Even as the macro situation continues to remain under stress, statements from ECB have provided the much required boost for risk assets. Aided by healthy inflows (USD12.3bn for CY12 so far), India has emerged amongst the top performing markets globally. Meanwhile, the downgrades to earnings estimates resumed with 1.5% cut to FY13 EPS during August although the overall sluggish pace points to a gradual bottoming out of the downgrade cycle. With the slowdown in domestic economy spreading to consumption as reflected in latest GDP data, we have cut FY13 GDP growth forecast to 5.8% from 6.4% earlier. Rainfall meanwhile improved substantially, with seasonal rainfall deficit (Jun 01-Sept 05) now standing at ~10% below LPA (against ~20% in early August).
Europe: ECB turning bolder
ECB, in its latest policy meeting, announced an outright monetary transaction (OMT) programme under which it will purchase sovereign bonds of troubled EU sovereigns in a sterilised, but unlimited way to cut their borrowing costs. While there are explicit pre-conditions for purchases (troubled sovereign needs to approach EFSF/ESM for assistance and accept conditions), we believe this is thus far the boldest move by ECB in safe-guarding financial risks in Europe. It will reduce ‘tail-risk’ of Euro break up and trim borrowing costs of economies such as Spain and Italy.
Indian economy: Receding monsoon concerns
Rainfall improved substantially in August, with seasonal rainfall deficit (Jun 01-Sept 05) now standing at ~10% below LPA (against ~20% in early August). Reservoir levels have also improved throughout the country, and the latest sowing data shows that barring coarse cereals, sowing has been near normal in all Kharif crops. Therefore, agri output may not be as bad as feared earlier. Meanwhile, June quarter GDP data shows that slowdown in investments is spilling over to consumption, with growth in trade and related services (proxy for consumption) slipping to ~4% YoY versus ~7% in Q4FY12. Given faster-than-expected slowdown in consumption and delayed monetary easing, we have cut FY13 GDP growth forecast to 5.8% from 6.4% earlier.
Markets: Another good month for defensives
It was a mixed month for global equities with developed markets outperforming the emerging market peers. European indices performed particularly well, spurred by the statements by ECB. For the year so far, India is amongst the top performing markets globally. This is also reflected in the FII flows with India amongst the top recipients of portfolio money amongst the peer group. Despite the bout of risk appetite, defensives sectors outperformed in August. Meanwhile, the downgrades to earnings estimates for the Sensex universe resumed with 1.5% cut to FY13 earnings in August.
Regards,
No comments:
Post a Comment