2. Equity View:
Last week, we saw a correction in the equity markets with Nifty undergoing a correction of 0.5% for the
week. Towards the end of the week, we had an important announcement from the Oil Marketing
Companies which is raising the prices of diesel and petrol. We saw petrol prices being increased by Rs 1.5
and diesel by 50 paisa. This is in line with the plan which the government had laid out last month that
diesel prices will continue to go up by 45-50 paisa every month till the time the under recoveries become
zero. This of course is a very small step to the goal, but the important thing is that the government
continues to carry out these actions.
The current diesel under-recovery is of the order of Rs. 9-10. We would need these kinds of price hikes for
more than 15 months for this subsidiary to become zero. Towards the end of the year, as the elections
approach, the government might find it difficult to push through all of these measures. But as of now the
government seems determined to push continuous and small diesel price hikes.
In terms of macroeconomic data points we had IIP number at point 6 for the month of December which
was of course lower than expectation. We believe that industrial activity in the country continues to be
quiet muted. Through the course of this year, the manufacturing activity as a whole has continued to stay
at very low levels, raising a lot of concern about whether there is any kind of bounce back in growth.
Various data points that are coming out, continuing to show that while the activity has bottomed out,
there is yet no sign of a big uptick which is happening. There have been small one offs which have given a
sign that things aren’t earning around but as of now there seems to be no clear sign of a sustainable
upturn in economy will still continue to wait for signals of a big upturn as far as the manufacturing activity
is concerned.
In terms of inflation we had a very positive inflation number with WPI inflation coming at 6.6% which is a 3
year low. This should give RBI the necessary cushion to go ahead with further repo rate cuts. We have the
RBI policy on 18th of March in which we are expecting another 25 bps repo rate cut. Considering the
extremely soft growth target that the government has now and the fact that WPI inflation has been
coming down. CLSA estimates have pegged that FY13 GDP growth at 5% whereas Finance minister
P.Chidambaram and RBI Governor D. Subbarao continue to maintain their year end target at 5.5%.
The result season for Q3 came to an end last week with some of the other companies coming up with their
results; key amongst them was SBI which again came up with a very poor set of numbers. The asset quality
continues to deteriorate thereby further restructuring as far as the loan book is concerned. While the
valuation of SBI is extremely attractive at this point of time, shares are trading around 1.5 times of FY14
book. However we don’t think that we’ve seen the worst when it comes to asset quality, probably it will
take one more quarter for asset quality in these many PSU banks to stabilize. So hence we would continue
to maintain our bias towards private sector banking names and continue to avoid the public sector banking
names for now.
3. News:
DOMESTIC MACRO:
The index of industrial production (IIP) fell 0.6 percent annually in December after output shrank
0.8 percent in November.
Wholesale prices - India's main inflation gauge rose 6.62 percent in January from a year earlier,
the slowest pace since November 2009. Headline inflation stood at 7.18 percent in December.
India's annual consumer price inflation accelerated to 10.79 percent in January from the previous
month.
India and France said on Thursday they expected a free trade agreement between India and the
European Union to be signed by April 2013, according to an Indian government statement.
GLOBAL MACRO
EURO
Economic output in the 17-country region fell by 0.6 percent in the fourth quarter, EU statistics
office Eurostat said on Thursday, following a 0.1 percent output drop in the third.
US
Initial claims for state jobless aid dropped 27,000 to a seasonally adjusted 341,000, the Labor
Department said on Thursday. The prior week's claims figure was revised to show 2,000 more
applications were received than previously reported.
U.S. retail sales barely rose in January as tax increases and higher gasoline prices restrained
spending, suggesting the economy got little help from the consumer at the start of the year. The
Commerce Department said on Wednesday retail sales edged up 0.1 percent after an unrevised
0.5 percent rise in December.
President Barack Obama on Tuesday called for talks on a far-reaching free trade agreement with
the 27 nations of the European Union, throwing his weight behind a deal that would encompass
half the world's economic output.
4. Satadru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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