2. Equity View:
The RBI’s monetary review is scheduled for on 29th January 2013. We are expecting a 25-50 basis points
cut in repo rate. Consensus expectation is of the 25 basis points cut and is already factored in by the
markets. Also, along with the repo rate cut there is expectation that the there would be cut in CRR by 25
basis points. However, there is also lot of speculation on whether the governor would go for an
aggressive rate cut of 50 basis points cut as done previously in April 2012 review. Overall we believe that
there will be some reduction in the interest rates post the review.
We believe that in during calendar year 2013 we could see 100-150 basis points of reduction in repo rate.
This could be in way of small cuts at regular intervals i.e. 25 basis points in January review and next 25
basis points cut in March review or it could be an aggressive 50 basis points cut in January review itself
and next cut could be in FY 14.
In terms of inflation, we have witnessed a cooling-off in inflation numbers in last few months and are
expecting a further cooling in the numbers in this year on back of two things: 1. Adverse base effect; 2.
Core manufacturing inflation is been coming down since last few months and is now below 5% mark
which a lowest level since 2.5 years and hence we expect the inflation to remain moderate during the
calendar year.
Last week, the quarterly earnings season continued with automobile companies announcing good set of
results. Although, commercial vehicles (CV) growth continued to remain muted; we believe that as and
when the manufacturing growth revives during the next two quarters, we would see a bounce back in the
CV sales also. Passenger vehicle sales have also started to show good growth and would see further
bounce back in coming quarters.
In terms of various reforms measures that are being announced and implemented, we are now
witnessing a lot of talk about Goods & Services Tax (GST). There is an expectation that during the course
of this year we would see negotiations and agreement between the central & the state governments on
the taxation rates and dates of joining for GST implementation and it is believed that the GST would be
implemented by April 2014. We are not expecting GST to be implemented before FY 14; however, we do
believe that lot of ground could be covered in FY14 for smooth implementation of the GST in April 2014.
As mentioned even earlier, GST is one of the biggest reform measures since 1991 and it could add 100-
150 bps in GDP growth every year once it is implemented.
3. News:
DOMESTIC MACRO:
RBI announced the eased restrictions in a notification stating limits on government bond
investments would be raised by $5 billion to $25 billion for FIIs, and by $5 billion to $50 billion
across corporate bonds.
For the first 9 months of this fiscal, banks’ advances grew 7.4 percent, compared with 10.5
percent a year earlier, while deposit growth was 7.3 percent compared with 11.3 percent in the
same period a year ago, data from the Reserve Bank of India showed on Wednesday.
The Reserve Bank of India (RBI) has allowed exporters to access the foreign exchange market
without having to first exhaust funds in their foreign currency accounts, reversing a previous
restriction imposed to prevent a sharp fall in the rupee.
GLOBAL MACRO
EURO
Markit's "flash" Composite Eurozone Purchasing Managers' Index, which surveys around 5,000
firms and is viewed as a good growth indicator, jumped by more than expected to 48.2 from
December's 47.2.
The "positive contagion" on financial markets is not yet feeding into the economy at large but the
euro zone should see recovery in the second half of the year, ECB President Mario Draghi said on
Friday.
International bankers and finance ministers warned on Saturday that Europe's crisis was not over
even though the euro currency is now stabilised, it will take years to overcome economic malaise
and mass unemployment in Europe.
US
Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 330,000, the
lowest level since January 2008, the Labor Department said on Thursday.
China
The HSBC flash purchasing managers' index (PMI) rose to 51.9 in January, the highest since
January 2011 and above the 50-point level that shows accelerating growth in the sector from the
previous month.
4. dru Mitra Varun Goel Jharna Agarwal
Abbas Naheed Kinjal Mehta
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