1. The World This Week
April 26 – April 26, 2013

2. Equity View:
Last week the equity markets bounced back with a 1.5% gain in Nifty and Sensex. The result season
continued and we had fairly good set of numbers coming in from most of the private sector banks. We
had Axis Bank, ICICI Bank and HDFC Bank announcing their quarterly results. As expected HDFC bank
again came up with a 30% Y-o-Y growth which makes it 21 quarters of consistent 30% growth in profits.
Axis bank and ICICI bank also came up with a good set of numbers with a slight improvement in Net
Interest Margins and a very stable asset quality. As we have been stating earlier, we continue our
preference for private sector banks. We believe that the private sector banks will continue to have a 15%
- 20% Net interest Income and profit growth for FY14.
The corporate earnings so far have been led by banks and we believe that for the next few quarters also
we would see private banks continuing to lead the overall markets. In terms of PSU banks, we continue to
be concerned about the asset quality. We believe that some of the public sector banks might still end up
coming with a negative surprise in terms of further provisioning and more and more assets becoming
delinquent, and hence we continue to avoid the public sector banking space for this quarter also.
In terms of results this week, we have Hindustan Unilever (HUL) coming out with its results today. We are
expecting very soft set of numbers from HUL. The company has been struggling with volume growth for
last several quarters. We believe that the volume growth for this quarter would be around 5 – 6% which
would end up disappointing the market broadly. A quick point about the royalty issue - with most of the
MNC companies we have seen a significant increase in the royalty payment for several quarters because
of which the net profit margins would continue to come off and as such we would advice a cautious
stance on some of these MNC names in the consumer space.
We also have a big event in form of the RBI policy this week. The consensus expectation is of around 25
bps cut in repo rate. The bond markets and equity markets have already discounted that. If we look at
the inflation numbers we have seen WPI number at around 6% which is a 40 month low. The core
inflation is also at around 3%, which again is a 40 month low. There has been a diversion between recent
WPI and CPI data.
CPI has been running at around 10% which is essentially on the back of increased food and vegetable
prices. But WPI inflation has continued to cool off. Also, a point to note here is the fact that there has
been a significant increase in diesel prices from the middle of January and despite that WPI has continued
to cool off - which shows that there has been a considerable loss of pricing power in most of the
manufacturing space. Had it not been for the diesel price hikes the WPI inflation would have cooled off
even further.

3. Hence we believe that RBI would take cognizance of this part and carry on with the monetary easing
cycle in the policy meeting. There are a lot of estimates in the market which predict a possible 50 bps cut
in repo also - which is essentially backed by the fact that in the last two annual policies which have
happened in May of 2011 and 2012, RBI has done a 50 bps kind of action which is either on the way up or
on the way down. Hence a lot of market participants are expecting a 50 bps kind of a cut.
Our own sense is that considering a very hawkish commentary from RBI in the month of March, we
would think that RBI would do 25 bps cut now and wait for the next policy to do further 25 bps cut. So we
would maintain our stance of a 25 bps cut. We believe that during the course of this fiscal we would see a
75-100 bps point cut in interest rates. We have seen a 100 bps cut in FY13 and a similar number should
be expected for this year also.
News:
DOMESTIC MACRO:
 The Reserve Bank of India fixed the ceiling for the outstanding balance under the market
stabilisation scheme (MSS) at 500 billion rupees for the current fiscal year that started in April.
Under the MSS, the central bank issues bonds to absorb excess rupee liquidity from the market.
 India will limit the fiscal deficit for 2013/14 to below 4.8 percent of gross domestic product, the
finance minister said on Wednesday.
GLOBAL MACRO
EURO
 Italian centre-left politician Enrico Letta named a coalition government on Saturday, making one
of Silvio Berlusconi's closest allies deputy prime minister and ending two months of damaging
political stalemate.
 Cyprus is not giving priority to a sale of gold reserves under the international bailout agreed this
month and is still exploring all options to meet its side of the deal, Finance Minister Harris
Georgiades said in an interview.
 ECB policymakers rebuffed suggestions that Europe should ease up on austerity and said that
while the central bank has room to cut interest rates, such a move would not necessarily help the
economy much.
US
 Financial data firm Markit said its "flash," or preliminary, U.S. Manufacturing Purchasing
Managers' Index fell to 52.0 for April, the lowest since October, from 54.6 in March.
China
 The flash HSBC Purchasing Managers' Index for April fell to 50.5 in April from 51.6 in March but
was still stronger than February's reading of 50.4.
 China's central bank has been talking tough on currency reform while it has also intensified
market intervention, highlighting the fine line it must walk in trying to liberalise the yuan.

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