The RBI increased interest rates by 25 bps to fight high inflation. It has set a target of lowering CPI inflation to 8% by January 2015. Due to high inflation and volatility in private banks, the stance on banking has been changed to equal weight from overweight. Most corporate results met expectations with IT and pharma performing well. The US Fed tapered its stimulus further but no more action is expected until addressing fiscal issues next month.

1. The World This Week
Jan 27 – Feb 01, 2014

2. Equity View:
RBI in its policy review last week increased the interest rates by 25 bps. In view of the RBI Governor, this
is a fight against CPI inflation. The government and the RBI, is extremely concerned about the elevated
levels of CPI for last 2-3 years. RBI has also set a firm target on CPI of 8% by January 2015 and till the time
inflation begins to fall sustainably below that level, we would expect interest rates to stay high for the
next couple of quarters. A major change in the RBI stance has been that instead of WPI - CPI has become
the key metric of inflation- targeting in the country, which would also be considered for the formulation
of monetary policy.
In light of the above, we have changed our stance on the Banking space from Overweight to equal
weight. Some of the private sector banks also came out with deterioration in asset quality in the last few
months and, there is a need to be little cautious on the volatile balance sheets of these banks.
In terms of corporate results, we have almost come to the end of earnings season which was largely in
line with the expectations of the broader markets. The earnings growth for this quarter has been around
9-10% on the ex-Energy basis which is what the markets had expected. IT and Pharma came up with a
decent set of results. There were some disappointments in the banking space while largely even this was
in line with expectations. Some of the public sector banks have come up with good numbers and, we still
maintain that the public sector banks are expected to show significant outperformance vis-à-vis overall
Banking space.
The US Fed in its policy reduced the extent of monetary stimulus from USD 75Bn to USD 65Bn a month.
This was largely factored in, by the markets thus we did not see huge volatility in both equity and
currency markets across the emerging world in the last week. The US Fed is expected to continue to carry
out calibrated steps to reduce monetary stimulus till the time US economy continues to show strong
recovery. The US GDP growth rate was around a strong 4.1% last quarter and the unemployment number
has also been coming off. Based on these two things, the US Federal Reserve has decided to further
reduce the monetary stimulus. However, we do not expect any further tapering action until next month
when a lot of significant fiscal issues are to be addressed.

3. News:
DOMESTIC MACRO:

Government raises cap on subsidized cooking gas cylinders from 9 to 12 per year.

Finance Minister of India expresses confidence that the Indian economy’s growth rate will increase from
6% in 2014 to 8% in 2016

RBI hikes repo rate by 25 bps to 8%; and said further tightening unlikely soon if retail inflation eases as
projected, it does not foresee further near-term monetary policy tightening.

State Bank of India raises 80.32 billion rupees ($1.28 billion) via share sale to institutional investors to
boost its capital requirements.
GLOBAL MACRO
EURO

Euro zone consumer price inflation dropped in January to 0.7 percent year-on-year in the first month of
2014, down from 0.8 percent in December.

Italy's seasonally adjusted unemployment rate was 12.7 percent in December, just a notch below the
revised 12.8 percent rate for November, remaining near its highest since the 1970s

German tax revenues rose to their highest ever level in 2013 by 3.3 percent to 570.2 billion euros ($773.4
billion).
United States

Fed trims asset purchases by another US$10bn to $65bn a month.

The consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4
percent after advancing 0.6 percent in November.

Initial claims for state unemployment benefits increased 19,000 to a seasonally adjusted 348,000, the
Labor Department said.
China

The official Purchasing Managers' Index (PMI) edged down to six month low level of 50.5 in January from
December's 51.

4. Indices:
Date
Sensex Midcap Auto Bankex
CD
CG
FMCG
HC
IT
Metals
O&G
Power Realty
Teck
27/01/14 20,707 6,273 11,555 12,057 5,469
9,364
6,511 10,091 9,469
9,238
8,440
1,521
1,218
5,156
28/01/14 20,684 6,273 11,574 12,020 5,476
9,390
6,537 10,011 9,369
9,397
8,449
1,521
1,231
5,101
29/01/14 20,647 6,283 11,588 11,937 5,434
9,476
6,537 10,088 9,422
9,270
8,445
1,519
1,224
5,124
30/01/14 20,498 6,211 11,619 11,619 5,528
9,408
6,476 10,070 9,409
9,037
8,354
1,514
1,192
5,114
31/01/14 20,514 6,308 11,569 11,712 5,548
9,487
6,518 10,110 9,477
9,152
8,453
1,525
1,212
5,168
-0.93% 0.55% 0.12% -2.86% 1.46% 1.31% 0.11% 0.18% 0.08% -0.94% 0.15% 0.26% -0.53% 0.23%
Commodities and Currency:
Date
USD
GBP
EURO
YEN
27/01/2014
28/01/2014
29/01/2014
30/01/2014
31/01/2014
62.71
62.99
62.20
62.73
62.48
0.38%
Rupee
Appreciated
103.50
104.61
103.12
103.87
102.95
0.54%
Rupee
Appreciated
85.82
86.17
84.96
85.61
84.60
1.44%
Rupee
Appreciated
61.21
61.36
60.22
61.22
60.96
0.41%
Rupee
Appreciated
Debt:
Tenor
1-Year
2-Year
Gilt Yield in % (Friday)
8.83
8.68
Change in bps (Week)
10
11
5-Year
8.92
14
10-Year
8.79
5
Crude
(Rs. per BBL)
Gold
(Rs. Per
10gms)
6708
6691
6766
6708
6772
30076
29798
29775
29809
29736
-0.95%
1.13%

5. Satadru Mitra
Varun Goel
Nupur Gupta
Jharna Agarwal
Kinjal Doshi
Disclaimer
The information and views presented here are prepared by Karvy Private Wealth (a division of Karvy Stock Broking
Limited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sources
that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for
personal information and we are not responsible for any loss incurred based upon it.
The investments discussed or recommended here may not be suitable for all investors. Investors must make their own
investment decisions based on their specific investment objectives and financial position and using such independent
advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please
note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising
from the use of this information and views mentioned here.
The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the abovementioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose
their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis
and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this
recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted
to place orders only through Karvy Stock Broking Ltd.
The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors
are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also
expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability
and incidence of tax on investments
Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian
regulations.
Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at:
702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 .
(Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills,
Hyderabad 500 034)
SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O):
INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI
Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”