the world this week october 24 - october 28 - 2016

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THE WORLD THIS WEEK THE WORLD THIS WEEK October 24 – October 28, 2016

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Page 1: The World This Week October 24 - October 28  - 2016

THE WORLD THIS WEEKTHE WORLD THIS WEEK

October 24 – October 28, 2016

Page 2: The World This Week October 24 - October 28  - 2016

EQUITY VIEW

Page 3: The World This Week October 24 - October 28  - 2016

EQUITY VIEW

• A year back i.e. diwali to diwali large cap had remained pretty subdued. Large cap indices whether Nifty or Sensex

gave about 5-6% returns that too on the back of 6 monthly returns of 10%. Therefore, very clearly returns in the

first half of the year were not great then they were better and for the last one month returns remained subdued.

• Midcaps were pretty strong with returns of about 19-20%. Small cap returns were also in double digits. The six

monthly returns were nearly 18-20% and YTD 2016 is also good. Thus if we see from new year to new year

midcaps have shown great numbers unlike the large caps.

• Large caps will continue to underperform in comparison to midcaps. However the expected return this year will not

be 5-6%. We can expect at least lower double digit returns because in the two quarterly earnings season that we

have seen so far results have been positive and hence valuations have come down. This gives hope that large cap

indices should at least give 10-12% returns for the year down the line.

.

Page 4: The World This Week October 24 - October 28  - 2016

EQUITY VIEW

• The growth rate for midcaps has been strong which is actually giving a good earnings growth rate and keeping

PEG ratio in momentum. Midcaps should also give about 15-20% compounded returns. Over the next one year

also 15% returns is expected. There is expectation for 10-12% returns for large cap and 15-20% for mid and small

cap indices. This is the sort of broad outlook one can have diwali to diwali.

• In the past month large caps have been negative mainly because of the impending US elections. A debate is going

on with respect to the results of the elections. Initially Hilary had a good lead but recently Donald is making up

quite well which is creating some sort of a panic in the market that if Donald wins, the markets would crash

globally. This would also affect certain sectors like IT and Pharmaceutical in India.

• Domestic macros core sector data has been surprising showing a growth of 5% against 3.2%. This data is very

volatile so one month gives no indication whether the recovery has begun or not. However, if such a number

remains steady for the next couple of months and if inflation remains benign then these two things can lead to a

massive benefit for the Indian economy.

Page 5: The World This Week October 24 - October 28  - 2016

EQUITY VIEW

• Auto numbers will release today which will continue to be strong. In October i.e. the diwali month there was lot of

inventory build up. November might be disappointing but it is too early to discuss. October numbers were very

good. Some of the leading players like Maruti and Hero Motor Corp should come out with fantastic numbers. Thus

we continue to remain bullish on auto and other segments like consumer durables and quasi infra segment.

• The sectors with good private demand and consumption should be focused on rather than aiming for early or • The sectors with good private demand and consumption should be focused on rather than aiming for early or

bottom up stock picking. Financial, Automobile and Consumer Durable sectors should be focused on while

investing. Investment horizon should at least be 2-3 years and focus should be on midcaps.

• Large caps will continue to give safety and stability to the portfolio but returns will continue to be around 10-12%.

Thus if one has a risk appetite for staying invested for 2-3 years, focus should be on midcaps.

Page 6: The World This Week October 24 - October 28  - 2016

NEWS

Page 7: The World This Week October 24 - October 28  - 2016

DOMESTIC MACRO

• Gold prices stayed firm on Wednesday (i.e. 26th October) as stronger physical demand for the precious metal,

ahead of India's late-October festival season, offset a steady U.S. dollar. Demand for bullion is expected to pick up

ahead of festivals such as Dhanteras and Diwali, which is also a time when gold is traditionally given as a gift. A

recovery in physical demand provided the foundation for the rally that carried over into later trading," HSBC

analyst James Steel said in a note.analyst James Steel said in a note.

• The Reserve Bank of India (RBI) relaxed guidelines on what domestic interest rate futures can be offered on

Friday (i.e. 28th October), allowing banks to hedge their short-term interest rate exposure. Until now, banks could

not hedge their interest rate risk on active government bond benchmarks other than 91-day treasury bills.

Registered exchanges can select the underlying instrument or interest rate of new contracts, subject to RBI

approval, the central bank said in a circular.

Page 8: The World This Week October 24 - October 28  - 2016

GLOBAL MACRO• With a more than trillion euro fuel injection and no interest rates worthy of the name, the

euro zone economy is stirring, more data confirmed on Friday (i.e. 28th October), leaving

policymakers hunting for signs the nascent recovery is sustainable.

• The European Central Bank will provide stimulus until a sustained inflation rebound, even

as its unprecedented measures come with side effects and face constraints, two

EURO

policymakers said on Friday (i.e. 28th October), just as the bank is contemplating more

easing. Facing stubbornly low inflation, the ECB will decide in December whether to

extend its 80 billion euro per month asset buys beyond its scheduled end next March,

having to balance diminishing costs with increasing side effects.

Page 9: The World This Week October 24 - October 28  - 2016

GLOBAL MACRO• U.S. labor costs maintained a steady pace of increase in the third quarter, showing

little signs of a significant pickup in wage inflation. The Employment Cost Index, the

broadest measure of labor costs, increased 0.6 percent after a similar gain in the

second quarter, the Labor Department said on Friday (i.e. 28th October). That left

the year-on-year rate of increase at 2.3 percent.

• New orders for U.S. manufactured capital goods unexpectedly fell in September

UNITED STATES

• New orders for U.S. manufactured capital goods unexpectedly fell in September

amid weak demand for computers and electronic products, which could temper

expectations for an acceleration in business spending in the fourth quarter. The

Commerce Department said on Thursday (i.e. 27th October) that non-defense

capital goods orders excluding aircraft, a closely watched proxy for business

spending plans, fell 1.2 percent after three straight months of strong gains. The so-

called core capital goods orders increased by an upwardly revised 1.2 percent in

August.

Page 10: The World This Week October 24 - October 28  - 2016

GLOBAL MACRO• Activity in China's manufacturing sector expanded at the fastest pace in more than

two years in October, adding to views that the world's second-largest economy is

stabilising thanks to a construction boom. The official Purchasing Managers' Index

(PMI) stood at 51.2 in October, compared with the previous month's 50.4 and

above the 50-point mark that separates growth from contraction on a monthly

basis.

CHINA

basis.

• China's new home prices rose in September at the fastest rate on record as buyers

rushed to close contracts before new restrictive measures took effect in October.

The property market, accounting for around 15 percent of gross domestic product,

contributed handsomely to third quarter economic expansion of 6.7 percent.

Page 11: The World This Week October 24 - October 28  - 2016

INDICESDate Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck

24-10-2016 28,179 13,585 22,432 22,722 12,725 15,000 8,521 16,343 10,253 10,335 12,441 2,029 1,551 5,616

25-10-2016 28,091 13,544 22,336 22,779 12,783 14,921 8,451 16,419 10,167 10,293 12,381 2,027 1,548 5,584

26-10-2016 27,837 13,421 22,193 22,347 12,834 14,870 8,441 16,236 10,111 10,151 12,311 2,008 1,537 5,567

27-10-2016 27,916 13,282 21,892 22,330 12,704 14,787 8,488 16,255 10,032 10,075 12,222 1,999 1,531 5,525

28-10-2016 27,942 13,408 22,168 22,384 12,756 14,874 8,515 16,374 9,995 10,286 12,296 2,008 1,552 5,505

-0.84% -1.30% -1.17% -1.49% 0.24% -0.84% -0.07% 0.19% -2.52% -0.48% -1.16% -0.99% 0.04% -1.96%

Page 12: The World This Week October 24 - October 28  - 2016

COMMODITIES AND CURRENCY

Date USD GBP EURO YEN Crude (Rs. per BBL) Gold (Rs. Per 10gms)

24-10-2016 66.86 81.67 72.80 64.43 3402.00 29959.00

25-10-2016 66.88 81.77 72.79 64.06 3378.00 30002.00

26-10-2016 66.76 81.36 72.82 64.13 3341.00 30095.00

27-10-2016 66.89 81.69 72.94 63.93 3283.00 30072.00

28-10-2016 66.86 81.30 72.91 63.44 3326.00 30049.00

0.01% 0.46% -0.15% 1.54% 2.23% -0.30%

Page 13: The World This Week October 24 - October 28  - 2016

DEBT

Tenor Gilt Yield in % (Friday) Change in bps (Week)

1-Year 6.46 -12

2-Year 6.56 -1

5-Year 6.71 -2

10-Year 6.89 4

Page 14: The World This Week October 24 - October 28  - 2016

KIASL TEAM

Shantanu Awasthi

Head- Advisory

[email protected]

Nupur Gupta

Lead Advisor

[email protected]

Page 15: The World This Week October 24 - October 28  - 2016

DISCLAIMERThe 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.

The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial

position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor any person

connected with any associated companies of Karvy accepts any liability arising from the use of this information and views mentioned here.

The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned companies from time to time. Every employee of Karvy and its associated

companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in

purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders

only through Karvy Stock Broking Ltd.only through Karvy Stock Broking Ltd.

The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their respective tax advisers to understand the specific tax

incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on investments

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