Equity Market:July 2010

Overview:

The BSE Sensex closed at 17,700, up 756 points (+4.46%), and Nifty was at 5312, up 226 points (+4.45%) on Jun 30, 2010. Likely, BSE Mid-cap index closed at 7149, up 314 points (+4.6%), while NSE MidCap index close at 2766.5, up 112 points (+4.22%).BSE FMCG(+8.23%), BSE Auto(+8.10%), BSECG(+7.71%), BSECD(5.19%), BSE Healthcare(+4.71%) & MidCap out performed Benchmark indices SENSEX & NIFTY, while Oil & Gas, Bankex, IT and Realty were among underperformers. Metal Index was the only Index which showed negative return (-2.92%), on Chinese concern. Chinese economy is expected to face slower growth in case Chinese Yuan is made more flexible which will eliminate their export advantage and promote fair trade practices. FIIs continue to be the net buyer (in cash) to the tune of Rs.10508cr in Jun 2010. Domestic Institutions (Mutual Funds) continued to be net seller to the tune of Rs.1093 cr worth. The Indian economy has been on a growth trajectory fuelled by both a rebound in domestic demand (mainly private investment) as well as in exports. This is evidenced by the rise in GDP growth to 8.6% during the last quarter of fiscal year 2009-2010 from 6.5% in the previous quarter, with double-digit expansion of 16.3% in the manufacturing sector, lifting the annual average growth rate for the full fiscal year to 7.4%. Industrial production also registered a double-digit growth rate for the seventh straight month by clocking a spectacular 17.6% growth in April, with capital goods soaring to 72.8% year-on-year (although partly due to the low base effect) and growth in consumer durables touching 37%. India's exports have also grown 36.2% year-onyear in April while imports have grown 43%, with the rise in non-oil imports of 34.3%. The downside risks to this growth momentum are the possible adverse impacts of the Greek crisis, easing in global growth, domestic inflationary pressures and the expectation of higher interest rates to rein soaring inflation.

Outlook:

Bulls and bears are sitting on a see saw seems taking alternate turns which are inflicted by global clues. Indecisiveness of dominance of bulls or bears might continue for yet another week. Market seems to appear on the edge; from here it can move in any direction. Macro events which are lined up in the coming weeks are likely to trigger the direction of the market. With local indicators like corporate results starting with Infosys in mid month will further provide the confluence of the movement of the market. Monsoon season this year has remained deficient by 16% below normal till now. This is expected to pose a threat that food inflation will remain elevated for the entire year. Government needs to take some measures to narrow the food demand-supply gap to control the inflation. With likely freeing of diesel prices is also likely to impact the transportation costs.RBI hiked repo and reverse repo rates for the 3rd time by 25 bps to 5.5% and 4.0% respectively. Move was taken amidst of high inflation. RBI is not likely to hike CRR in the policy review due to tight liquidity in the system. The liberalization of policies is likely to make economy more susceptible to changes in the world, as well as can take advantage of the situation. Opening up of economic reforms is expected to boost FII's confidence to invest in the country. However this is also expected to increase the correlation with rest of the world. We expect the week to be more volatile and largely influenced by global cues.

Debt Market Update

The global financial and economic outlook continues to be unsettled and uncertain. As, the Governments in some parts of the world have responded to the ongoing global financial crisis by initiating several large, aggressive and unconventional measures like reduction in fiscal expenditure by some European countries. The uncertainty, therefore, on global recovery has increased. Surely, yields on government securities had firmed up, but only modestly. However,
with inflationary pressure still prevalent in the Indian Economy in the form of strong domestic consumer demand, greater pricing power among manufacture and continued robust economic growth, one more rate hike in the month of July may not be ruled out. Headline inflation, as measured by the wholesale price index (WPI), rose to 10.16 per cent for the June month from previous month level of 9.59 per cent, due to rising prices of primary articles. The government on
June 25 raised the prices of petrol and diesel by up to Rs 3.50 a litre, while that of LPG and kerosene were hiked by Rs 35 per cylinder and Rs 3 a litre respectively. International crude oil price has also increased from $74/barrel to $76. Moreover food inflation would continue to remain in double digits for sometime now as the impact of fuel price increase would be seen going ahead. While 10-year benchmark Govt. bond yield inched up to 7.56 per cent from previous month level of 7.55 per cent. Much will depend upon RBI's stance in the coming policy on 27th July 2010.