2. 2
Equity View:
Last week we saw a 3.5% gain in Sensex and more importantly a bounce back in Rupee with the Rupee
closing around 65 levels against the Dollar v/s the 68 levels which it had breached last Tuesday. This is on
the back of some new announcements and measures being introduced by the new RBI governor Mr.
Raghuram Rajan. Raising money by Indian banks outside India has been made a bit easier. Various
measures which have been announced definitely provide a short term cushion for the Rupee. But we still
want to “wait and watch” as to what levels the Rupee actually stabilizes upon. As we’ve been maintaining
earlier, stability in other asset classes be it Equity or Debt will emerge only once Rupee has declined.
Last week we also saw the announcement of extension of ‘Joint currency Swap Line’ between India and
Japan from $15 bn to $50 bn. This will also provide some short term cushion to the Rupee and we believe
that in the short term the downward pressure on the Rupee should subside and Rupee should look
towards some stability.
The big announcement that we are expecting from U.S. Fed on 16th
and 17th
of this month is one in which
we would know what quantum of tapering is being carried out for the ongoing QE3 program. For now we
continue to expect that there will be some tapering, the extent of that is difficult to predict. On the whole
markets are expecting that from $85 bn a month of mortgage buying, Fed may taper the same down to
$60 bn or $70 bn a month. There would be some tapering although the quantum of that is still unknown.
There is some level of discounting which is already done by the markets across the world. We believe
that a small tapering would result in a non-event as that has been already discounted by the market.
We also have the Indian Monetary policy with the new Governor on the 20th
of September. There are no
signs that there would be any easing as far as the interest rates are concerned and we expect the interest
rates to stay high for next few months. We would expect some more measures as far as the oil prices are
concerned and that would result in further inflation pressures. Therefore we would not expect any kind
of reversal of monetary tightening that the RBI had carried out in the last few months. We believe that
the high interest rates are there to stay in the short term.
As far as the Equity markets are concerned, we saw a very sharp bounce back in most of the Banking
names last week. It was the Private Sector Banking names that bounced to the extent of 10% – 20%. We
still don’t believe that we’ve seen the worst as far as Banking space is concerned. Our recommendation
remains the same - we would neither recommend buying banking stocks nor selling them. We still would
want to wait as to what kind of announcements happen from U.S. Fed and what kind of measures RBI
announces towards the second half of this month. We believe that there will be definite asset quality
pressures in most of the Banking names in this quarter. As growth has slowed down, we would see
further stress in most of the big corporate accounts. Our view on banking space remains cautious.
As far as the preferred sectors are concerned, we continue to like IT and Pharma followed by FMCG and
Telecom. We saw an announcement by Telecom Regulatory Authority of India (TRAI) last week which
talked about cut and spectrum based prices which would definitely be a big positive for the Telecom
space. We believe that going forward the macros of the Telecom space are getting quite better. We
would see some kind of stabilization as far as a competitive scenario is concerned.
3. 3
We’ve already seen pricing power return to most of the larger players and if the sector pricing also comes
down that would further push profitability for most of the companies. Hence, we are overweight on
Telecom sector at this point of time.
News:
DOMESTIC MACRO:
Indian factory activity shrank for the first time in more than four years last month with the HSBC
Manufacturing PMI sank to 48.5 in August from 50.1 in July, the lowest reading since March 2009.
New Reserve Bank of India (RBI) chief Raghuram Rajan kicked-off his term with announcing a spate
of measures to support the embattled rupee.
• Rajan outlined the plan to attract more funds from non-resident Indians (NRIs) as part of
a broader push to lure inflows by offering a swap window to banks for fresh dollar
deposits mobilized from non-resident Indians.
• The central bank will also offer forex swap into rupees at a concessional rate below
market levels for banks that raise dollar funds through overseas borrowings.
• Overseas borrowing limit for the banks has been doubled than it was earlier.
• Banks should gradually be allowed to decrease their mandatory holdings of government
securities, which would free up capital for lending.
GLOBAL MACRO
EURO
Greece's economy shrank 3.8 percent in the second quarter, the smallest annual decline in nearly
three years which was better than an initial estimate in August of a 4.6 percent contraction.
Euro zone sentiment turned positive for the first time in more than two years in September with
index tracking investor sentiment in the euro zone swung to 6.5 points, its highest level since May
2011, from -4.9 points in August.
USA
The U.S. manufacturing sector grew last month at its fastest pace in more than two years, with the
Institute for Supply Management's (ISM) index rising to 55.7 in August from 55.4 the prior month.
U.S. job creation probably picked up in August and is seen steady at a 4-1/2-year low of 7.4 percent
resulting Federal Reserve to start scaling back its massive monetary stimulus this month.
China
China's factory activity expanded for the first time in four months in August with final Markit/HSBC
(PMI) climbed to 50.1 in August, up sharply from July's 47.7.
5. 5
Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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