2. Equity View:
Nifty closed last week at 5290.85, down by 1.5% from the previous week’s closing. Many companies announced their quarterly
results during last week, key amongst them being the private sector banking names like ICICI Bank and Axis bank. ICICI Bank
reported 31% jump in net profit to Rs 1,902 crore for the fourth quarter of FY 12, driven by rise in both interest and non-
interest income, and higher dividends from subsidiaries. Net Interest Margin (NIM) improved to 3%, the best since 2008. The
bank has also delivered a robust credit growth. The NPA cycle has also peaked out.
Axis bank reported a 25% growth in its net profit which was higher than the consensus estimates. Net Interest Margin (NIM)
improved to 3.55% from 3.4% which was observed in the previous quarter. Axis bank also revalued the Enam deal and has
reduced the valuations to around Rs. 1,400 Crs. The regulatory hurdle that the bank was facing in its deal has cleared after the
revaluation. With the regulatory blockade out of way the merger should happen soon and this would give Axis bank the much
needed investment banking division that was missing from its overall business.
We maintain our positive view on the private sector banking names and believe that the worst on asset quality concerns is
over and going ahead we could witness a robust credit growth and improved asset quality from current levels. We continue to
maintain a buy rating on both ICICI Bank and Axis Bank.
Standard and Poor’s changed its outlook from “Stable” to “Negative” but maintained its BBB- sovereign rating for India. The
outlook was downgraded on back of increasing fiscal and current account deficit. We believe that India’s macro-economic data
has deteriorated significantly in the last couple of years on back drop of high fiscal deficit because of high expenditure on
welfare measures. The current account deficit remains extremely elevated because of the high crude oil prices that are being
observed in the international markets. We believe that in short to medium term, the current account deficit would continue to
be at 3-3.5% of GDP and the fiscal deficit will cross the 5.1% number that has been budgeted by the government. Having said
that, we don’t really see an immediate sovereign downgrade because S&P has already changed the outlook of almost 1/3 of
the companies under coverage and hence we believe that if any downgrade were to happen, it would not be in the immediate
short term.
The Q1 GDP growth for U.S. came in at 2.2% which was below the consensus expectations of 2.5%. Since the beginning of CY
2012, U.S. has seen a significant improvement in macroeconomic data which is depicted in its PMI data for both manufacturing
and services along with the retail sales data. The unemployment rate is at 3 year low at 8.2%. However, the recovery continues
to be slower than expected. We expect the economy to grow at a modest pace of between 2-3% because of election year in
U.S. and if there is any significant deviation from this band we would expect the Federal Reserve to come out with monetary
easing and other stimulus measures to give a boost to the GDP growth.
The earnings season in U.S. has also been good with about 75% of the companies which have declared their results so far
beating the market expectations. The earnings are largely lead by IT companies. Apple delivered an almost 100% increase in its
profit on a year on year basis with NASDAQ continuing to trade at a 11 year high.
News:
DOMESTIC MACRO:
On Wednesday, S&P-the ratings agency cut its outlook on India's BBB- rating to negative from stable and warned it
had a one-in-three chance of losing investment-grade status.
Rains during the June-September season are likely to be 99% of the long-term average, Earth Sciences Minister Mr.
Vilasrao Deshmukh said on Thursday, raising hopes for bumper harvests and a chance to rein in high inflation.
3. GLOBAL MACRO
Euro:
Standard & Poor's cut Spain's rating by two notches to BBB+ late on Thursday, citing a budget deficit which is not
falling as fast as planned and "the increasing likelihood that the government will need to provide further fiscal support
to the banking sector".
Unemployment rate in Spain shot up to 24% in the first quarter, one of the worst jobless figures in the developed
world.
US:
Federal Reserve Chairman Ben Bernanke on Wednesday said that U.S. monetary policy was "more or less in the right
place" even though the central bank would not hesitate to launch another round of bond purchases if the economy
were to weaken.
In a statement after a two-day meeting, the Fed's policy-setting panel reiterated its expectation that interest rates
would not rise until late 2014 at the earliest, and it took no action on monetary policy.
Gross domestic product expanded at a 2.2% annual rate, the Commerce Department said on Friday, moderating from
the fourth quarter's 3% rate. U.S. economic growth cooled in the first quarter as businesses cut back on investment
and restocked shelves at a slower pace, but the biggest rise in consumer spending in more than a year cushioned the
blow.
Initial claims for state unemployment benefits dropped by 1,000 to a seasonally adjusted 388,000, the Labor
Department said on Thursday. The number of Americans lining up for new jobless benefits fell only slightly last week,
the latest sign of a weaker pace of healing in the still-struggling labor market.
China:
Moody’s ratings agency made no change to its Aa3 foreign and local currency bond ratings in the report, but said
Beijing must retain tight control over local government finances and make reforms in the financial system to ensure
rapid and stable economic growth for the rest of the decade.
The world's second-biggest economy grew at its slowest pace in nearly three years in the first quarter at 8.1% after
slowing exports and curtailed state investment crimped overall activity.
4. Satadru Mitra Varun Goel Jharna Agarwal
Palak Nanjani Abbas Naheed Kanika Khorana
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