635230404714907500_NiveshDaily - 19 December 2013

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IndiaNivesh Research IndiaNivesh Securities Private Limited601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800

NiveshDaily

INDICES

Indices Previous (day) Close % chgSensex 20,859.86 +1.20%

Nifty 6,217.15 +1.27% Economy Update

Mid-Quarter | Monetary Policy Review: December 2013 | One more uncertainty added

Global Markets - Outlook

IndiaNivesh Universe | Valuation Table

(As on 18th December, 2013)

Daljeet S. Kohli

Head of Research

Mobile: +91 77383 93371, 99205 94087Tel: +91 22 [email protected]

FROM RESEARCH DESK

IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.

December 19, 2013


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IndiaNivesh ResearchIndiaNivesh Securities Private Limited601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800


Economy UpdateDecember 19, 2013

MID-QUARTER

Monetary Policy Review: December 2013

The Reserve Bank of India (RBI) Governor Raghuram Rajan surprised the market by

leaving the repo rate and unchanged at 7.75% in the mid-quarter monetary policyreview of December 2013 despite high inflation (WPI and CPI) persisting. In view of

the high inflation, the market players and economists were expecting a hike of 25

bps in the repo rate to stem inflation.

Monetary and Liquidity Measures:

On the basis of an assessment of the current and evolving macroeconomic situation,

the RBI has decided to:

Keep the policy repo rate under the liquidity adjustment facility (LAF)

unchanged at 7.75%; and

Keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0% of

net demand and time liability (NDTL).

Consequently, the reverse repo rate under the LAF will remain unchanged at 6.75%,

and the marginal standing facility (MSF) rate and the Bank Rate at 8.75%.

Policy Stance and Rationale:

Both retail and wholesale inflation have increased mainly on account of food prices.

Excluding food and fuel prices, WPI and CPI inflation were quite stable. In addition

to, there are some indications which are showing softening of vegetable prices in

December 2013. Apart from food inflation, disinflationary impact of exchange rate

stability has also not been captured fully into current prices.

However, RBI has clearly mentioned that if food inflation will not come down

significantly in the coming months than RBI may take some stringent actions in the

next policy meet, including off-policy dates to stem inflationary pressure.

Our Take:

With the persistence of high inflation, markets were expecting 25 bps rate hikes

today but the RBI surprised the market with no change in the key policy rates. As

there was no change in key policy rates, banks are expected to keep deposit and

lending rates unchanged. So, this was a big positive for the rate sensitive industries

like banks, real estate, auto and capital goods sector. The yields of longer maturity

bonds might come off temporarily but it will remain under pressure as inflation

fears will continue which will rule out further rate hike in the future.

RBI wants to give more time to the policy actions taken till now before taking any

new policy action. RBI expects a sharp fall in inflation in coming months. According

to us, it was just a postponement of action and it was also clearly mentioned in

todays RBI policy that it may take actions at any time, if the situation warrants.

Daljeet S. Kohli

Head of ResearchMobile: +91 77383 93371, 99205 94087

Tel: +91 22 66188826

[email protected]

Kaushal Patel

Research Associate

Mobile: +91 77383 93414

Tel: +91 22 66188834

[email protected]

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1-Jan-09

1-Apr-09

1-Jul-09

1-Oct-09

1-Jan-10

1-Apr-10

1-Jul-10

1-Oct-10

1-Jan-11

1-Apr-11

1-Jul-11

1-Oct-11

1-Jan-12

1-Apr-12

1-Jul-12

1-Oct-12

1-Jan-13

1-Apr-13

1-Jul-13

1-Oct-13

Repo Rate (%)

Source: RBI, IndiaNivesh Research

0.001.002.00

3.004.005.006.007.008.009.00

10.00

1-Nov-07

1-Feb-08

1-May-08

1-Aug-08

1-Nov-08

1-Feb-09

1-May-09

1-Aug-09

1-Nov-09

1-Feb-10

1-May-10

1-Aug-10

1-Nov-10

1-Feb-11

1-May-11

1-Aug-11

1-Nov-11

1-Feb-12

1-May-12

1-Aug-12

1-Nov-12

1-Feb-13

CRR as % of NDTL

Source: RBI, IndiaNivesh Research

One more uncertainty added


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IndiaNivesh Research NiveshDaily December 19, 2013 | 2

Global Markets - Outlook

Dharmesh Kant

AVP - Strategies & Fund Manager (PMS)

Mobile: +91 77383 93372Tel: +91 22 [email protected]

Source: Bloomberg

Global Market Update

US Markets: Two U.S. stock indexes notched record closing levels on

Wednesday as markets interpreted the Federal Reserves decision to begin

the tapering of bond purchases in January as confidence in the underlying

strength of the economy and welcomed its commitment to low rates for a

considerable time.

The Fed policy makers voted to reduce monthly asset purchases to $75 billion

from $85 billion, citing improvement in the outlook for the economy.

The Federal Open Market Committee stressed its commitment to low short-

term interest rates well after bond purchases end altogether and added new

language that it plans to maintain the target Fed funds rates well past the

time that the unemployment rate declines below 6.5%.

Earlier, housing starts data showed construction of new homes soared to a

seasonally adjusted annual rate of 1.09 million in November in the fastest

pace since February 2008, signaling that the housing markets recovery is

shaking off rising mortgage rates. The government reported surges inconstruction of both single-family homes and apartments.

Days Performance: The Dow Jones Industrial Average and the S&P 500 soared

to close at all-time highs. The Dow added 293 points, or 1.8%, to 16,167.97,

topping its prior record close on Nov. 27. The S&P 500 index rose 30 points,

or 1.7% to 1,810.65, surpassing its previous record close on Dec. 9. The Nasdaq

Composite was up 16 points or 1.1% to 4,070.66.

Set ups on S&P 500, Dow Industrial Average and Nasdaq 100 are looking

good and are trading in the all time high zone.

Emerging markets:Asian stocks rose, after the Federal Reserve expressed

enough confidence in the U.S. labor market to taper asset purchases whilestill promising to hold interest rates close to zero.

Bullions & Commodities: Gold is trading at $1223.74 per troy ounce this

morning up 0.43% from previous close. WTI Crude future is trading at 97.70

per barrel while Brent Crude future is trading at $109.31 per barrel.

Currencies:The U.S. Dollar Index tracking the U.S. currency against a basket

of six others currencies trading at 80.56 this morning down (0.04%) from

previous close. Long term set ups up on Dollar Index are looking good. A

break above 84 on a weekly closing basis is required for new positional Bull

Run to begin in Dollar index. The likely upside then would be around 89 levels.

The dollar and U.S. stocks often trade on opposite paths, with a weak dollar

seen as providing investors with cheap funding to buy stocks. Plus the dollarsdrop generally helps U.S. companies overseas sales.


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IndiaNivesh Research NiveshDaily December 19, 2013 | 3

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635230404714907500_NiveshDaily - 19 December 2013