Indian equity markets rose over 4% last week and have increased 10% over the past 3 months as strong FII inflows of $1.35 billion have boosted sentiment, while further economic reforms from the Prime Minister are also expected to support growth. The RBI is anticipated to cut interest rates later in October to stimulate the economy as monsoon rains improved and inflation stabilized. Overall the outlook for Indian equities and the rupee remains positive due to robust global liquidity and progress on domestic reforms.

1. The World This Week
Sept 17 – Sept 21, 2012

2. Equity View:
Indian equity markets in general and Nifty in particular moved up by more than 4% from the previous week’s
closing. In last three months, Nifty has moved up my almost 10% and in CY 12 till date Nifty has moved up by
20%. This is backed by huge inflows from FIIs who have put in a total of Rs. 75,000 crores in Indian equity
markets from the beginning of CY12.
The Prime Minister’s announcement on fiscal side has continued to benefit the markets. In addition to the
diesel price hike and FDI in retail and aviation, there are several other reforms which are expected during the
course of next few weeks. One of the biggest announcements that we are expecting is of the restructuring of
the State Electricity Board debt. There is almost Rs. 2,00,000 crores of worth of debt which is provided by
various banks the city boards and these city boards have been in very bad conditions with respect to the
financials as they have been providing power to the consumers across the country at a rate below their
purchase price. It is expected that on this announcement of SEB exposure moving away from their own balance
sheets to the state government’s balance sheet would be huge positive for the banks especially the public
sector banks and we could see some more upside in the PSU banking names if this reform is pushed through in
next few weeks.
The markets have bottomed out last year and since then markets have continued to move up. We maintain our
view of year end target of 21,500 for Sensex on back of mix of very strong global liquidity in terms of unlimited
bond buying programmes in US and Euro and improving domestic macros as together it would provide a bullish
sentiment in the Indian equity markets. Hence, we would recommend buying in the Indian equities. It is
expected that RBI in its review on 30th October 2012 would cut rates and monetary easing would start in India
also, which would lead to rebounding of growth to a level of around 6%.
In last one year we have witnessed rupee depreciating by 20% against US Dollar which had a significant
negative impact on Indian markets. But after the positive fiscal reform announcement and large FII buying in
Indian equities, we have seen rupee appreciation of 4% in last 10 days and currently rupee stands at Rs. 53.5
per dollar. Rupee also has a potential to appreciate slightly from these levels if some more reform
announcements are made by the government. Hence, the outlook for the both Rupee and Indian Equity
Markets remains positive in short to medium term.
News:
DOMESTIC MACRO:
The RBI policy announced a cash reserve ratio (CRR) cut of 25 bps last Monday. But the central bank
would wait for the economy to stabilise before reducing the repo rate.
The monsoon continued to show improvement and the deficit has been reduced to about 5 pct of the
long-term average. The rains are expected to boost the rabi crop, cushioning the losses caused by kharif
crops.
The markets gained 2 pct last week, with the Nifty closing at a 14-month high of 5691, after a resurgent
Congress stood by its policy measures despite the threat of key ally Trinamool Congress leaving the ruling
coalition.

3. GLOBAL MACRO
EURO
Markit's composite euro-zone purchasing managers index fell to 45.9 in September from 46.3 in August
and Markit said it suggested the euro-zone economy could shrink by roughly 0.6 percent in the third
quarter ending this month.
The euro zone's economic problems do not call for the same sort of asset-purchasing programmes that
central banks in the United States or Japan have adopted, a European Central Bank policymaker said on
Thursday.
The International Monetary Fund acknowledged on Monday it faced "serious challenges" in designing
bailout programs for troubled euro zone countries mainly because it was restricted by the rules of the 17-
member currency zone.
US
Markit's flash U.S. manufacturing purchasing managers index remained stuck at 51.5 this month,
unchanged from August.
A Federal Reserve policymaker pitched a bold proposal on Thursday for keeping interest rates low until
unemployment falls sharply -- an about-face that shows how concerned the Fed is about the sluggish U.S.
economy.
China
The China HSBC flash manufacturing PMI inched up in September to 47.8 from August's nine-month low
of 47.6, suggesting the world's second-largest economy remains on track for a seventh quarter of slowing
annual growth.

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