EQUITY MARKETS

Biggest weekly fall in the Market
Markets witnessed the biggest weekly fall last week. Across the globe the stock markets plunged on fears of the deepening credit crisis which might push global economy into recession. Last Friday turned to be the black Friday in market history. Infosys' weak guidance and weak IIP data that was announced on Friday waived negative sentiments in the markets. RBI's steep cut in CRR twice in the week too failed to soothe investor's nerves. Inflation rose 11.8% in the week ended 27th September 2008, down from 11.99% in the previous week. Sensex after touching an intra-day low below 10000, close at weekend losing 15.95% and Nifty was down 14.1%. The BSE Mid-Cap index was down 21.42% and the BSE Small-Cap index was down 20.31% underperforming the larger indices. Real Estate and Metal Indices were the worst performing indices as were down by 24.23% and 22.27% respectively. The most beaten stock was ICICI Bank which slumped 27.9% in the week to Rs.364, lowest in almost four years on foreign exposure concerns.

Aug IIP number disappoints, stood at 1.3%
August Index of Industrial Production (IIP) numbers came in at 1.3% versus 10.9% year-on-year. Manufacturing growth for August stands at 1.1% versus 10.7% (yoy), and the consumer durables growth for the period have come in at 5.1% against 6.2%. Meanwhile, August capital goods stand at 2.3% against 30.8% (yoy) and mining at 4% versus 14.7% for the same period. The steep fall may partially be also attributed to the base effect. The July industrial growth has been provisionally revised to 7.4% from 7.1%.

Infosys cuts growth forecast, will not raise bid for Axon
The July-Sept earnings season started IT bellwether Infosys Technologies declaring its second quarter results. Infosys' Q2 FY09 was in line with expectations, perhaps even slightly better but the guidance downgrade revenue growth in USD terms for FY09 was worse than the street expectation. The Q2FY09 numbers for were a tad better than expectations as revenues are up 11.6% sequentially at Rs.5418 Cr. and the net profit up 10% at Rs.1432 Cr. The dollar earnings per share (EPS) guidance for FY09 have been lowered from $2.32-2.36 come down to $2.24, which is about 5% lower. Revenue growth guidance for FY09 is now 13-15% versus 19-21% earlier. Guided revenue growth is 16-18% in constant currency (versus 19-21% earlier). The company stated that it won't increase its 407.1 million pound ($690 million) offer for U.K.-based Axon after being outbid by Indian rival HCL Technologies Ltd. The stock lost 11.98% to close on weekend compared to its previous week's close.

SEBI revises P-note norms; lifts 40% cap in ODIs
The Securities & Exchange Board of India (SEBI) eased some of the restrictions imposed on foreign institutional investors (FIIs) at its board meeting, in an effort to boost capital inflows. The market regulator announced that the restrictions on offshore derivative instruments will be removed. The 40% cap on ODIs in both cash as well as derivative contracts will be lifted. P-notes are issued by foreign funds registered in India to unregistered overseas investors. FIIs were earlier barred from owning more than 40% of their assets in P-notes and were asked to unwind certain holdings within 18 months. In October 2007, SEBI had placed a ban on either fresh issuance or renewal of PNs by foreign portfolio investors or their subaccounts in cases where the underlying Indian securities were derivatives. It was also decided then to cap the percentage of PNs or offshore derivative instruments (ODIs) outstanding at 40% of the total assets under custody of a registered foreign portfolio investor.

FIIs remain big sellers: Domestics also turns sellers
FIIs remain sellers to the tune of Rs.2517.2 Cr in the cash market and were sellers to the tune of Rs.1392.4 Cr in the derivatives market for three days of trading last week. Domestic funds too sold off last week to the tune of Rs.656.4 Cr for three days of trading.

Going Forward
Markets have fallen to such levels where fundamentally valuations are looking attractive. Crude and commodity prices are easing which is a big positive for our economy as a whole. Although the global news flow continues to be negative we feel markets at these levels may see some consolidation and some short term bounce may be possible. Investors may increase exposure to equities with a horizon of 2-3 years.

DEBT MARKETS

WPI - Inflation
The wholesale price index fell to 11.80% for the week ended 25 September 2008 as compared to 19 September 2008. According to government, inflation is now expected to continue its downward trend. Inflation was down due to lower prices of food articles like fruits, vegetables, cereals, pulses and some manufactured items. The Primary Articles group index was down by 0.2% as prices of vegetables are down 2.1%. The index for Fuel, Power group remained unchanged and Manufactured Products index was down by 0.1%.

Inflation for week ended August 02, 2008 was revised upwards to 12.91% as compared to provisional figure of 12.44%.

Global Coordinated Rate Cuts
In a coordinated move, the world's major central banks lowered their benchmark interest rates in an effort to halt a collapse of share prices and a freeze in credit markets. The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates. The Chinese central bank joined the effort by reducing its key interest rate and lowering bank reserve requirements to free up cash for lending. India too cuts its CRR by 150bps. The Fed's benchmark short-term rate now stands at 1.5%. The European Central Bank's is 3.75%.

RBI cuts CRR
Reserve Bank of India announced on Friday that the Cash Reserve Ratio (CRR) will be reduced by 150 basis points (bps) to 7.50% of net demand and time liabilities (NDTL) instead of 50 bps announced Oct 6, 2008, to inject Rs. 60000 crs liquidity into the system. According to RBI, the measure was undertaken with a view to injecting liquidity into domestic financial markets so as to alleviate the pressures brought on by the deterioration in the global financial environment. RBI had not cut CRR since June 2003, when it was lowered 25bps to 4.50 %. The 150bps reduction is the steepest since 2001.

Outlook
Liquidity was very tight during the week with banks borrowing Rs. 60000 crs. on an average during the second week of reporting. CBLO, during the entire week, was above 9%. Call rate were also high at around 15% and reached a high of 23%. The 10yr yield ended at 7.80%. Prices were up on account of auction cancellation, CRR cut and global coordinated rate cuts. Liquidity will be relatively easy next week as the CRR cut is expected to inject Rs. 60000 crs. Banks will continue to borrow in the first week of reporting. RBI has also announced T-Bill auction worth Rs. 6000 crs. We expect 10-yr to be in the range of 7.50-7.75%.

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