1. The World This Week September 08 September 13, 2014
2. Equity View: One of the two important statistics published
last week was Inflation with CPI at 7.8% almost at par with
expectations but marginally down from the previous months levels of
7.93%. Amongst the components of CPI, barring Food inflation which
remains elevated around 9.8% other components cooled off. We expect
this trend to continue in future. However, as fuel prices fall
inflation might come down too. Thus, guidance given by the Governor
of RBI seems likely of 8% CPI by Jan 2015. If Food price inflation
falls significantly and overall inflation comes down then there
might be some interest rate cut early next year while the same is
not foreseen in Calendar year 2014. Last quarter IIP was the
highest in 12 quarters and had given a hope of sustained recovery.
However the fresh IIP data was released at 0.5% much lower than
expectations as well as last months data which was 3.7%. We believe
this months number could be an aberration as the Capital goods
growth which was negative this month would have dragged IIP down.
The manufacturing sectors revival is critical for the overall
industrial economy bounce-back and its growth data has been muted.
Diesel subsidy has almost come to zero as the last fortnights
under-recovery was 8p./ltr. Brent crude fell down to $97/Bbl post
which the balance on diesel prices would have become positive. We
believe that government might pull the rates down for a few
fortnights and then a downward revision in diesel prices may also
be seen. So far diesel under-recovery has been 8,000 Crs for the
year which is much lower than the last years 60,000 Crs in the
country when it was a big component of Fiscal Deficit. If these
fallen prices sustain or cool off further, there could be
significant benefits to Fiscal Deficit. We believe that Fiscal
Deficit would be capped at 4.2-4.3% of GDP which is better than the
year-beginning expectations of 4.5%. Lot of analysts has started
forecasting levels of $90/Bbl for crude oil and if this were to
happen, India would be the largest beneficiary of such a sharp cool
off. The demand-supply situation remains extremely benign. For the
first time in 25 years, US might become a net exporter of crude oil
products. The Shale gas production in the US has increased to
significant levels and if this continues, US might become one of
the largest exporters of Natural Gas soon. That might put a lot of
pressure on the natural gas prices across the world. And this could
be great news for large commodity importers like India. Other
commodity prices also have been coming down like Industrial metals
- coal, iron ore, zinc, copper, aluminium. This is also due to
expected tapering in quantitative easing in the US and expectations
that their interest rates would be going up next year. This has
impact on emerging markets liquidity but a fall in commodity prices
is a big positive. In future this would ease pressure on fiscal and
current account too. The Current Account Deficit (CAD) this year is
expected to be 1.6-1.7% compared to 4.5% in FY13. We do not expect
any relaxation in gold import duties and believe that the
government is going to maintain it to ensure CAD remains under
control. We have a positive view on markets however considering the
recent rally, a 4-5% correction can never be ruled out. And any
such correction should be used as an opportunity to enter markets.
We maintain our year-end Sensex target of 29,300.
3. News: DOMESTIC MACRO: Indias index of industrial production
slipped to 0.5% in the month of July, compared with an upwardly
revised 3.9% in the previous month. Indias consumer price index
(CPI) for August came in at 7.8% as against 7.96% in the previous
month. The Centres indirect tax collections stood at over Rs 1.94
lakh cr in the first five months of 2014-15 fiscal as against
around Rs 1.86 lakh cr in the corresponding period a year ago.
Government initiates the process to change the base year to 2011-12
for computing Indias GDP to better capture the changes in economy
GLOBAL MACRO EURO Euro zones industrial production rose by 1% in
July after falling 0.3% in June. UKs visible trade deficit
increased to 10.2 bn pounds in July from 9.4 bn pounds in June
United States US retail sales rose a seasonally adjusted 0.6% in
August, after an upwardly revised 0.3% rise in July. US Treasury
Department says the federal government ran a budget deficit of
$129bn in August, $19bn less than the same month a year ago. China
Chinas industrial output rose 6.9% in August from a year earlier,
slowing sharply from a 9% rise in July. China's consumer price
index rose 2% in August from a year earlier, slower than a 2.3%
rise in July. Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC
IT Metals O&G Power Realty Teck 8/9/2014 27,320 9,794 17,712
18,550 9,639 15,620 7,462 13,895 10,532 12,691 11,661 2,089 1,779
5,862 9/9/2014 27,265 9,843 17,772 18,511 9,808 15,553 7,526 13,955
10,445 12,704 11,604 2,101 1,759 5,835 10/9/2014 27,057 9,851
17,699 18,500 9,654 15,399 7,414 13,937 10,334 12,686 11,432 2,104
1,770 5,785 11/9/2014 26,996 9,964 17,815 18,553 9,633 15,501 7,453
13,696 10,334 12,550 11,377 2,116 1,764 5,779 12/9/2014 27,061
9,983 17,928 18,607 9,703 15,375 7,493 13,797 10,339 12,524 11,361
2,088 1,758 5,792 -0.95% 1.93% 1.22% 0.31% 0.66% -1.57% 0.42%
-0.71% -1.83% -1.32% -2.57% -0.04% -1.20% -1.18%
4. Commodities and Currency: Date USD GBP EURO YEN Crude (Rs.
per BBL) Gold (Rs. Per 10gms) 8/9/2014 60.26 97.51 77.94 57.33 6093
27236 9/9/2014 60.43 97.25 77.93 56.88 6038 27153 10/9/2014 60.83
98.15 78.66 57.12 5992 27285 11/9/2014 60.92 98.66 78.64 56.96 5963
26975 12/9/2014 60.84 98.73 78.64 56.74 5975 26902 -0.95% Rupee
Depreciated -1.23% Rupee Depreciated -0.89% Rupee Depreciated 1.04%
Rupee Depreciated -1.94% -1.23% Debt: Tenor Gilt Yield in %
(Friday) Change in bps (Week) 1-Year 8.68 1 2-Year 8.57 -4 5-Year
8.57 -2 10-Year 8.51 -1
5. Varun Goel Jharna Agarwal Nupur Gupta Ridhdhi Chheda
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