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Circuit Breaker 20th July 2013

MBA Capital Markets


NEWSMAKERS Trade deficit falls despite contraction in exports and higher inflation The key economic data released on 12th July revealed that inflation was 4.86 percent in June from 4.6 percent in May. The retail inflation climbed up to 9.87 per cent in June mainly due to rise in vegetable and fruit prices. Subdued import of gold and silver pulled down the trade deficit in June to USD 12.2 billion despite 4.56 percent fall in exports during the month. The decline in gold and silver imports can be attributable to the steps taken by government in May and June due to which gold imports for domestic use were discouraged.

RBI hikes short-term interest rates Governor D Subbarao raised the cost of borrowing under marginal standing facility (MSF) by 200 basis points and narrowed the window of borrowing for banks from the Liquidity Adjustment Facility(LAF) to just 1 percent of deposits at 75,000 crores citing the need to restore stability to the forex markets. These banks will force banks to seek funds from markets and offer higher rates for depositors. As a result, interest rates on shortterm borrowings, commercial papers, deposit rates and loans rates may go up 25-50 basis points in the next few weeks.

Govt. proposes liberalization of FDI limits in 12 sectors, opens up Defense Government has proposed to hike foreign direct investment (FDI) in a dozen sectors, including 100 per cent in telecom and higher caps in insurance and defense sectors, to boost the sagging economy. It will also allow 49 percent FDI in many sectors on auto route. Sectors that will benefit most from these reforms include telecom, defense, insurance, single brand retail, basic cellular services.

Infosys quarterly results set a positive tone Infosys posted a 2.7 per cent sequential growth in sales for the April-June quarter, higher than expectations, which were for about a 1.5 per cent growth at the upper end of analyst estimates. The company reported consolidated net profit at Rs 2,374 crore for the quarter ended June 2013, down 0.8 per cent, against Rs 2,394 crore in previous quarter. Sales for the quarter were at Rs 11,267 crore, up 7.7 per cent, as compared to Rs 10,454 crore. Its stock soared 15 percent post declaration of results. Many brokerages have turned bullish on this stock after the Q1 results.

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Movement in Equity Markets 0.05

Percentage Change

0.04 0.03

0.02 0.01 0 8-jul

9-jul

10-jul

11-jul

12-jul

15-jul

16-jul

17-jul

18-jul

19-jul

-0.01 -0.02 Nifty

Dow jones

FTSE

Nikkie

Dollar and Euro Movement W.R.T Rupee 0.02 0.015

Percentage Change

0.01

0.005 0 8-jul

9-jul

10-jul

11-jul

12-jul

15-jul

16-jul

17-jul

18-jul

19-jul

-0.005 -0.01 -0.015 -0.02 USD

EURO

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Nifty Options Open Interest (OI) Analysis 8th July 2013 10000000 8000000 6000000 4000000 2000000 0 5400

5500

5600

5700

5800

5900 Call OI

6000

6100

6200

6300

6400

6500

6600

6200

6300

6400

6500

6600

Put OI

19th July 2013 12000000 10000000 8000000 6000000 4000000 2000000 0 5400

5500

5600

5700

5800

5900

Call OI

   

6000

6100

Put OI

Maximum Call OI has changed from 6000 level to 6200 level. Maximum Put OI has changed from 5600 to 5900 level. Major Call interest below 5800 level has exited the market. Significant Put interest has built up from 5800-5900 level.

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FUTURES Vs. OI 25000000

6100 6050

20000000

6000 5950

15000000

5900 10000000

5850 5800

5000000

5750 0

5700 08-Jul 09-Jul 10-Jul 11-Jul 12-Jul 15-Jul 16-Jul 17-Jul 18-Jul 19-Jul CUM-OI

  

Futures price

The CUM-OI has been consistently high during the latter half of the last fortnight. The CUM-OI on the start of fortnight has been low but then gained momentum and touched the peak on 15th july and end of the fortnight. The fortnight closed with around 3.4 % gain in futures price to end the week at 6036.40

FII Statistics Gross Selling 2334.5 2434 1912.6 3823.4 7997.6 2082.7 2819.2 4227.5

Net

08-July-13 09-July-13 10-July-13 11-July-13 12-July-13 15-July-13 16-July-13 17-July-13

EQUITY Gross Buy 2094.3 2601.2 1986 2510.1 2887.2 1905.7 2509.5 4223.4

18-July-13

3204.1

3317.7

Date

 

Gross Selling 709.8 1398 660 921 2450 658 536.8 723.2

Net

240.2 167.2 73.4 1313.3 5110.4 177 309.7 4.1

DEBT Gross Buy 883.8 339.6 260.8 327.4 1777.4 121.7 273.9 95.3

113.6

49.5

671.4

621.9

174 1058.4 399.2 593.6 672.6 537.1 262.9 627.9

FII were net Sellers of equities on most of the days. FII were net sellers of Debt on almost all the days due to concern of rupee depreciation against the dollar and rupee hovering in the range of 58-60.

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ECONOMIC CALENDAR FOR NEXT FORTNIGHT Date 23 July

Currency USD

24th July

INR

26th July

INR

30th July

INR

31st July

EUR

1st August

EUR

rd

Event Forecast House Price Index Indian M3 Money Supply Indian Bank Loan Growth Indian Interest Rate Decision Unemployment Rate Interest Rate Decision

-

Previous 7.4% 12.8% 13.7% 7.25% 12.1% 0.5%

Companies that will declare their results in next fortnight DATE

COMPANY NAME

DATE

COMPANY NAME

22nd July

L&T

26th July

Wipro, Nestle India, Pfizer

23rd July

Hero Motocorp, Ambuja Cements, Dabur, Yes Bank

29th July

Colgate Palmolive, IDFC

25th July

Maruti Suzuki, ITC, ACC, GAIL India

31st July

NTPC , Bharti Airtel

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CB – Café’ HYPERINFLATION IN ZIMBABWE Hyperinflation is when the prices of most goods and services skyrocket usually more than 50% a month. In September 2008, according to IMF, annual rate of inflation in Zimbabwe was 489 billion percent. So, Zimbabwe experienced Hyperinflation. They even printed 100 trillion Zimbabwean dollar note. A billion dollar note was not enough to buy a loaf of bread.

REASONS There were various reasons that led to this situation. Till 1997, the situation was manageable as the inflation rate was 20 percent. In 1998, Zimbabwe participated in the Congo War which led to a high fiscal deficit. Then in 1999, there was a drought which led to a big decrease in the production. And this was the starting of Hyperinflation in Zimbabwe. As the fiscal deficit increased, Govt. started printing money to pay expenses (called monetization). And then in 2000-01, President Mugabe introduced Land Reallocation Act. According to the act, land was taken away mostly from white farmers and was redistributed to black populace. With economy depreciating, many fled the country which decreased the tax base as well which led to even higher fiscal deficit. So, the Govt. reacted by printing more money to pay its expenses which lead to a further devaluation of the currency as the supply kept on increasing and demand kept on reducing. Then, Zimbabwe Govt. made some more reforms to reduce inflation such as fixing the prices of everyday items. With devaluation of currency worldwide, this lead to a distribution system failure. These reforms along with the drought decreased output by 50% during the period from 2000-07. Prices doubled every 25 hours during the period from 2007-08. So, salaries of employees needed to be increased. So, this led to even more expenses. With money supply increasing dramatically and the production decreasing, Zimbabwe experienced hyperinflation. Now, what could be the ways to counteract this Hyperinflation? First, Govt. will have to stop printing money and concentrate on how to increase production of goods in economy or they could also adopt any other foreign currency. These days Zimbabwe is mostly using either US dollar or South African Rand even in their domestic markets. So, in a way they reduced their inflation. But these are not concrete solutions unless they improve their production and distribution cycle. Page | 6


The Editorial Team of Investocraft Chakshu Aggarwal

Editor in Chief

Ravi Srikant

Content Head

Khushboo Shah

Communications

Pratik Jain

Circuit Breaker

Tanvi Mittal

IT Head

Shekhar Kaushal

Design Head

Visithttp://www.investocraft.com for more updates on the latest happenings from the Indian Capital Markets

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