The World This Week March 05 - March 09 2012

1. The World This Week
Mar 05 – Mar 09, 2012

2. Equity View:
Nifty was flat during the last week with slight correction of 0.5% from the previous week’s close. The Reserve Bank of India
(RBI) on Friday reduced the cash reserve ratio (CRR) of scheduled banks by 75 basis points (bps), from 5.50% to 4.75%, in a
move to help banks ease pressure on liquidity that was pushing up rates on short term money markets. Our own view is that
the 75 bps cut in the cash reserve ratio, will inject around Rs. 48,000 Cr. liquidity into the banking system, which will reduce
pressure on liquidity, especially ahead of payment of advance tax by March 15 deadline. The 125 bps cut in CRR since the
beginning of this year has injected a total of around Rs. 80,000 Cr. into the monetary system. Liquidity would still continue to
be tight as there is a short fall of approximately Rs. 1.5 - 1.6 Lakh Cr. in the system. We also expect RBI to continue with the
open market operations (OMOs).
This week is going to be extremely eventful in terms of macro-economic data flow. IIP data for the month of January is
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expected to be announced on 12 March 2012. Consensus expectation is around 2.1% with continues contraction in
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construction and infrastructure activity. Inflation numbers for the month of February will be announced on 15 March 2012.
We are expecting inflation numbers to be around 6.0 to 6.5 %.
The cool-off in inflation along with low IIP numbers and poor GDP growth data for the third quarter, we expect the RBI to cut
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repo rate by 25 bps during its policy review on 15 March 2012 itself. This view is based on the fact that growth has slowed
down considerably and government’s efforts for economic reforms are not bearing desired results.
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The Union Budget is to be announced on 16 March 2012. There is no significant expectation from the government’s fiscal
policy, as there are no big reforms which will be addressed. The only thing we are expecting is slight increase in excise duty
and service tax rate. We expect the excise duty to be increased from 10% to 12%. The sectors which primarily will take the hit
are from this will be automobiles, cements and cigarettes.
We also expect the government to expand the service tax by having an ‘Exclusive List’ for service tax applicable as against the
list of sectors where the service tax was applicable previously. All these measures are expected to boost the government’s
revenues. There might also be few populist measures like the “Right to Food” bill which could be tabled this time.
A big positive step for the infrastructure sector could be abolishment of 5% import duty on Coal. This move will be positive for
most of the power generating companies and hence, we would continue to maintain a tactile positive call on power space
largely on the back of policy changes.
Overall, fiscal deficit for FY13 is expected to be at 4.7%, although looking at the current welfare program and social spending
we expect the number to exceed 4.7% levels and the realistic estimate for FY13 fiscal deficit should be around 5%, which is on
back of assumption that Brent Crude will remain around $110 a barrel. If the Brent Crude moves up significantly from these
levels, the target of even 5% could be difficult to achieve.
News:
DOMESTIC MACRO:
The Reserve Bank of India cuts the cash reserve ratio, the share of deposits that banks must hold with it, by 75 basis
points to 4.75% after the close of local markets. The cut will inject about Rs. 480 billion of liquidity into the banking
system, which the RBI said had been on track for a worsening deficit in the second week of March, partly because of
scheduled outflows for payment of advance taxes by companies.
India will maintain its controversial ban on cotton exports for now after ministers failed to agree its fate on Friday,
even after top buyer China had criticized the move, which boosted global prices.

3. GLOBAL MACRO
Euro:
Greece averted the immediate threat of an uncontrolled default on Friday, winning strong acceptance from its private
creditors for a bond swap deal which will eat into its mountainous public debt and clear the way for a new bailout.
After the success of a debt cut plan which paves the way for a €130-billion international bailout, attention in Athens is
shifting to politics and on how to kick-start debt-laden Greece's stricken economy.
The ECB's staff forecasts showed the economy could shrink by 0.5% this year and at best grow by 0.3%, a slight
downgrade of its previous estimate.
US:
The jobless rate is at a three-year low of 8.3% in the month of February 2012 same as for the month of January 2012.
China:
The private-sector HSBC China Services PMI, which provides a snapshot of conditions in businesses from restaurants
to banks, climbed to a seasonally adjusted 53.9 in February from 52.5 in January, well above the 50 mark that
demarcates expansion and contraction.
Data showed China's factory output cooled more than expected in the first two months of 2012 to grow just 11.4%
from a year ago, as slackening demand at home and abroad dragged production to its lowest level in over 2-1/2 years.
Retail sales disappointed with growth of 14.7% in January-February from a year earlier.
Annual food price inflation ran at just 6.2% in February, a low not seen since June 2010.

4. Swapnil Pawar Varun Goel Jharna Agarwal
Palak Nanjani Abbas Naheed Kanika Khorana
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