, to increase manufacturing's share of national output as it aims to create millions of jobs and add capacity to sustain brisk economic growth over the next decade. Announcement was made about a lot of drugs coming under DPCO (Drug price Control Order) because of which various Indian pharmaceuticals companies might take a hit. Both on the global & domestic front, some of the key concerns have been addressed to some extent. Major concerns hurting the equity market sentiments were inflation & interest rates in India & the macro-economic environment in US and Europe. Some relief on these fronts resulted into a sharp equity market rally which is expected to continue for some time. With some positive news from the US and the new deal announced by EU, the concerns of a possible recession in the developed economies especially US & Europe has been averted to a large extent. We believe there is some kind of stability emerging both in the US & Europe from a macro economic perspective. Hence we now believe there is no reason to continue the cautious stance maintained earlier on the markets. News:

DOMESTIC MACRO:

India's food price index rose to 11.43% from last week’s 10.46% and the fuel price index declined to 14.7% from 15.17% in the year to Oct. 15.

India's foreign exchange reserves rose to $318.358 billion as on Oct. 21, from $317.500 billion in the previous week.

The World Bank has signed a $975 million loan agreement with the Indian government on Thursday to build part of a massive freight railway line connecting northern and eastern India.

The RBI raised its policy lending rate, the repo rate, by 25 basis points to 8.5 percent.

GLOBAL MACRO

Euro:

Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent

loss on their Greek government bonds under a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis.

China:

The flash PMI, designed to give an early snapshot of the month's factory activity, rose to 51.1 in October from September's final reading of 49.9 as new orders and new export orders expanded.

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

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