2. Equity View:
Indian Equity Markets have rallied 12.6% since the beginning of the year, led by rally in sectors like Automobile, Metals, Banking,
etc. The rally was further fuelled in last week with 50 bps cut in the CRR, further vindicating that interest rate has peaked and
rate cuts are in the offing in the Mar 2012 review post the Union Budget. Our view is that as the inflation number is cooling-off
we expect some kind of repo cut in the RBI’s policy review scheduled in month of March.
Food inflation continues to be in negative territory for last several weeks. We expect the January inflation number to be in
around 7-7.5% level which will give RBI the necessary comfort and cushion for cuts in Repo or Reverse Repo rates. Also, the 10%
appreciation in rupee has provided a cushion to the imported inflation especially the energy inflation. FII flows have also been
up for year till date. For the month of January FII’s have pumped in Rs 78 billion. Also, from the global perspective India has been
an outperformer when compared to other emerging markets.
Results season continued in with BHEL declaring its Q3 results. The results were much below the expectations. Company
delivered the sales growth of 19% whereas the profits grew by only 2%. Order inflow for the nine-month ending December
stood at Rs. 13,360Crs. which is merely one-fifth of what the company had targeted at the beginning of FY12.
In Greece, there has been lot of back and forth on private bondholder’s haircut on Greece sovereign debt. If some kind of
settlement comes in this week, there could be further upside in the equity markets especially in Europe and US. The point of
contention in theory is that the private bond holders do not want more than 60% haircut whereas the government in Greece is
pushing for a 70% haircut in the bond holdings. If some conclusion is arrived at during the week then we can see some positives
from Euro area.
Commodities View:
In the month of January, gold witnessed a sideway to slight negative movement in the prices. The interest regime of Greek
stocks and the European community is been over shadowing the gold prices. We expect gold to remain stable because of given
uncertainty of the private bond holder haircut. Also, on technical basis gold has given a clear breakout in the consolidation
which it has been showing in last few months. It is a clear sign of gold going upwards to $2000-2200 levels in coming months.
Oil is been trading at $100 per barrel for sometime now which is not the good sign for global economy. There could be some
minor correction given the European uncertainty. We are bullish on oil for next few months. There have been talks of liquidity
pumping in from European Union, European Central Bank and Federal Reserve. FED has indicated that they would keep zero
interest rate till 2014. This is a kind of indication which would push commodity prices altogether.
News:
DOMESTIC MACRO:
India's food inflation declined to -1.03% in the year to January 14, from an annual -0.42% rise in the previous week.
India's foreign exchange reserves stood at $292.525 billion as of January 13, down from $293.541 billion in the previous
week.
The RBI cut CRR, the share of deposits banks must hold with the central bank, by 50 basis points to 5.50 percent on
Tuesday to ease tight liquidity, signaling a policy shift towards reviving growth after nearly two years of fighting
inflation.
3. The Reserve Bank of India (RBI) may intervene in the forward foreign exchange market, in addition to the spot market,
to help manage liquidity in the banking system, a central bank source said on Friday.
GLOBAL MACRO
EURO:
Greece's international lenders think the indebted country will need 145 billion Euros of public money from the euro
zone for its second bailout rather than the planned 130 billion Euros, German news magazine Der Spiegel reported on
Saturday.
Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain on Friday. Fitch cut Italy's
rating to A-minus from A-plus; Spain to A from AA-minus; Belgium to AA from AA-plus; Slovenia to A from AA-minus and
Cyprus to BBB-minus from BBB, leaving the small island nation just one notch above junk status.
The European Union and IMF want Greece to push through more budget cuts and implement a series of long-agreed
austerity reforms before they agree on a new bailout the country needs to avert bankruptcy
Italy's borrowing costs dropped sharply as it sold the maximum amount of 5 billion euros at an auction of short-term
debt on Thursday, helping drive down yields on its longer-dated bonds ahead of a crucial sale of five- and 10-year paper
on Monday.
US:
Gross domestic product expanded at a 2.8% annual rate, the Commerce Department said on Friday, a sharp
acceleration from the 1.8% in the prior three months.
China:
Slowing growth in China is emerging as a concern in some of this quarter's earnings reports from U.S. multinationals
that have long relied on strong growth in China and other emerging markets to drive their profits.
4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Abbas Naheed Kanika Khorana
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