1. The World This Week
May 19 – May 23, 2014

2. Equity View:
The markets continued their upward movement by almost 2.5% last week. We believe that this rally is
likely to continue as there are a lot of triggers lined up in the next couple of months. The government
formation exercise will complete today and the markets are keenly watching the key the Financial and
economic ministries. Another kicker for the market in short to medium term would be the budget which
is expected to be announced in the next 7-8 weeks’ time.
The Q4 earnings season has almost come to an end and the results have been either in-line or above
expectations. The SBI results showed much better asset quality than expected and the fresh provisioning
of NPAs has come down. We believe that the worst of the gross NPA cycle is largely behind us and we
would see improvement in asset quality ratios in future. The PSU banks would continue to rally
considering that they are significantly undervalued even at the current valuations. The private sector
banks are mostly trading at two times of their book value thus the discount of the public sector
compared to private sector is more than 50% currently but the same is expected to narrow as the asset
quality of public sector banks improve in future.
The Bond sector has been witnessing rally in the previous one week with almost 9 bps movement on
Friday itself. The yield now is closer to 8.63% on general estimates of contained fiscal deficit to 4% vis-à-
vis targeted 4.1% of GDP due to the expectations of new government’s high fiscal discipline. In the
currency markets, Rupee continues to appreciate gradually to 58.5 levels last week. We believe that the
interventions by RBI are already there as evident by the relaxation of curb imposed on gold import.
However there is still some room for the central bank in this category as the import duty on gold is high
and the RBI can easily cut rates in few months if the upward bias in rupee continues. The RBI is unlikely to
let the Rupee continue appreciating unabated as it should stabilize around 57-58 levels however in short
term on the back of optimism and hope in the Indian economy, there could be some appreciation which
should not sustain. Basis the impact of rupee movement on export-oriented sectors, we maintain positive
bias on IT and Pharma. The correction which happened in last two weeks in these sectors is short term in
nature and as Rupee stabilizes most of the stocks should bounce back.
News:
DOMESTIC MACRO:
 RBI relaxes gold import norms under the 80:20 rule; allows premier export houses to import the
commodity.
 RBI says banks can give up to 10-year loans to good exporters.
 Foreign Direct Investment (FDI) into India grew by 8% year-on-year to $24.3bn in FY 2013-14
 According to RBI data, overseas direct investments by Indian corporates rose to $5.58bn in April, from
$5.23bn in March.

3. GLOBAL MACRO
EURO
 Bank of England Monetary Policy Minutes of latest meeting says that all members voted to maintain the
key interest rate at 0.50% and quantitative easing at 375 bn pounds
 Eurozone manufacturing PMI declined to a seasonally adjusted 52.5 in May, down from a final reading of
53.4 in April.
 UK’s second estimate of GDP confirmed growth of 0.8% in Q1, compared with 0.7% in the previous
quarter.
United States
 US existing home sales increased 1.3% to a seasonally adjusted 4.65 mn units in April from 4.59 mn in
March.
 US initial jobless claims rose by 28,000 to 326,000 in the week ending May 17.
China
 China HSBC Manufacturing PMI recovered to 49.7 in May from April's final reading of 48.1.
 China enters into a landmark deal to buy Russian natural gas worth about $400bn.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
19/05/14 24,363 8,091 14,247 17,438 7,628 14,606 6,685 9,945 8,214 11,840 11,585 2,148 1,716 4,698
20/05/14 24,377 8,232 14,250 17,304 7,809 14,631 6,736 10,092 8,387 12,030 11,207 2,155 1,800 4,811
21/05/14 24,298 8,342 14,322 17,120 7,776 14,393 6,779 10,057 8,453 12,063 11,178 2,159 1,835 4,832
22/05/14 24,374 8,518 14,334 17,240 8,303 14,464 6,826 10,069 8,428 12,280 11,301 2,207 1,936 4,809
23/05/14 24,693 8,668 14,581 17,523 8,236 14,775 6,794 10,073 8,440 12,538 11,545 2,287 1,977 4,832
1.36% 7.13% 2.34% 0.49% 7.96% 1.16% 1.64% 1.29% 2.75% 5.90% -0.34% 6.48% 15.18% 2.86%

4. Commodities and Currency:
Date USD GBP EURO YEN
Crude
(Rs. per BBL)
Gold
(Rs. Per 10gms)
19/05/2014 58.42 98.28 80.11 57.67 6460 28859
20/05/2014 58.74 98.77 80.52 57.93 6390 28751
21/05/2014 58.77 99.01 80.56 58.09 6444 28543
22/05/2014 58.57 98.87 80.05 57.62 6497 27784
23/05/2014 58.48 98.67 79.80 57.57 6464 27678
-0.10%
Rupee
Depreciated
-0.39%
Rupee
Depreciated
0.39%
Rupee
Appreciated
0.17%
Rupee
Appreciated
0.06% -4.09%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 8.38 -10
2-Year 8.49 -11
5-Year 8.58 -24
10-Year 8.64 -20

5. Varun Goel Jharna Agarwal
Nupur Gupta Ridhdhi Chheda
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