The World This Week Oct 29 – Nob 02, 2012

Equity View:

Last week markets saw a flattish trade in Nifty with Nifty being up almost by 0.6% from last week’s closing. The markets continued to consolidate. The month of October turned out to be the month of consolidation after a big rally that we saw in the month of September. The key events that we witnessed in this month were the quarterly results. So far whatever we have seen has been in line or above the market expectations for most of the large cap companies. The results have clearly been led by private sector banks, consumption, and healthcare space. We continue to see the pharma space come out with good set of numbers. After Sun pharma, Dr. Reddy’s was the other large cap company to come up with a good set of numbers. We expect most of the Rupee weighted benefits to continue to accrue to most of these pharma companies for the next two quarters also. In terms of Foreign Institutional Investors inflows we ended the month of October at around Rs.8500 Crores of Inflows. The YTD inflows have gone up to $18 Bn which is a very big number in the last 5 years. We also saw the RBI policy last week in which RBI cut the CRR by 25 bps. There was of course no repo cut in the commentary which RBI gave. They were concerned about the impact of inflation and the fuel price hikes in the last couple of months. RBI believes that the secondary effects of fuel price hikes, especially the diesel price hike will be seen even in the month of November. RBI has clearly mentioned that they are looking to ease repo only in the fourth quarter (Jan – March) of the current financial year. At present RBI is concerned about the impact of inflation specially the inflation which is not being passed on through diesel price hikes, which can go up even further from here and also the electricity charges which have been increased in almost every state. Also in terms of the annual forecast for growth, they have trimmed it down from 6.5% to 5.8%. Various economists have already been expecting GDP growth of FY13 between 5.5% – 6%. RBI is just re-aligning itself to what the market details have already been mentioning. Again we all believe that the GDP growth is between 5.5% - 6%. The Finance Minister believes that the GDP growth should be around 6%. This week of course we see the end of US election cycle. There are a lot of concerns about the outcome of the same. Of course it is very difficult to comment anything about the results; however the key thing that needs to be monitored is that the US macros continue to show positive traction. The unemployment data which came out on Friday was on the positive. US economy has shown a lot of resilience in the last 2 quarters and there has been more activity on the employment side especially in the manufacturing sector. Also going forward there will be a holiday season in the US based on which global equity markets sentiment could stay positive.

News: DOMESTIC MACRO:

The Reserve Bank of India (RBI) left interest rates on hold on Tuesday but cut the cash reserve ratio by 25 basis points to 4.25 percent, defying pressure from the government to lower rates for the first time since April but also indicating it may ease policy in early 2013.

The Reserve Bank of India is considering cutting the held-to-maturity (HTM) ceiling, Deputy Governor Anand Sinha said on Wednesday, referring to a category of debt that banks must hold until redemption but which can be reshuffled once a year. The limit is currently set at 25 percent, but traditionally has been aligned with the banks' statutory liquidity ratio - or the minimum investments in government bond and other approved securities.

India's fiscal deficit during the April-September period rose to 3.37 trillion rupees, or 65.6 percent of the full fiscal year 2012/13 target. During the same period in the previous fiscal year, the deficit was 68 percent of the budget target.

GLOBAL MACRO

EURO

Greece revealed on Wednesday that it will overshoot its deficit and debt targets again next year because of a deeper than forecast recession as euro zone finance ministers debated how to keep the near-bankrupt state afloat.

US

The unemployment rate in the US is little changed at 7.9 per cent in October with the addition of 171,000 new jobs, reflecting signs of a steady but slow recovery.

China

The People's Bank of China said in its third-quarter monetary policy report that subdued economic activity was keeping a lid on price pressures and the inflation trend was "stable".

China's consumer price inflation eased to 1.9 percent in September from August's 2 percent

Satadru Mitra Varun Goel Jharna Agarwal

Abbas Naheed Kinjal Mehta

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