The World This Week June 10 – June 14, 2013

Equity View: Last week we witnessed almost 1.2% correction in Nifty which was the fourth consecutive week of

negative closing for Nifty. What we saw unfolding was a mild correction from the peak level of 6150 of

Nifty. We believe that there are no changes in the macro economic stance and we continue to be positive

on the equity markets in the short to medium term.

This week is going to be quite eventful in terms of policy events. Today, RBI came out with its monetary

policy in which it kept the REPO rate and the CRR unchanged. We have seen significant easing in the

monetary policy in the last several months with 75bps cut in Repo so far this calendar.

For the month of May, the WPI inflation fell to 4.7% and the core inflation to around 2.4% which might

give RBI the necessary quotient to go ahead with rate cuts in its future monetary policies. The CPI

inflation number continues to remain high at 9.3% which is still above the comfort level. We believe that

with a normal monsoon expected this year, the food and vegetable prices would cool off which would

indeed lead to the reduction in the CPI numbers.

Fitch changed the Indian sovereign debt outlook to “Stable” from “Negative” while the rating has been

maintained at BBB(-) and this is largely on the back of the improvement in the fiscal deficit situation of

India. In FY13 the Fiscal Deficit came in at 4.9% of GDP, which was better than the expectations. This year

also, the Finance Minister has promised a fiscal deficit number of less than 4.8% of GDP.

We have a big event on Wednesday in terms of FOMC meeting in which the US Fed Governor, Mr.Ben

Bernanke, is expected to announce his stance on Quantitative Easing (QE). While there has been a lot of

discussion in the market on whether the QE will be rolled back or will be reduced in quantum this year,

we do not see that scenario coming out. We believe that QE in the United States will continue for next

several months and only in 2014 we will see some kind of tapering out of QE-3.

Meanwhile, the US macro economic situation continues to improve as the US unemployment number is

still at 7.5% and the US Monetary and Fiscal Authority would want to see this number to come down to

6% - 6.5% in near future.

News:

DOMESTIC MACRO:

The headline inflation slowed for a fourth straight month in May to 4.7 percent from 4.89 percent in April 2013.

Fitch Ratings returned India's sovereign outlook back to "stable" from "negative" a year after its initial downgrade, surprising markets with a validation of the government's efforts to contain the fiscal deficit and revive economic growth.

India's industrial production grew less than expected, at 2 percent in April from a year earlier which the analysts expected to grow 2.4 % annually.

GLOBAL MACRO

EURO

The use by banks of the European Central Bank’s overnight deposit facility fell to its lowest point since November 2011. The overnight deposits fell to just 72bn Euro’s on Wednesday night from 103bn Euro’s on Tuesday night showing a positive sign for the economy.

Euro Zone Industrial Output Shows Surprise Rise in April which rose by 0.4 percent on the month, after a nearly two-year high jump of 0.9 percent in March.

United States

Standard & Poor's on Monday removed the near-term threat of another credit rating downgrade for the U.S. credit by revising its outlook to stable from negative, citing an improved economic and fiscal outlook.

U.S. retail sales rose, more than expected, 0.6 percent after edging up 0.1 percent in April. Sales had been expected to rise 0.4 percent. And first-time applications for jobless benefits fell last week, showing signs of resilience in the economy.

China

China’s Finance Ministry failed to sell all of the debt offered at an auction for the first time in 23 months owing to a cash squeeze that threatens to exacerbate a slowdown in the world’s second-largest economy.

Satadru Mitra Varun Goel Jharna Agarwal

Abbas Naheed Kinjal Mehta

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