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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