Equity market sentiment across the world continues to be uncertain & volatile at this point of time. Ever since the US downgrade by S&P, there is continued concern about US macroeconomic conditions gradually worsening. Indian equity markets have fallen approximately 14% in last month which is in line with the fall of Dow Jones in US.

1. The World This Week
Aug 15 – Aug 19, 2011

2. Equity View:
Equity market sentiment across the world continues to be uncertain & volatile at this point of time. Ever since the US
downgrade by S&P, there is continued concern about US macroeconomic conditions gradually worsening. Indian equity
markets have fallen approximately 14% in last month which is in line with the fall of Dow Jones in US.
In addition to this, there is renewed concern in terms of sovereign debt crisis that some of the peripheral Eurozone countries
are facing. At this point of time there is no definite solution which has been found out. European leaders including the
German Chancellor & the French President have come up with statements saying that there is no immediate expectation of
euro bonds which means that the uncertainty in Europe might continue for some more time.
In terms of global developments there is a speech expected by the Fed Chairman on 26th August 2011 where world would be
watching for any sign of Quantitative Easing III. If QE3 comes about it will lead to more liquidity into the global financial
system & part of it also goes into risk assets being revalued again because of excess money in the system.
As far as our view is concerned on Indian equity, there is no fundamental deterioration of macroeconomics as such
happening in India. But as we saw in 2008, if any broad based equity market correction across the world happens then even
India would also not be spared. Hence, we maintain a cautious view in the immediate short term. Global uncertainties have
largely factored into the prices of Indian Equities. However because of any specific negative news there might be sharp
correction in the near term which will make it very attractive time to invest in the equity markets. If there is a 10% correction
at current level it will be essentially be at the same level in terms of valuations as in the worse times of 2008, which
significantly is a better buying opportunity. Levels of 4200-4300 on the Nifty would be when we would recommend
aggressive investing.
Outlook for those sectors & companies which are dependent on global growth to a large extent has definitely deteriorated as
a part of that we are going underweight on IT & commodities. All our portfolios Alpha, Gamma & K-series are hedged by
using protective puts.
In short term we suggest buying with downside protection, if one is worried about short term losses. For long term it is an
attractive valuation and hence one can buy with no protection & ignore losses in the next 1-2 months. Strategy to invest now
will be buying with a protective put about 200-300 points below nifty’s levels as there is still potential for further correction.

3. Gold View:
Gold has seen an increase of around 6.71% in the last one week. Domestically we are seeing pressure on the Rupee which is
aiding the INR denominated gold prices. On the futures side on MCX, gold has crossed INR 28,000 for the near month. In the
quarter ending June there has been gold purchase of $45 million globally, of which 52% comes from China & India. Demand
in the next two quarters is likely to remain robust for Asian economies and hence we expect the prices to go up.
We also expect the scrap sales to increase in Delhi, Chennai etc. which has put pressure on the near term banks purchases for
bullion dealers. The gold bank sale which was at a premium has now come down at a discount which is ranging between $3-
10 depending on the rates at different centers. There can be correction because of pressure on these scrap sales. Also low
chances of QE3 coming in next week can be a factor supporting gold. Thus we have a bullish stance on gold.
Investment Recommendations:
In the current scenario of uncertainty on the equity markets, we strongly recommend investing in to fixed income
instruments and gold.
 Fixed Income Instruments – Interest rates in India currently are at high levels in absolute terms and we expect it to
be closer to the peak now. Hence we would recommend locking in high interest rates by investing in NCDs, Fixed
Deposits & Fixed Maturity Plans. Alternate to this one can also look at fixed income oriented structured product
with features of high coupon and relatively unlinked to the market.
 Gold – Call on quantitative easing as well as global uncertainties are driving the prices of gold up. In times of such
global uncertainties, gold can be used as a trading asset as its downside remains limited. For the prices of gold to
actually fall, uncertainties have to reduce by a huge magnitude, which is unlikely at least for the next 2-3 quarters.
News:
DOMESTIC MACRO:
 The Indian stock markets have been affected by the U.S. market sentiments in the short term, even though the
country's economy is robust and its growth story is intact, the finance minister said in a statement released after
market hours on Friday.
GLOBAL MACRO
China:
 The U.S. Treasury showed that China, the largest foreign U.S. creditor, increased its Treasury holdings in June by $5.7
billion to $1.166 trillion.
Euro:
 The euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and
stagnation in France, raising fears of a longer-term dip that could derail efforts to resolve the bloc's debt crisis.
US:
 U.S. industrial output posted its best gain in seven months in July as the auto sector bounced back from supply
disruptions wrought by Japan's devastating earthquake in March .

4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Neha Arora Kanika Khorana
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