The World This Week May 9 – May 14, 2011

Equity: The markets were flat last week. The IIP number for March 2007 came in at 7.3% above the consensus expectation of 3.8%. For FY11 the overall IIP number stands at 7.8% which is due to the sharp slow down in the last four months. In FY12 we expect an IIP growth in the range of 7%-8%. Food inflation came down to 7.7% last week which is a significant relief from the high prices seen towards the end of 2010. The food inflation may reduce further especially with expectations of good monsoons. Last week, results were out for HDFC bank which was in line with expectations. The profit growth was 23 while loan growth was at 20%.. The company is expected to deliver 20%-25% growth going forward in to the next fiscal. Lupin also came with the results. The profit growth was low at 3.5% and revenue growth was around 15% which was in line with the expectation. We expect the revenue growth and ebitda margins to improve going forward and therefore continue to be bullish on it in the medium to long term. GDP growth for France and Germany was extremely positive for the first three months of this calendar year. The Eurozone has delivered a growth of 0.8% which is driven by 1.5% GDP growth in Germany. Globally, there was concern on the continuing increase in the Greek bond yield. There has been a lack of consensus on the expected bailout package for the peripheral European countries especially Greece. This could lead to some panic if not resolved soon. Portugal, Greece and Ireland may require debt restructuring very soon and there will be a need for consensus among Germany, France and other European nations on the modalities of the same.

NEWS:

DOMESTIC MACRO:

India's wholesale price index rose to 8.43 percent in April from a year earlier, slower than March's 8.98 percent increase, due to base effect.

The food price index rose 7.70 percent and the fuel price index climbed 12.25 percent in the year to April 30. Non-food manufacturing inflation -- a proxy for demand driven inflation -- shot up to a 29-month high of about 7.1 percent in March.

Industrial output in March grew at a faster-than-expected pace of 7.3 percent compared with a year ago.

In the 2010/11 financial year, exports rose 37.5 percent, comfortably beating the target of $200 billion, which helped narrow the trade deficit that had surged to a 23-month high in August and current account deficit to under 2.5 percent of the gross domestic product for the October-December quarter.

Capital goods output recovered in March, after contracting for three straight months, rising an annual 12.9 percent.

Manufacturing output, which contributes about 80 percent to the overall output, grew 7.9 percent in March, sharply higher than 3.6 percent annual growth a month ago.

India's foreign exchange reserves fell to 309.535 billion as of May 6 from $313.511 billion in the previous week

GLOBAL MACRO

U.S.:

U.S. exports grew 4.6 percent in March to $172.7 billion, a record high, due to a weak dollar and strengthening global demand.

The oil and gasoline prices rise took the year-on-year inflation reading to 3.2 percent, the highest in two and a half years.

China:

China's industrial output growth eased much more than expected in April to suggest that the economy is cooling and hence reduced the need for further aggressive monetary policy tightening even as inflation remains stubbornly high. Consumer inflation eased modestly to 5.3 percent in April from 5.4 percent.

Swapnil Pawar Varun Goel Suvankar Chakrabarty Palak Nanjani Kanika Khorana Jharna Agarwal

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