2. Equity View: RBI did not cut interest rates in its policy
last week while the SLR was reduced by 50 bps which would add
around 40,000 Crs of liquidity by next fortnight. This is the
second SLR cut carried out in the last two policies and we believe
while the governor is not cutting interest rates yet, there are
efforts being made to provide comfort to liquidity scenario. As a
result of this, bond yields cooled off from its peak two months
back. Overall we do not expect interest rates to go up any further
considering the fact that inflation has also been cooling off. Both
WPI and CPI have been showing a downward trend in the last 2-3
months. This is expected to stay at these levels since the food and
vegetable prices are still running high. In terms of policy
direction, Raghuram has clarified that he would stick to his target
of bringing down CPI to 8% by Jan 2015 and 6% by Jan 2016. As long
as RBI is focused to achieve these targets esp. on the CPI, we
believe it would be difficult to cut interest rates in the short
term. Though towards the end of this year once inflation regime
becomes more comfortable we might see a rate cut. The liquidity
environment remains conducive thus bond yields may drift downwards
if the fiscal deficit continues to reduce. RBI policies in the last
4-5 months have made Indias macro-economic picture lot more stable
compared with last year as we continue to add to the forex reserves
at $320-Bn vs. $275-Bn last September. Government of India and RBI
raised money from NRIs in the last six months and some SWAP lines
were also opened which add to the context in Forex thus we do not
believe there is a big threat on the Rupee whereas in short term,
there has been a depreciating bias but this is more in line with
the global currencies. In terms of global news, there is a lot of
talk across the world about whether the US will raise interest
rates sooner than expected and whether that would lead to
turbulence in the short to medium term. We believe that even though
US unemployment rate has been going down, there is no immediate
expectation of a rate hike in the US atleast till middle of next
year and there is no reason why the global markets will be
perturbed about that. This view is similar to the market consensus.
Thus the volatility prevailing in the global markets is only short
term. US is now intervening militarily in Iraq to stabilize the
situation and in Ukraine, there have been continued tensions but we
do not see that impacting global markets in a big way. The global
crude prices also remained benign fluctuating between $105-$110/Bbl
which is comfortable considering the fact that these prices have
been here from last two years now. This has provided cushion to
Indias fiscal deficit as the subsidy on diesel is only Rs. 1.5/ltr
vis--vis Rs. 12/ltr in January last year. We expect the prices to
remain in this range since the demand is not growing at a very fast
pace then in the next 2-3 months the diesel subsidy would be zero.
This could elevate a lot of pressure as India spent almost Rs
60,000 Crs on diesel subsidy last year. We have a 4.5% of Fiscal
deficit target this year vs. 4.1% mentioned by the Finance minister
in this years budget. The Q1 results season has been almost in line
with expectations with a profit growth of 13-14% with most of
Tier-I companies, the revenue growth has been subdued at around
10-12%. We believe all the macro economic data points such as IIP,
PMI manufacturing, PMI services, auto sales, cement dispatch
numbers are pointing at a small revival in the economy. This
recovery would take roots in the next few quarters due to which GDP
growth could be above 5%. We also expect dollar staying around
levels of Rs. 60 in
3. short to medium term which is an extra cushion for IT and
Pharma sector. Private sector banks also published good numbers.
There is some stress for public sector balance sheets but one has
to be selective in picking stocks in this space. Most companies in
the Infrastructure sector delivered disappointing numbers as a lot
of projects are still stalled which would take time to revive. Lot
of projects would start getting forest and other environmental
clearances online. While our infrastructure sector view remains
positive, in the short term earnings could be disappointing
probably for one more quarter. However every correction is a buying
opportunity from a long term perspective. News: DOMESTIC MACRO:
Indias HSBC Services PMI stood at 52.2 in July, down from June's
17-month peak of 54.4,as there was moderation in business flows and
market sentiment as against the previous month. As per RBI data,
overseas direct investment by Indian companies fell by over 53%
year-on-year to $1.16 bn in July 2014. India Ratings increases its
FY15 GDP growth estimate marginally to 5.7% on a good show by the
industrial sector, but says the government will not be able to meet
its ambitious fiscal deficit target of 4.1%. Cabinet allows 100%
foreign investment in railway infrastructure projects, and 49%
indefence; but clarifies that FDI will not be allowed in the
railway operations sector. GLOBAL MACRO EURO European Central Bank
(ECB) keeps its main interest rate on hold at the record low of
0.15%; ECB President Mario Draghi also says the central bank will
"closely monitor" the possible repercussions to an escalation of
the Ukraine crisis on the Euro zones economy. UK visible trade
deficit increased to 9.4 bn pounds in June from 9.2 bn pounds in
May. United States US labor productivity increased 2.5% at a
seasonally adjusted annual rate in the June quarter after
plummeting 4.5% in the first quarter; labor costs rose just 0.6% in
Q2 after surging 11.8% in the first quarter. US consumers credit
rose by $17.3bn in June, down from a $19.6bn gain in the prior
month. US wholesale inventories increased 0.3% in June after a
downwardly revised 0.3% gain in May. China Chinas exports surged
14.5% year-on-year to $212.9 bn in July while imports decreased
1.6% to $165.6 bn, resulting in a record trade surplus of $47.3bn;
much higher than the surplus of $17.8bn recorded in the same month
last year.
5. Varun Goel Jharna Agarwal Nupur Gupta Ridhdhi Chheda
Disclaimer The information and views presented here are prepared by
Karvy Private Wealth (a division of Karvy Stock Broking Limited) or
other Karvy Group companies. The information contained herein is
based on our analysis and upon sources that we consider reliable.
We, however, do not vouch for the accuracy or the completeness
thereof. This material is for personal information and we are not
responsible for any loss incurred based upon it. The investments
discussed or recommended here may not be suitable for all
investors. Investors must make their own investment decisions based
on their specific investment objectives and financial position and
using such independent advice, as they believe necessary. While
acting upon any information or analysis mentioned here, investors
may please note that neither Karvy nor any person connected with
any associated companies of Karvy accepts any liability arising
from the use of this information and views mentioned here. The
author, directors and other employees of Karvy and its affiliates
may hold long or short positions in the above- mentioned companies
from time to time. Every employee of Karvy and its associated
companies are required to disclose their individual stock holdings
and details of trades, if any, that they undertake. The team
rendering corporate analysis and investment recommendations are
restricted in purchasing/selling of shares or other securities till
such a time this recommendation has either been displayed or has
been forwarded to clients of Karvy. All employees are further
restricted to place orders only through Karvy Stock Broking Ltd.
The information given in this document on tax are for guidance
only, and should not be construed as tax advice. Investors are
advised to consult their respective tax advisers to understand the
specific tax incidence applicable to them. We also expect
significant changes in the tax laws once the new Direct Tax Code is
in force this could change the applicability and incidence of tax
on investments Karvy Private Wealth (A division of Karvy Stock
Broking Limited) operates from within India and is subject to
Indian regulations. Karvy Stock Broking Ltd. is a SEBI registered
stock broker, depository participant having its offices at: 702,
Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off
Bandra Kurla Complex, Mumbai 400 051 . (Registered office Address:
Karvy Stock Broking Limited, KARVY HOUSE, 46, Avenue 4, Street
No.1, Banjara Hills, Hyderabad 500 034) SEBI registration
Nos:NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE:
INB010770130, BSE(F&O): INF010770131,NCDEX(00236,
NSE(CDS):INE230770138, NSDL SEBI Registration No:
IN-DP-NSDL-247-2005, CSDL-SEBI Registration No:IN-DP-CSDL-305-2005,
PMS Registration No.: INP000001512
