Weekly analysis of market trends & insight into the consequences of various reforms

1. The World This Week
April 29 – May 03, 2013

2. Equity View:
The Reserve Bank of India (RBI) in its Monetary Policy Review last week delivered on expected lines and
reduced the Repo Rate by 25 bps from 7.50% to 7.25%. However, the CRR cut did not materialize as
expected by many. Consensus expectation at this point of time is of further 50-75 basis points cut in repo
rates for FY 14. We believe that another rate cut in repo by 25 bps could be in next couple of months i.e.
during the July review and next 25-50 basis points cut would be in second half of this fiscal.
Inflation continues to come down and we are witnessing a continuous cool-off in the non-food
manufactured inflation or the core inflation number which is below 4% for last couple of months. RBI
expects inflation to hover broadly around the 5.5% mark in the current fiscal and said it will deploy "all
instruments at command" to bring it down to 5% by March next year.
RBI in its review projected FY 14 growth numbers at 5.7% which is significantly below the number finance
ministry is working towards. All the budget estimates have been made keeping in mind a 6.5-6.7%
number in mind. This shows that RBI is expecting a slower revival of economy than the government
expectations. As we are aware that the Indian investment sector has taken a huge hit and has almost
come to a stand still in last couple of years because of policy inaction, land acquisition and environmental
issues. There is some slow progress on that front, however RBI believes there is lot more to be done for
investment growth to really revive in short to medium term. RBI also made the point that the
government would need to do more in terms of reviving sentiments for the growth to really bounce back.
In global developments, ECB lowered its main rate by a quarter percentage point to a record low 0.50%.
Growth expectations in Europe have been quite muted which lead to poor macro-economic data from
various countries in Euro Zone in last couple of quarters. This rate cut will give a boost to the falling
growth levels across the euro area.
Bharti Airtel announced its quarterly results last week which were broadly in line in terms of revenue
front but were disappointing at the PAT level. Bharti’s performance in African markets continued to
struggle and it might take couple of more quarters for the operations there to stabilize. The telecom
space as a whole is seeing some kinds of revival in terms of domestic operations are concerned. Ee
believe that the competitive intensity is coming down as the operators like Idea, Bharti Airtel etc have
taken price hikes in the last 2-3 quarters and this trajectory will continue further. The health of overall
telecom sector should get fixed and as such we remain bullish on the telecom sector.
In the FMCG space we had few companies announcing their quarterly results last week. The key among
these were HUL, Marico, Godrej Consumers and JSK Consumers. All of these companies delivered a
decent set of numbers. The volume growth was highest in Dabur and we continue to like the Dabur story
from medium to long term perspective. This boost in FMCG space in terms of companies’ profits in this
quarter is on account of significant cooling-off in commodity prices which is adding to the margins.
Hence, going forward we believe that margin expansion is the theme which is going to play-out in next
several quarters and we are going to see a good set of profit growth for most of the FMCG companies
even if the volume growth were to stay muted. We continue to maintain positive bias of FMCG sector.

3. Auto Sales for the month of April came in at last week. The numbers were disappointing as most of the
companies had flat to negative growth. We believe that 2-wheeler space is going through lot of trouble
as far as volume growth is concerned and we expect a 5-6% growth in volumes on full year basis. As far
as 4-wheeler space is concerned, most of the companies would continue to struggle to show flat volume
growth number. We believe that only the selected category like SUV or entry level Sedan will see volume
growth and rest of segments could contract this year and hence would have cautious stance for now.
News:
DOMESTIC MACRO:
 The RBI cut its benchmark interest rate i.e. repo rate by 25 basis points to 7.25% on Friday for the
third time since January, as expected, as growth slows and inflation ebbs, but said there is little
room to ease monetary policy further, disappointing markets.
 The HSBC Manufacturing Purchasing Managers' Index (PMI), fell for the second straight month in
April, dipping to 51.0 from 52.0 in March. The reading for April was the lowest since November
2011.
 Indian Oil Corp (IOC) (IOC.NS), the country's biggest refiner, will cut petrol prices by 4.5% from
Wednesday as global prices of the fuel have declined and as the rupee appreciated against the
dollar, it said in a statement on Tuesday.
GLOBAL MACRO
EURO
 The European Central Bank cut interest rates for the first time in 10 months by a quarter
percentage point to a record low 0.50% on Thursday and held out the possibility of further policy
action to support the recession-hit euro zone economy.
 Inflation in the euro zone has fallen to a three-year low to 1.2% in April, the lowest level since
February 2010 and the biggest monthly drop in more than four years.
 Euro zone unemployment reached a record 12.1% of the working population in March.
US
 The U.S. April unemployment rate dipped from 7.6% to 7.5% -- the lowest figure in five years --
with 165,000 jobs added.
 The U.S. Federal Reserve said on Wednesday it will continue buying $85 billion in bonds each
month to keep interest rates low and spur growth, and added it would step up purchases if
needed to protect the economy.
China
 The final HSBC Purchasing Managers' Index (PMI) dropped to 50.4 in April from March's 51.6 and
was largely in line with a flash reading last week of 50.5. Fifty divides expansion from contraction
on a monthly basis.

4. Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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