Monthly Strategy Report December

August 2013
2013
Monthly Equity Commentary
1-1.S &P

B S ES ENS X .B S E - 02/12/13

Tre nd7
21300
21250
21200
21150
21100
21050
21 T
20950
20900
20850
20800
20750
20700
20650
20600
20550
20500
20450
20400
20350
20300
20250
20200
20150

28

29

30

31

03

05

06

07

08

11

12

13

14

18

19

20

21

22

25

26

27

28

29

D a ily

Month Gone By

Frontline Indices:
Week
No

% Chg
Sensex Nifty

The Benchmark indices ended negatively for the month of November 2013. BSE Sensex
fell by 1.8%. Nifty fell 2.0% for the month. Profit-taking in blue-chips such as ICICI
Bank hit shares reversing some of the previous gains on doubts about how quickly the
Iranian nuclear accord would translate into higher supplies that pressure oil prices.
Key Positives

Key Negatives

With 8% Y-o-Y increase in gross tax collections, Indias The manufacturing activity in India continued to decline for a third

-2.50

-2.64

-1.29

-1.38

Retail Research

1HFY14 fiscal deficit touched 76% of FY14BE. Notably,

straight month in October, according to the widely tracked HSBC
fiscal deficit in month of Sep 2013 decelerated to Rs 74bn
Purchasing Managers' Index (PMI).
Indias private sector contracted for the fourth successive month,
from Rs 640bn in Aug 2013.
After hitting a 39-month low in early September, Indias
with the HSBC India Composite Output Index staying below 50 in
foreign exchange reserves reversed their downward trend,
October.
amid a stabilizing currency to add $9 billion to the total Global credit rating agency Standard and Poor's (S&P) affirmed its
'BBB-/A-3' sovereign credit rating on India while retaining negative
over the next seven weeks.
RBI issued guidelines for entry and expansion of foreign
rating outlook on Asia's third-largest economy.
banks which will treat foreign banks operating in the
country on nearly equal terms with local lenders if they
move to a wholly owned subsidiary structure.
Trade deficit jumped in October after having fallen to a India's wholesale price inflation accelerated to the highest level in
two-and-a-half-year low the previous month, as overseas
eight months in October pressured by an unabated rise in food
purchases of gold picked up ahead of the festival season
prices, aggravating worries for authorities trying to boost growth
without allowing price pressures to spin out of control.
The Index of Industrial Production (IIP) for the month of September
1

grew at below market expectation.

The IIP for the April-September period now stands at 0.4%.

Indias annual consumer price inflation quickened more than

The finance ministry has asserted that the Centre's fiscal

-0.89

-1.00

deficit will be contained at 4.8% of GDP in 2013-14 as

pegged in the Budget Estimate.

The domestic gems and jewellery industry is likely to

+2.84

+3.01

double in the next five years on growing demand of

bullion for investment and ornaments for household

consumption and gifting purposes.

Peak power deficit in the country shrunk to 3% in October,
as against 9.4% in the same month last year, helped by
higher hydel generation due to heavy rains and lower
industrial growth.
After sluggish growth in the first quarter, Indian economy
grew by 4.8 per cent in the second quarter this fiscal due
to improved performance of farm, manufacturing,
construction and services sectors.

expected to 10.09 percent in October from 9.84 percent in

September, driven by food and fuel prices
Foreign institutional investors (FIIs) sold shares worth of 598 million
rupees ($9.5 million) to snap a 32-day buying streak that had
totalled 238.84 billion rupees.
The economy continued its sluggish run in the 2nd quarter of 201314, according to ZyFin estimates, lead indicator to official set of
numbers
The Ministry of Commerce and Industry has proposed tighter
overseas investment norms in existing drug companies by limiting all
forms of foreign participation in them, including FII and FDI, at 49%
Centres fiscal deficit stood at Rs 4.57 lakh crore for the AprilOctober period, against the Budget Estimate of Rs 5.43 lakh crore
for the entire financial year (84%).

Global markets:
Indices
US - Dow Jones
US - Nasdaq
UK - FTSE
Japan - Nikkei

Oct-13

Nov-13

% Change

15454.8

16086.4

4.1

3919.7

4059.9

3.6

6731.4

6650.6

-1.2

14327.9

15661.9

9.3

Germany - DAX

9033.9

9405.3

4.1

Brazil - Bovespa

54256.0

52482.0

-3.3

Singapore - Strait Times

3210.7

3176.4

-1.1

Hong Kong Hang Seng

23206.4

23881.3

2.9

India - Sensex

21164.5

20791.9

-1.8

6299.2

6176.1

-2.0

India - Nifty
Indonesia - Jakarta Composite

4510.6

4256.4

-5.6

Chinese - Shanghai composite

2141.6

2220.5

3.7

Retail Research

The world markets ended the month of November 2013 on a mixed note.
Jakarta Composite, Bovespa, Nifty, Sensex, FTSE and Strait Times were
the losers, falling 5.6%, 3.3%, 2.0%, 1.8%, 1.2 & 1.1% respectively while
the gainers were Nikkei, DAX, Dow Jones, Shanghai composite, Nasdaq
and Hang Seng each gaining 9.3%,4.1%,4.1%,3.7%,3.6% and 2.9%
respectively.

Average daily volumes on BSE during the month of November 2013 rose
4.52% M-o-M (NSE daily average volumes decreased by 3.88% M-o-M). The
average daily derivatives volumes on NSE fell 6.26% to Rs. 150,271 cr in
November.

Sectoral performance:

BSE Indices
Sensex
Smallcap
Midcap
BSE 500
BSE 200
BSE 100

Sectoral Indices for the month of November ended on a mixed note. The top four gainers
for the month were Capital Goods, Metals, Auto and Power, which rose by 7.26%, 2.56%,
2.04% and 1.71% respectively while the losers were Consumer Durable, FMCG, Oil & Gas
and Bankex which fell by 8.90%, 3.70%, 3.19% and 2.73% respectively.

31-Oct-13

29-Nov-13

% chg

21164.5

20791.9

-1.76

5896.1

6099.5

3.45

6107.4

6325.6

3.57

7656.6

7598.2

-0.76

2490.5

2463.9

-1.07

6270.7

6177.8

-1.48

Remarks

Index rose after the Reserve Bank of India (RBI) after a monetary policy review raised its

main lending rate viz. the repo rate by 25 basis points as expected.

Auto

Gains were triggered by PSU OMCs cutting petrol price by Rs 1.15 a litre.
MRF, Cummins India, M&M and Tata Motors were the top gainers, gaining 9.9%, 9.1%, 6.4%
12074.9

12321.8

and 4.8% respectively.

2.04

M&M group's consolidated gross revenues and other income rose 3.9% to Rs 18675.6 crore in

Q2 September 2013 over Q2 September 2012.

Maruti Suzuki Indias total sales rose 1.9% to 1.05 lakh vehicles in October 2013 over

October 2012. Exports jumped 27% to 9,025 units in October 2013 over October 2012.

Index closed down on the back of profit-taking.

Axis Bank, Indusind Bank, ICICI Bank, and Federal Bank were the top losers, falling 5.5%,

5.3%, 4.7% and 4.1% respectively.

Reserve Bank of India (RBI) last week said it would focus on the monitoring of banks' asset

Bankex

13086.9

12730.3

-2.73

quality and help improve the poor debt recovery process in the country.

The RBI on Friday, 22 November 2013, conditionally extended the deadline for banks to

Capital Goods

9152.0

9816.8

7.26

Retail Research

swap dollars raised through overseas borrowings at discounted rates, further bolstering the
local currency.
Axis Bank Ltd rose after exchange operator BSE Ltd said it will include the lender in its
benchmark BSE Sensex starting on December 23.
Index rose on renewed buying.
Sadbhav Engineering, Carborundum Uni, Crompton Greaves, IL&FS Transport and Fag
Bearings were the top gainers, rising 35.2%, 24.4%, 18.2%, 17.6% and 12.2% respectively.
L&T gained after the company said it is evaluating alternatives for monetisation of certain
assets of its subsidiary L&T Infrastructure Development Projects (L&T IDPL), including a
potential initial public offering and listing in Singapore of selected road assets of L&T IDPL,
through a business trust in Singapore.
Sadbhav Engineering rose after the company said it has been declared the successful bidder
by Delhi Metro Rail Corporation for a contract aggregating Rs 50.96 crore.
3

Consumer Durables

6306.5

5745.2

-8.90

Index fell on the back of concerns over slowdown in volume growth after the festive season

and high valuations resulted in sector-wide profit booking.

Sector heavyweight ITC fell for the first time in two months after the company's quarterly

FMCG

6814.2

6562.0

-3.70

earnings disappointed investors and forced brokerages to downgrade the stock.

United Breweries, Tata Global, Nestle India, and Dabur India were the top losers, falling

14.3%, 9.2%, 8.1% and 7.3% respectively.

United Breweries fell after it reported net loss to Rs 185.7 million for the quarter ended

Sept. 30, 2013 as compared to net profit of Rs 342 million in the same period last year.
Healthcare
IT

Metal

9609.1

9500.9

-1.13

8477.7

8414.3

-0.75

9176.1

9410.9

2.56

Metal stocks rose on positive economic data in China.

Chinese manufacturing gauge rose to an 18-month high in October.
Tata Steel, SAIL, Jindal Steel and JSW Steel were the top gainers, rising 19.9%, 10.2%, 7.4%

and 6.7% respectively.

Tata Steel rose as the company's long products business on Tuesday, 29 October 2013,

announced restructuring proposals to help strengthen its competitiveness

Oil & Gas
Power
PSU
Realty
TECk

8936.1

8650.7

-3.19

1604.3

1631.7

1.71

5804.2

5809.3

0.09

1343.5

1355.9

0.93

4814.7

4738.5

-1.58

Fund Activity
Particulars
Equities (Cash)
Index Futures
Index Options
Stock Futures
Stock Options
Equities (Cash)

Net Buy / Sell Net Buy / Sell Open Interest Open Interest
Oct 13
Nov 13
Oct 13
Nov 13
Remarks
FII Activity (Rs. in Cr)
FII Activity (Rs. in Cr)
+18084
+7201
FIIs were reported net buyers in November.
FIIs were net sellers along with decrease in open interest suggesting
squaring up of earlier long positions.
5921
-2421
15745
12754
-7728
10123
38667
42634
FIIs were net buyers along with an increase in open interest.
FIIs were net sellers along with increase in open interest suggesting
-3909
-2851
26830
29107
cash-futures arbitrage possibilities thrown up during the month.
FIIs were net sellers along with increase in open interest suggesting
creation of fresh shorts.
-453
-142
210
360
MF Activity (Rs. In Cr) (*= data till 27th Nov 2013)
MF Activity (Rs. In Cr)
-1159.7
-1293.8
MFs were net sellers in the month of November.

Retail Research

Bond Yields

Indian G-Sec bond yields ended higher by 47 bps at 9.09% at the end of November 2013
over October 2013. Bond yields rose, tracking a weak rupee after Standard &
Poors (S&P) warned it could downgrade the countrys sovereign rating if the next
government fails to provide a credible plan to revive growth.
10 Year Government Bond Yield - Trend

10.50
9.50

8.50
7.50
6.50
5.50
9-Oct

12-Jul

15-Apr

9-Jan

5-Oct

28-Jun

22-Mar

22-Dec

16-Sep

20-Jun

25-Mar

28-Dec-10

22-Sep-10

28-Jun-10

29-Mar-10

24-Dec-09

1-Oct-09

7-Jul-09

8-Apr-09

1-Jan-09

25-Sep-08

1-Jul-08

4.50

Period

Commodities

Retail Research

In November 2013, the Reuters/Jefferies CRB Index of 19 raw materials ended lower by
1.05% to close at 274.97. The fall in the Reuters/Jeffries CRB Index was on account of a
fall witnessed in commodities like lean Hogs (down by 10.54%), Silver (down by 9.35%),
Nickel (down 7.52%), Sugar (down by 7.05%), Aluminum (down by 6.56%), Gold (down by
5.5%), Coffee (down by 4.47%), Crude Oil (down by 3.8%), Copper (down by 2.9%), Wheat
(down by 2.43%) and Corn (down by 0.99%) offset partly by Orange Juice (up by 18.19%),
Natural Gas (up by 6.06%), Soybeans (up by 4.17%), Heating Oil (up by 2.56%), Cocoa (up
by 2.29%), Cotton (up by 0.34%) and Live Cattle (up by 0.17%). Gold and other precious
metals fell on the back of positive economic data from the U.S. A gauge of consumer
sentiment rose to a final reading of 75.1 in November. And applications for
unemployment benefits also fell with claims falling by 10,000 to 316,000 in the week
ended Nov. 23.

Behaviour of commodity prices (including LME 3 month buyer prices for base metals)
during the month ended November 2013 is given below. November has been a bad month
5

for base metals, but none has done worse than nickel. Aluminium was the big loser, both
supply and demand have been problematic. The metals are in surplus, and slowing
demand growth from China means the worlds largest consumer of industrial metals may
not be mopping up excess supply as quickly as it used to. A stronger dollar is also hurting
metals, including nickel, which are denominated in the U.S. currency, making them more
expensive for buyers using other currencies.

US manufacturing PMI and Q3 GDP came in positive, rekindling concerns that the US
Federal Reserve may scale back QE3 sooner than expected. This drove the US dollar
index higher.

Behaviour of commodity prices (including LME 3 month buyer prices for base metals) during the month ended November 2013:
Commodity

29-Nov-13

31-Oct-13

% Chg

Reasons
Gold headed lower, as expectations the U.S. Federal Reserve will maintain its economic stimulus

seemed to have been factored in.

Gold

1251

1324

-5.51%

Gold weakened on the back of a surprisingly stronger-than-expected U.S. employment report that plays

Crude Oil
WTI

93

96

-3.13%

Aluminum

1753

1876

-6.56%

Copper

7029

7240

-2.91%

Retail Research

into the hands of U.S. monetary policy hawks. U.S. employment report for October showed a surprisingly
larger-than-expected 204,000 rise in non-farm payroll employment.
Crude oil fell as ongoing concerns over rising U.S. inventories and weaker demand in the world's largest
oil consumer drove prices lower.
Traders also waited to see whether Iran's talks with six major world powers could eventually lead to the
easing of sanctions, which have reduced its crude exports by 1 million barrels a day in recent years.
Oil declined after the U.S. and other world powers announced over the weekend an agreement with oilrich Iran on its nuclear program. While the agreement between Iran and the six world powers does not
allow Iran to export more oil, it potentially could make it easier for Iran to sell the oil it is allowed to
sell under the 2012 sanctions.
Aluminum, the second most widely used metal after steel, continues to be priced softer as the market
struggles with oversupply and soaring stocks.
Based on data from the World Bureau of Metal Statistics, the global aluminum market was in oversupply
by some 1.23 million tonnes in the first nine months of the year, while it had 539,000 tonnes in excess in
2012. China accounts for around half of global production, and while Rusal and American competitor
Alcoa have both announced production cutbacks this year, the key to next years market will be whether
or not smelting companies in China choose to scale back capacity.
Copper fell as investors bet that the economic policies laid out by China's leadership wouldn't do enough
to boost growth in the world's top metals consumer.
Weakness persisted as ongoing uncertainty over when the Federal Reserve will scale back its stimulus
measures weighed on sentiment.
The decline in Copper prices was also on signs that the U.S. housing recovery may be slowing, fueling
6

speculation that demand will ebb for the metal used in pipes and wiring.
Zinc
Nickel
Tin

1877
13475
22575

1955
14570
22995

-3.99%
-7.52%
-1.83%

Lead

2075

2189

-5.21%

Nickel prices are down 22% in the year to date and 1.1% away from a four-year low.
The fall in lead prices was on concern that the US Federal Reserve may start tapering stimulus in coming

months, reducing the demand prospect for the metals.

Source:www.lme.com and www.barcharts.com

Currencies

The Baltic Dry Index (BDI) rose 21.08% in the month to close at 1821. The Baltic
Exchanges main sea freight index, which gauges the cost of shipping commodities such
as iron ore, cement, grain, coal and fertiliser. Additional bauxite shipping ahead of the
introduction of Indonesias export tax on unprocessed minerals was one reason for the
uppish BDI.

The USD strengthened vs other currencies in November 2013 except Chinese yuan and
Korean won. Dollar rose after data showed the U.S. economy grew more than forecast in
the third quarter and jobless claims fell. Employers added 204,000 new jobs last month,
the Labour Department said, suggesting the government shutdown had a more limited
impact on the economy than initially feared.
The dollar rose against most major peers as Federal Reserve officials said they might
reduce their $85 billion in monthly bond purchases in coming months as the economy
improves, minutes of their last meeting show.

Given below is a table that shows the depreciation (-)/appreciation (+) of the dollar against various currencies for the month of
November 2013:
USD to:
Pakistani rupee
Hong Kong dollar
Chinese yuan

29-Nov-13

30-Oct-13

% Chg

108.45

107.6

0.8%

7.75

7.8

0.0%

6.09

6.1

-0.7%

Indian rupee

62.39

61.1

2.0%

Taiwan dollar
Singapore dollar
Argentine peso

29.59

29.4

0.6%

1.25

1.2

0.9%

6.14

5.9

4.1%

Reasons

Indian rupee was put under pressure by increased demand for the US dollar from importers including

oil companies (whose partial demand came into the market).

The U.S. dollar jumped against the euro as euro-zone inflation in October dropped below 1% to its

Euro

lowest level in nearly four years.

0.7
0.74

Retail Research

1.7%

The euro fell against the dollar, on growing expectations the European Central Bank will ease
7

monetary policy further to protect growth.

Thai baht

32.05

31.1

3.0%

Malaysian ringgit

3.22

3.2

2.1%

Indonesian rupiah

11962.00

11198.2

6.8%

The ringgit weakened against the US dollar in line with regional markets, on growing concerns of US

scaling back its economic stimulus programme.

The dollar rallied against the yen after the Federal Reserve said that it will keep its stimulus for the

economy in place but dropped a reference to tightening financial conditions.

The dollar soared against the yen after data showing U.S. job growth unexpectedly accelerated in

Japanese yen

102.40

Brazilian real
Korean won

98.3

4.2%

2.34

2.2

6.9%

1058.21

1061.5

-0.3%

October.

The yen tumbled to a six-month low against the dollar as a deal on Iran's nuclear program eased

political anxieties and boosted optimism about economic growth, sending global stocks higher. The
Japanese currency typically falls when share prices rise, with some investors selling the low-yielding
yen in search of greater returns with riskier assets such as equities.
Brazil's real weakened after the country posted a weaker-than-expected primary budget surplus for
October, fueling concerns about a deterioration in economic fundamentals that could trigger a
sovereign credit rating downgrade next year.
The South Korean won strengthened, reaching the highest level in more than two months after
the nations foreign-exchange reserves climbed to a record level.
The nations reserves jumped to $285.96 billion in July from $274.22 billion in the month earlier.
(Source:www.oanda.com)

Comparison of Equity Returns in various markets - MSCI Indices in US$ terms

MSCI Index
BRIC
EM (EMERGING MARKETS)

Last

MTD

3MTD

YTD

1 Yr

MSCI Index

284.6

-1.0%

11.9%

-4.3%

0.4%

EUROPE

Last

MTD

3MTD

YTD

1 Yr

1,722.0

1.0%

12.7%

19.1%

22.4%

1,018.3

-1.6%

9.6%

-3.5%

1.1%

G7 INDEX

1,428.2

2.0%

10.5%

23.0%

25.0%

EM ASIA

452.3

0.1%

10.1%

1.1%

4.6%

WORLD

1,628.4

1.6%

10.6%

21.7%

23.8%

EM EUROPE

449.5

-3.8%

10.3%

-5.0%

1.0%

382.1

-3.8%

10.3%

-5.0%

1.0%

3,291.7

-4.7%

8.0%

-13.3%

-8.1%

EM EUROPE & MIDDLE EAST

EM LATIN AMERICA

ISRAEL
DENMARK
IRELAND

CHINA

65.3

4.9%

12.5%

4.0%

9.0%

GERMANY

INDIA

394.4

-3.4%

16.3%

-8.3%

-8.3%

FINLAND

INDONESIA

671.4

-12.2%

-7.8%

-24.3%

-23.1%

KOREA

449.9

1.3%

12.9%

4.8%

10.2%

MALAYSIA

501.7

-2.1%

6.9%

3.0%

7.0%

PORTUGAL

9.7%

8.4%

1.5%

4.7%

11.2%

19.3%

22.1%

172.0

4.6%

17.1%

40.0%

48.1%

2,169.8

4.3%

19.8%

24.7%

29.8%

498.7

3.6%

29.1%

39.9%

46.1%
20.5%

102.0

3.3%

8.7%

10.3%

1,725.2

2.6%

10.4%

26.7%

27.6%

AUSTRIA

1,314.0

2.5%

12.4%

14.2%

20.7%

4,200.1

-1.6%

8.7%

-0.2%

2.5%

295.8

-1.9%

17.3%

16.1%

20.3%

3,057.6

-2.6%

6.5%

4.0%

5.1%

132.0

-5.4%

9.0%

6.7%

8.8%

500.3

-5.9%

6.1%

2.5%

5.3%

SINGAPORE

TAIWAN

285.8

-1.5%

5.6%

5.1%

6.0%

ITALY

379.1

-8.9%

6.3%

-9.9%

-4.4%

NORWAY

BRAZIL

2,330.9

-6.8%

10.5%

-14.6%

-8.5%

NEW ZEALAND

CHILE

1,876.6

-6.4%

-0.1%

-21.6%

-18.4%

Retail Research

5.8%

USA

PHILIPPINES
THAILAND

199.6
7,061.8

COLOMBIA

1,064.1

-9.3%

-6.5%

-21.8%

-15.8%

MEXICO

6,931.5

2.2%

9.7%

-2.6%

1.4%

PERU

1,047.6

-9.2%

-0.5%

-34.4%

-30.5%

Frontier Markets
FM (FRONTIER MARKETS)

582.3

1.7%

7.5%

18.9%

21.3%

2,253.2

20.2%

46.1%

79.8%

112.8%

552.5

9.2%

14.0%

-0.1%

-2.8%

CZECH REPUBLIC

384.3

-6.2%

11.3%

-11.4%

-7.2%

ARGENTINA

GREECE

121.3

-3.1%

28.8%

49.7%

53.4%

KAZAKHSTAN

HUNGARY

471.6

-6.1%

-1.1%

-8.2%

-11.0%

ZIMBABWE

1,955.7

8.9%

33.8%

46.1%

50.9%

POLAND

931.2

1.0%

13.0%

3.0%

11.7%

BULGARIA

159.0

8.4%

12.5%

75.6%

75.2%

RUSSIA

774.6

-5.3%

8.6%

-4.1%

1.8%

22.5%

TURKEY

537.4

-4.1%

14.0%

-15.3%

-9.4%

EGYPT

620.0

-0.2%

17.3%

-2.6%

5.4%

SOUTH AFRICA

523.6

-4.0%

7.5%

-9.8%

-0.9%

Developed markets end positive

with G7 as Top Gainer; Most
Emerging Markets fell

Israel, Denmark, Ireland - top

gainers in developed markets;
New Zealand fell 5.4%

270.1

6.0%

7.6%

15.7%

SRI LANKA

212.7

-5.0%

1.3%

0.7%

8.1%

BAHRAIN

155.5

-6.5%

-8.2%

-8.7%

-11.2%

MOROCCO

293.1

-7.0%

11.5%

-6.4%

-9.7%

Equity markets across the globe ended the month of November 2013 on a mixed note. G7
was the best performer (up 2.0%) amongst the global equity markets and developed
markets with Israel and Denmark being the best performers (up 5.8% and 4.7%
respectively) during the month. New Zealand was the least performer with a fall of 5.4%.
Among the Emerging Markets, all markets with the exception of Asia were in the red. Asia
rose by 0.1%. Latin America fell the most (4.7%).The Frontier markets rose 1.7% in
November 2013.

Amongst the Developed markets, Israel was the biggest gainer (5.8%) followed by
Denmark (4.7%) and Ireland (4.6%). Other markets like Germany also did well at 4.3%. On
the other hand, New Zealand fell 5.4% in November.
Israel led the performance in the developed markets as Fitch Ratings raised the countrys
credit outlook and after shares in the U.S. and Europe advanced. Fitch, which affirmed
Israels A rating, raised the countrys outlook to positive from stable, citing the shrinking
deficit as the country cuts debt and boosts tax income.
Denmark rose 4.7% as Danish GDP rose to a seasonally adjusted 0.4% (over an expectation
of 0.3% rise) from 0.6% in the preceding month.
Upbeat German consumer-confidence data and better-than-expected economic reports
from the U.S led to a 4.3% increase in Germany. Data from Germany showed consumer
confidence rose to the highest level in more than six years, buoyed by a robust jobs
market and solid income expectations. The forward-looking GfK consumer-confidence
indicator for December came in at 7.4, up from 7.1 in November with most analysts

Retail Research

SERBIA

All EMs fell except Asia;

Indonesia, Thailand fell 12.2% &
8.9% while China up 4.9%

China only gainer (4.9%) among

BRIC markets; Brazil, Russia and
India fell

Retail Research

having forecast a period of stagnation or a slight improvement at best. Also in Germany,

the biggest political parties agreed to forge a coalition government led by Angela Merkel.
New Zealand fell 5.4% as a kiwi dollar near five-year highs against the Australian dollar
hurt companies such as Fletcher Building (the biggest company on the NZX 50) with
Australian sales. New Zealands trade balance rose unexpectedly last month. The trade
balance rose to a seasonally adjusted -168M, from -199M in the preceding month.
All Emerging Markets with the exception of EM-Asia fell in November. BRIC fell 1%,
Emerging markets fell 1.6%, Europe 3.8% and Latin America 4.7%. Asia was up 0.1%.
Among EM-Asia, China and Korea ended on a positive note up 4.9% and 1.3%. Indonesia,
Thailand and Philippines fell the most at 12.2%, 8.9% and 5.9% respectively.
Chinas economy entered the final quarter of 2013 with acceleration in manufacturing
and exports, momentum that offered confidence to Communist leaders gathering to
determine policy shifts for the coming decade. Industrial output rose a more-thanestimated 10.3 percent from a year earlier in October and manufacturing investment
strengthened. Chinas stocks capped monthly gains after the government announced the
biggest package of policy changes since the 1990s.
November was not a good month for the Indonesian stock exchange. Negative market
sentiments were caused by the looming end - or at least winding down - of the Federal
Reserve's quantitative easing program in combination with Indonesia's prolonged current
account deficit. This combination makes investors hesitant to invest in Indonesia's capital
markets because an outflow is expected as soon as the Federal Reserve decides to alter
its monthly USD $85 billion bond-buying program
Thailands SET benchmark index was down as antigovernment protests in Bangkok turned
violent and calls for the removal of Prime Minister Yingluck Shinawatra prompted
investors to sell. The antigovernment protests, which have escalated over the past few
weeks, pushed the market from a gain so far this year to a loss.
Shares in the Philippines slid as investors sold on worries that the country's economy
would slow as a result of the devastation left by Typhoon Haiyan, which hit the country
earlier this month.
Among the BRIC countries, China was the only gainer (4.9%) while the rest Brazil, Russia
and India fell 6.8%, 5.3% and 3.4% respectively.

10

Mexico sole gainer in Latin

American markets at 2.2%

Frontier Markets rise 1.7% led

by Argentina (20.2%); Morocco,
Bahrain fall 7% & 6.5% resp.

Retail Research

Brazilian stocks dropped on with investors eyeing the potential reduction of U.S.
monetary stimulus and weaker economic data from top trade partner China. A business
survey in China, a major buyer of Latin American commodities exports, suggested
economic growth may have peaked in the third quarter. The outlook for Chinese growth
often drives prices for widely-traded Brazilian stocks such as iron ore miner Vale SA.
The Russian stock market edged down on the U.S. Federal Reserves hints of a soonerthan-expected tapering of its quantitative easing (QE) program and poor statistics from
the E.U. and China
Fall in Latin American markets was led by Colombia and Peru which fell by 9.3% and 9.2%
followed by Brazil and Chile, which ended down by 6.8% and 6.4% respectively. Mexico
ended higher by 2.2%.
Stocks in Peru had a negative performance during the last month. Gross domestic product
grew at a slower annual rate of 4.4 percent in the third quarter than 5.6 percent in the
second quarter. The growth rate, which was the weakest since 2009, matched
economists' expectations. The slowdown reflected weaker performances by all the major
sectors of the economy. Peru recorded a Current Account deficit of 2819.36 USD Million
in the third quarter of 2013. According to the economists, growth will be dragged down
by a further possible weakening of commodity prices and an extended downturn in
capital inflows.
Industrial production in Chile fell more-than-expected last month. Chilean Industrial
Production fell to -3.2%, from -1.0% in the preceding month. Analysts had expected
Chilean Industrial Production to fall to -3.0% last month.
The only Latin American market to close on a positive note Mexico on better than
expected trade balance figures. Mexicos trade balance fell less-than-expected last
month. Mexican Trade Balance fell to a seasonally adjusted USD -0.129B, from USD 0.659B in the preceding month and USD -1.625B a year ago.
Among the Frontier markets, Argentina rose 20.2% followed by Kazakhstan and Zimbabwe
up 9.2% and 8.9% respectively. Morocco, Bahrain and Sri Lanka witnessed falls of 7%, 6.5%
and 5% respectively.
Argentinas benchmark stock index rose the most in more than five months on
speculation that the central bank will announce a measure that will help boost foreign
reserves, shoring up the countrys finances and supporting economic expansion.
11

Industrial index on the Zimbabwe Stock Exchange continued with its marginal recovery
with Hippo Valley and Delta Corporation driving recovery by the industrials. Also good
news in the financial sector with the takeover of the US$1,35 billion Reserve Bank of
Zimbabwe debt by Government in what should pave the way for the smooth recapitalisation of the central bank and delisting of Trust holdings proved positive for
Zimbabwe markets.
Moroccon stock index was affected negatively with Morocco which has avoided the worst
of its neighbours' turmoil (Egypt and Tunisia) becoming the latest casualty when it was
relegated in the leading MSCI indices from the league of established emerging markets to
the "frontier" division of economies with less developed capital markets. Morocco suffers
from a gaping trade deficit and relies largely on outside aid from international financial
institutions or richer Gulf states, while domestic politics remain unstable.

Outlook going forward

Global Market Outlook
Majority of fund managers expect
US QE tapering to begin in March
2014; Is Santa Claus rally possible
in December?

Retail Research

Majority of investors expect the Fed to begin tapering QE in March next year, according
to research from Bank of America Merrill Lynch. The Fed previously stressed that there
is no fixed calendar for when it will begin pulling back on QE as part of an
announcement in September, contrary to widespread expectations that tapering would
begin that month. Since then fresh speculation has emerged as to whether the Fed may
instead look to start tapering at its December meeting or possibly in March 2014, when
current Fed vice chair Janet Yellen will take the helm as Fed chairman.
As per the BofA ML fund manager survey for November asked global fund managers 48% of
managers believe tapering is most likely to start in March 2014 in line with Yellens
appointment as Fed chairman, while only 21% of managers overall expect the Fed to
introduce QE tapering before this date. However 18% of investors also expect it will take
place later in the second quarter of 2014.
Despite the ongoing fears of QE tapering, we feel the Santa Claus rally is possible in the
US markets in the month of December. The Dow Jones Industrial Average and S&P 500
typically see their largest gains of the year in December. Since 1929, the S&P 500 has
averaged a 1.5% return in December, with markets posting positive returns more than
70% of the time. December is also tied for the highest average monthly gains for the Dow
Jones Industrial Average. From 1910-2010, December has averaged a 1.32% gain. The
biggest market jump is normally seen on the last five trading days of the year and the
12

first two of the New Year - which is how the rally became associated with Santa. The
December bump can be attributed to many factors. Some people invest their Christmas
bonuses. Others invest with end-of-the-year tax considerations in mind. Maybe it's just
holiday cheer hitting Wall Street. Hence this year also, we expect the US markets to rally
in December. Money flow into global stock markets remains strong, fuelling major
averages higher into the holiday season. This along with strong gross domestic product
(GDP) growth, recent unemployment figures would play large roles in this December's
rally. The Santa Claus rally in the US markets could drive the markets higher across the
globe. The only hitch this time around is that the markets have continued to rise in
traditionally weak months like October.
Japanese
economy
could
continue to show moderate
improvement

Reform revolution accelerating in

China

Retail Research

The Japanese economy has been recovering moderately as domestic demand has been
firm and overseas economies have gradually been picking up. Since the turn of the year,
real GDP has registered high growth of about 4% on an annualized basis for two
consecutive quarters. Comparing external demand with domestic demand, while exports
have generally been picking up at a somewhat slower pace, domestic demand, notably
private consumption and public investment, has been firm.
Going forward, while domestic demand is likely to maintain firmness as external demand
is expected to increase, albeit moderately, the virtuous cycle among production, income,
and spending is likely to be maintained. The real GDP projections that for fiscal 2013 is
somewhat high, at 2.7%, partly reflecting a front-loaded increase in demand prior to the
consumption tax hike. Thereafter, real GDP is expected to decline in fiscal 2014 to 1.5%,
partly reflecting a drop following the tax hike. Therefore, while the economy will be
affected by a swing of the front-loaded increase and subsequent decline in demand prior
to and after the two scheduled consumption tax hikes, it is likely to continue growing at
a pace above its potential, which is estimated to be around 0.5%, as a trend. Two points
to be noted in looking to the future of Japans economy are the sustainability of firm
domestic demand and the outlook for overseas economies.
China has recently made major decisions about its economic future. On November 15,
2013, China announced dramatic new social and economic policies contemplating much
greater reliance on market forces than it has in the past and inviting private-sector
participation and foreign competition in industries long previously controlled by the
central government. It also relaxed its one-child policy, opening the country and its
people to vast new opportunities and inspiring new hopes and dreams.
13

Xi Jinping and other leaders have made it clear that China is willing to accept a slower
growth pace if this will allow for a more sustainable, consumer-driven expansion of its
economy. Some prognosticators are quick to conclude that Chinas economy will soon
significantly slow down, especially because Chinas economy has sputtered
following prior instances when the nations leaders have effected such fundamental
economic reforms (such as in 1978 and 1993).
But some sources believe that the current slowdown in Chinas growth will not go on for
long and that, under Xis leadership, the economy would continue growing at a rapid clip.
The acceleration in the reform revolution in China would contribute immensely to
Chinas growth over the next 5-6 years. There are expectations that Chinas leadership
could ignite the capital economy, funding an aggressive growth program with major
infrastructure investments to support urban development, including huge allotments for
housing, schools, roads, and more. The new one child plus policy would substantially
raise the birth rate, contributing up to 2 million new children to the 2014 economy, a
15% one-year lift that will only further boost consumer morale and spirit. The
government both local and national would invest in more technology-driven sectors,
including advanced agriculture, transportation, medicine and other sectors. This
initiative will be aimed squarely at improving Chinas productivity and manufacturing
competitiveness.

Indian Market Outlook

State election results on Dec 08;
could set the direction for the
markets in the near term

Retail Research

The results of the state elections in the four large states, namely, Madhya Pradesh (MP),
Rajasthan, Chhattisgarh and Delhi are due to be announced on Dec 08, 2013. These states
account for around 13% of Indias 543 Lok Sabha seats and hence their outcome holds a
lot of significance. The election results in these four states are is likely to act as a
leading indicator of the extent of the pro-BJP sentiment in the nation as these states are
a part of the Hindi-speaking belt of India.
The October 2013 survey suggests that the BJP is set to win in 3 of the 4 election-bound
states, garnering 67% of the seats in Madhya Pradesh, 60% seats in Rajasthan, 73% of the
seats in Chhattisgarh and 36% of the seats in Delhi. Hence, the probability of the BJP
forming a majority Government has increased.
At present, the market seems to be pricing in a favourable outcome for the BJP. This is
evident from the fact that most brokerages expect Narendra Modi-led BJP to come to
power after the Lok Sabha elections. Corporate India expects investment-driven growth
to government's prioritizing various forms of rural benefit schemes. The opinion poll
14

Iran Nuclear deal with India has

mixed implications

Retail Research

suggests that 90% of Indian corporates prefer the Opposition party. What's impressive
about Gujarat is its investment-driven growth, and it's not based on one sector. People
believe if Modi wins the Central elections in 2014, it would be positive for the Indian
economy in the form of improved investment cycle and better growth.
However, if the outcome is not as per the consensus expectations, then the market
sentiments could change quickly in near term. Even though the opinion polls dont
happen to be 100% correct, the market has gone up on anticipation that BJP would win.
Hence any unfavourable outcome could upset the market. In the event of Congress
winning in majority of the states, we dont see any significant impact on the markets.
However, if the outcome is equally distributed, then the probability of a hung parliament
in 2014 elections would increase and that could be taken negatively by the markets.
On 24 Nov 2013, Iran, the US and five other world powers struck a deal aimed at curbing
Irans nuclear programme in exchange for an easing of the sanctions against the Islamic
Republic. This is likely to have significant implications for India which, until recently, was
Irans second-largest importer of oil. On the plus side, the easing of sanctions against Iran
should pave the way for reduced overall oil prices, which will benefit India. On the other
hand, as international demand for Iranian oil increases, it is likely to become less reliant
on India. Accordingly, Iran may stop accepting Indian rupees as part payment for oil and
instead favour trade with countries willing to pay wholly in US dollars.
US-led sanctions against Iran have caused a significant decline in Indias crude oil imports
from the Islamic Republic. In 2012-13, Indias crude oil imports from Iran declined by
around 27%, from 18.1 mn tonnes in the previous fiscal year to 13.3 mn tonnes. The
nuclear agreement struck on 24 November maintains the limit on Iranian oil sales of
around one million barrels per day and, therefore, is unlikely to result in substantial
increases in Irans exports to India. The deal does, however, allow for slight increases in
Indian imports by removing the European Unions restrictions on insurance for Iranian
shipments. These restrictions had left refineries that processed Iranian oil without
insurance cover and resulted in Indias imports falling below the level permitted by
sanctions. The deal also marks return of political stability in the Middle East. For India,
there is considerable benefit to be gained by increasing oil imports from Iran. Since
February 2012, Iran has accepted 45% of Indias payments for oil in Indian rupees, with
the remainder in hard currency. Given the high rate of inflation in India and the low
value of the Indian rupee, this is significant. Thus, the deal could benefit India by
allowing it to import more oil at possibly reduced rates.
15

Better than expected Q2FY14

GDP numbers, expansion in Nov
manufacturing
PMI
is
encouraging, pointing towards
stability; however sustainability
in revival is a key

On the other hand, the easing of sanctions against Iran could cause Tehran to favour
trade with countries willing to pay wholly in US dollars. As international demand for
Iranian oil rises, there will be less incentive for Iran to continue the oil-for-rupee
agreement with India.

The Indian economy grew a higher-than-expected 4.8% in the three months through
September, helped by an uptick in agriculture and construction. Analysts polled by
Reuters had forecast a 4.6% growth during the period. Though this was the fourth
successive quarter with a sub-5% GDP growth, it was better than 4.4% reported in
Q1FY14, which is encouraging, as it points towards some stability. Also, it is first
sequential improvement in GDP growth in five quarters. Further, after contracting for
three consecutive months, manufacturing activity saw an uptick in November, according
to the widely tracked HSBC Purchasing Managers Index (PMI). The PMI for manufacturing
stood at 51.3 points in November up from 49.6 points in October this year. This gives
further evidence of economic recovery.
While the above lead indicators do point towards stability going forward, it is too early to
conclude that the economy has bottomed out. Sustainability in revival is a key. Further,
we feel better than expected GDP numbers cannot be interpreted as a recovery yet, as
services and industry are still struggling. The quarter's growth has been driven largely by
a pick-up in agriculture (4.6%), financial services (10%) and industry (2.4%). Government
spending has declined by 1% during the quarter and going forward, this will continue to
decline as fiscal prudence will drive spending cuts. Though a good monsoon and
favourable current account deficit would boost the numbers in the second half of the
fiscal year, a higher inflation coupled with political uncertainty is perceived to be midterm bottlenecks in improving the fundamental growth drivers and investment scenarios
in the economy.

Q2FY14 results of India Inc were

better than expected on an
overall basis

Retail Research

While many question whether the recent rally in equity markets is out-running
fundamentals, the second quarter earnings from corporate India so far have suggested
that earnings may be stabilizing with no significant negative surprises being reported.
After many quarters, India Inc didn't disappoint materially, given the already low
expectations and remarkable earnings performance by a few sectors like IT and
automobiles.
Indian companies reported encouraging earnings and sales in the fiscal second quarter as
the weakening of the local currency against the dollar boosted exports. The rupee had
16

April-Oct 2013 fiscal deficit at

84% of FY14 Budget Estimates;
requires severe contraction in
Government expenditure in the
coming months to meet the target
of 4.8%

Retail Research

depreciated about 11% within the quarter with the domestic currency reaching a lifetime
low of 68.85 a dollar in August but on a close to close basis the Rupee had depreciated by
5.1%. The fall in the value of the rupee translated into higher realizations for exportdriven sectors such as information technology and pharmaceutical companies.
September quarter earnings have proven to be a mixed bag for companies. Companies at
the aggregate level posted steady operating profit from the year earlier and a sales
increase of 11.6%, the highest in four quarters but net profit fell 2.3%, the third drop in a
row, reflecting rising pressure of non-operating costs on the bottom line. This was largely
because the bulk of the revenue growth was on account of a robust performance by
select sectors, including IT and pharmaceuticals, which benefited from the favourable
impact of a weak rupee on export revenue. Operating margin before depreciation and
other income marginally improved by 20 basis points y-o-y to 15.8%. Companies have
been able to keep the margin in the range of 14-16% over the past nine quarters,
reflecting tight cost control amid slower top line growth and an inability to pass on
higher raw material costs.
Sensex companies recorded a good set of Q2FY14 numbers with topline and PAT growing
~14% and ~11% Y-o-Y, respectively. Sales growth was largely driven by heavyweight
sectors like auto, IT and pharma largely on account of seasonality and a positive currency
impact. The EBITDA margin increased 50 bps Y-o-Y to 17.1% supported by 50 bps Y-o-Y
drop in total cost. The decline in operating cost can mainly be attributed to a 120 bps Yo-Y drop in raw material cost. The increase in EBITDA margin was partially offset by
higher interest outgo (up ~33% Y-o-Y). Thus, PAT growth came in at ~11% Y-o-Y.
If earnings and sales continue to show improvement into the March quarter, then we
might have some evidence to believe a turnaround is round the corner, There has been
consumption slowdown in tier-I cities, but it remains to be seen whether that gets
compensated by election expenditure and good crop in tier-II or tier-III cities in the next
quarter. While it's difficult to say precisely if this quarter marked the bottom of this
downtrend or not, it looks incrementally likely a bottom may not be too far off.
India's fiscal deficit touched Rs 4.57 lakh crore or 84.4% of budget estimates in the first
seven months of the current fiscal, reflecting signs of stress in government finances. The
revenue deficit during seven months period went up to Rs 3.5 lakh crore, or 92.9% of the
budget estimate, compared with 81.4% last year. The deficit is without accounting for
subsidies that the government will have to pay for selling diesel and cooking fuels at
prices below cost. As much as Rs 45,000 crore of fuel subsidy to be paid this fiscal will be
17

Inflation continues to remain at

elevated levels (Oct WPI at 7% at a 8 month high; CPI at 10.09%)
Will RBI hike the interest rates
in its Dec monetary policy

Retail Research

carried to the next year as all of the budgetary provisions have already been exhausted in
the first six months. With nearly eight months of the fiscal getting over, the government
has been able to raise a little over Rs 1,300 crore from disinvestment, against the
budgeted target of Rs 40,000 crore.
The fiscal deficit during 2012-13 came down to 4.9% of the GDP from 5.8% a year earlier.
In the current financial year, the government plans to lower the deficit to 4.8% of the
GDP. Finance Minister P Chidambaram at many occasions has reiterated that red line has
been drawn for the fiscal deficit and it would not be breached. With aim to stick to fiscal
deficit target, the government had last month announced slew of austerity measures,
including reduction in non-plan expenditure, ban on holding seminars in five-star hotels
and creation of new jobs. While announcing the steps, the government did not quantify
the savings it would make by the expenditure rationalisation that was announced on
September 18.
We feel in order to manage its fiscal deficit and meet FY14 target, government would
resort to substantial cut back in FY14 plan expenditure (in the range of 15-16%). The tax
collections are clearly lagging the estimates, as evident from subdued growth of 9% in
gross tax collections over April-Oct 2013. On the expenditure front, both plan (19% Y-o-Y)
and non-plan expenditure (18% Y-o-Y) segments have seen substantial Y-o-Y growth. Risk
to fiscal slippage in a pre-election year is high. However, there is a sense of confidence
that the Government would stick to its promise and be able to manage its fiscal deficit
through substantial cut back in expenditure.
Indias wholesale price inflation (WPI) accelerated to an eight-month high in October,
increasing pressure on the central bank to raise policy rates as it was followed by a
double-digit rise in retail prices. The WPI rose to 7% in October from 6.46% in the
previous month, mainly on high prices of manufactured items and food, especially
vegetables. Further, the retail inflation based on the Consumer Price Index (CPI)
quickened to 10.09% in October from 9.84% the previous month, mainly on account of
higher food prices.
The above data indicates that the inflation continues to remain at elevated levels and
way above the comfort zone of RBI. The depreciation of the rupee and high vegetable
prices have impacted inflation. This has increased the probability of further rate hikes in
the upcoming monetary policy on Dec 18. The new RBI governor Mr. Raghuram Rajan is
more focused on inflation and unless the inflation starts cooling off, some more rate
hikes is possible.
18

Markets could move up in Dec in

the event of supportive global
cues, favourable outcome from
state election and no rate hike by
RBI

While the consensus expectations are that the RBI would hike the interest rates in its
upcoming monetary policy review, we cannot ignore the statement passed by Mr. Rajan
on Nov 15 that no single data point will determine the central bank's next move on
curtailing high inflation amidst a weak economy. Rajan had admitted that food inflation
was worryingly high, but said he was somewhat more heartened by the decline in
core consumer price inflation in October, to 8.1% from 8.5% in September. RBI said that
it would watch the incoming data carefully, especially looking for the effects of the
harvest on food prices as well as the second-round effects of fuel price increases and
exchange rate depreciation, before it makes further decisions on interest rates. This
gives a slight indication that RBI might keep the interest rates unchanged in the
upcoming policy. Also, there are expectations that food inflation should come down as a
good monsoon may help in correcting prices of vegetables substantially. But even if there
is no rate hike, we feel the RBI governor would bring in measures to transmit the rate
hikes on to the final borrower, which has not happened to the extent of the recent rate
hikes by the RBI.

Indian markets have been the best performing markets among emerging markets in the
last few months, after witnessing a sharp decline in Aug-13. Though the market rally was
largely restricted to IT, pharmaceuticals, and a few select stocks in the early part of the
year, the past few months have seen performance in a few beaten down sectors like
industrials and PSUs. Despite the Indian economy not showing any signs of material
improvement, with falling Index of Industrial Production, and stunted capex cycle, the
optimism for recovery has been building up in recent months. This is led by the change of
guard at the Reserve Bank of India, possible stability at the Centre post the general
elections, and the government's concerted effort to bring about certain substantial
reforms such as increasing diesel prices and raising FDI limits in several key sectors. The
upmove over the last one month has been mainly due to optimism that BJP would come
back to power in 2014.
While the stressed fiscal situation remains the big concern the government seems to have
arrested the widening current account deficit. India's current account gap narrowed
sharply to USD 5.2 billion, or 1.2% of GDP, in the July-September quarter of 2013-14 on
the back of turnaround in exports and decline in gold imports. Further, though oil prices
remain high and INR is under pressure, they seem to have found levels which are likely to
hold in the near future, a key positive for Indian markets. On the negative side, interest
rates have started showing signs of rising yet again.

Retail Research

19

At the current levels, the BSE Sensex trades closer to 15x one-year forward earnings,
which is not cheap, considering the current earnings growth. However, we believe that
elections and rate cycle rather than earnings growth will drive markets in the near to
medium term. Supportive global cues, favourable outcome from state election and
positive surprise from RBI in the upcoming policy (due on Dec 18) could drive the markets
higher in the month of December. However, the upside is likely to be limited due to fears
of possibility of US QE tapering early next year. According to data compiled by the
Business Standard Research Bureau, December month has historically been favourable to
stock markets. In past one decade, in nine out of 10 years, the benchmark indices had
given positive returns, except in calendar year 2012.
The BSE Sensex is likely to trade in the range of 20200-21700 in the month of December.

Technical Commentary:

Retail Research

For the last 65 trading sessions, we are assuming that the common x is unfolding and its
construction is an Extracting Triangle
This type of triangle comes in the picture when C is smaller in price than wave A and
consumes more time. In the present case wave A took 15 trading sessions and the wave
20

Retail Research

C took 22 trading sessions. So in spite taking more time wave C was of lesser
magnitude. So the extraction is taking place on the upward movement.
The wave C took 22 trading sessions which is +1 Fibonacci number and at the same time
wave B took 8 trading sessions, which is also a Fibonacci number.
The current wave E so far had taken 6 trading sessions and experienced strong
resistance at 20,941 level. This level is almost exactly 61.8% of its previous entire
downfall from 20,322 to 20,162. 61.8% is a golden ratio and considered as very important
ratio in technical analysis.
We feel that unless the Sensex breaches this level violently and closes above
21,000/21,100 we will take the Extracting Triangle as a proffered Neo Wave count and
the moment this level is breached violently the alternate Neo wave count will come in
the picture which is given in this report below

In the chart above we have given downward projection once the Extracting Triangle is
over. These are calculated by taking the length of the largest leg of the triangle, in the
present case it is wave A and then 61.8% and 75% of it are projected from the end of
wave E. 61.8% comes to 18,904 and 75% is at 18,470 and these will be the downward
targets for the Sensex in days to come.
21

As we had mentioned in the chart above if the Sensex closes above 21,000/21,100 level
then this alternate count will come in the picture. Then this entire structure which is
going on for last 65 trading sessions, will be taken as a-b-c after the rise of 15 trading
sessions which is labeled as wave A in the red color.
In this case the Sensex will not go much below 20,162 and the upward rise will continue
and first target for the Sensex will be 21,322 and then 21,876 will be the minimum target
for the Sensex.
In this scenario we feel the Sensex will not go below 19,844 (100% of length of wave a
drawn from end of wave b) which is marked on the chart above,

The month gone by:

Retail Research

22

Learning Technical Analysis

Trading Psychology
Predictions, the Ego and
Anxiety in Trading

Which Is More Compelling?

What Psychology Says

Retail Research

In the month of the November 2013, the Sensex opened at 21,159 and on the next trading
session, it made a new all time high at 21,322 on the Moorat trading session.
Then onwards for 7 consecutive trading sessions it was coming down. Finally on 7th
trading session, it made an intermediate bottom at 20,162. For the next 3 trading
sessions it went up and formed an intermediate top at 20,934 which was almost exact
61.8% of the previous fall.
For next 3 trading sessions it formed a large black candle and formed almost a double
bottom at 20,138.
For next 5 trading sessions it was moving in the upward direction forming Higher Top and
Higher Bottom formation. For the month of November the Sensex closed at 20,792
Making predictions pulls the ego in, warps our trading psychology, and sets us up for
trading difficulties. We all seem to admire someone who can pick the high or low within
a tick, dont we? Wouldnt it be great if we could do that? If anyone actually can do it,
we put them on a pedestal and make them into a trading hero.
If we look at this carefully, though, we can see the ego emerging. If I can make a
prediction and be right, I must be great. Prediction also flies in the face of trading as a
discipline based on probabilities. It gets us into trouble.
Heres a question for you to answer. Which seems more compelling or appealing, Choice
A or Choice B?
A. I can predict the high and the low within a few ticks.
B. When the birds stop singing and the sky darkens, its probably going to rain.
Most of us would probably select Choice A, even though we know in our heart-of-hearts
that B is the better answer for trading the markets. We choose Choice A because it
reflects what psychologists call ego-syntonic. It strokes the ego because it places I in
the drivers seat (I predict). Our egos love that. In Choice B, there is no ego, there is
no I. The birds are driving the bus! Not too appealing to the ego.
There are psychological reasons why it less likely that we would select Choice B. From
behavioral finance, for example, we know that people in general ignore base rates, or
the probability of an event. Researchers have discovered that most people will ignore
probabilities in favor of familiarity, a single prominent quality, and other non23

probabilistic features, even when they know probabilities are important. This is one of
the reasons we respond to gurus. We listen to the hype that the guru has predicted the
last market rally perfectly from the bottom. Thats salience. But we should see how this
guru does over the next 10 bottoms.
Ego and Anxiety and the
Effects on Trading

We all know, too, that when the ego is on the line, anxiety goes up. Most people would
say that choice A is more stressful than choice B, other things being equal. When stress
rises, our cognitive abilities plummet. We miss obvious things and tend to make poor
choices.

Anticipation vs. Prediction Let

the Market Decide

It is much better to anticipate than to predict. Prediction has a hard edge to it. You are
either right or wrong. Anticipation has a less hard edge. It has a softer focus. You can be
more open to possibilities and the probability that the trade wont work out. You are also
more open to what the market is saying because it is a less stressful posture.
An excellent trader was very successful trading just one pattern. But it wasnt because
he could identify the buy and sell signals; a little training and anyone can do this. His
success was due to his attitude towards his trades. He would put a trade on and then
always say, OK, Ive done my part. Now its up to the market to decide.
This was his mantra, and he always made a point of saying this with every trade. He
acted very much like Choice B: He anticipated a change in direction, and then let the
market drive the bus. Whichever way the trade turned out was OK with him. He did his
part. He focused on the process that he could control, and did that well. In doing so, he
was able to let the trade outcome go. His ego wasnt involved. Few of us seem to be able
to do that. This may be one of the reasons why many of us find trading so difficult.

Here are three things you can do

to start to develop mental
toughness:

Retail Research

Here are a few suggestions you might want to consider to address ego, predictions,
letting the market decide, and becoming a psychologically savvy trader.
Focus on the process of trading, not the outcomes. Keep your attention on selecting the
trade, assessing the reward potential to risk, making the entry, setting your stop,
managing your trade, and finding the exit. These are the processes of trading and these
are where your attention should be. If you are worried about the trade outcome
whether the trade is going to be a winner or a loser you have already lost.
Keep a probabilistic attitude about trading. Understand and accept that trading is based
on probabilities. If you have a trade setup with an edge, then you know it wont work out
every time, but it will lead to profitability over a large number of trades. Maintaining a
24

Derivatives Commentary:

Retail Research

probabilistic attitude also helps with a focus on process rather than the outcomes. When
a trade fails, its expected. It is simply one of the trades that had the odds of not
working out.
Be aware of when your ego is pulled into a trade. Learn to recognize the signs that
youve been hooked into believing you have to be right. It might be a tension in the body
or thoughts of fear of a loss, or even the opposite: thoughts of grandiosity. Whatever
your pattern, learn to recognize it so that you dont get ambushed by your ego and make
errors in your trading.
When you notice your ego in the trade, take specific steps to address it. First,
acknowledge it. You can even say to yourself, Ah, theres my ego at work if that seems
to help. Second, dont fight the ego, try to suppress it, or get down on yourself in any
way. We all have egos, and they can be quite valuable at times, though trading is
typically not one of those times. Accept it as a natural part of being human. Finally, turn
your attention back to the process of trading. Focus on whatever you need to do next for
your trade and put your full attention there.
Learn mindfulness skills if steps 1-4 arent enough. Mindfulness is increasingly being
recognized as a highly valuable practice in psychology, and traders can take advantage of
its many benefits. The practice of mindfulness can help you cultivate a mental space that
is less responsive to the internal mental chatter that is so unhelpful for trading. If there
is a holy grail of trading psychology, mindfulness may just be it.
(Acknowledgement: http://www.trademindfully.com/wp-content/uploads/2010/11/Preditions-Ego-Anxiety.pdf)

25

Retail Research

The month of Nov 2013 saw the Nifty surging towards its lifetime highs in the early part
of the month. However selling pressure soon resumed and brought the index lower. A
pullback rally emerged from the lows of 5972 during the last two weeks of Nov and
helped to curb the losses. The Nifty ended the month with losses of 1.95%.
FIIs were reported as net buyers of Rs.7201 cr in the cash segment in Oct 2013 (In Oct,
they were net buyers of Rs. 18084 cr). In the F&O space, the FIIs were net sellers of
Rs.2421 cr in the Index Futures segment. Along with the decrease in the open interest, it
indicates squaring up of earlier long positions undertaken by FIIs in index futures
segment. In the index Options segment, the FIIs were net buyers of Rs.10123 cr, which
was accompanied with a rise in the open interest. In the Stock Futures segment, FIIs
were net sellers of Rs.2851 cr, while open interest rose over Oct.
The Dec 2013 series has started on a lighter note compared to the previous series. In
terms of value, the Dec 2013 series has begun with market wide OI at Rs.99,472 crs. Vs.
Rs.102,732 crs. at the beginning of the Nov 2013 series. It was Rs.89,595 crs. at the
beginning of the Oct 2013 series.
While the lower participation levels in the Dec series (compared to the previous series) is
a cautious sign, rollover figures were higher. Market wide rollovers were higher at 82% vs.
80% the same time seen in the last series. Nifty rollovers to the Dec series were however
in line with the previous series figures at 73%.
Sectorally, high rollovers were seen in Pharma, Telecom, Capital Goods and Metal
sectors. Coming to stock specific action, the highest rollovers were seen in JSW Steel,
Jain Irrigation, Tata Comm and Ranbaxy. The lowest rollovers were seen in Shriram
Transport, Hexaware, Divis Lab and Godrej Ind.
Reflecting the weakness seen in the month of Nov, the Nifty OI PCR slid to 1.13 at the
beginning of the Dec series from 1.18 levels (at the beginning of the Nov series).
Reflecting the Volatile market movements seen in Nov, the Nifty IV climbed to 21.12% (at
the beginning of the Dec series) from 18.04% the same time in the previous series.
Technically, the Nifty is now in an intermediate downtrend after breaking the
intermediate supports of 6079 during the month of Nov. With the downtrend intact, we
do not expect the Nifty to take out the recent intermediate highs of 6343 anytime soon.
Downside targets of 5700 will come into picture once the immediate supports of 5972 are
broken.
Index option activity is suggesting a trading range of 6000-6500 in the near term as the
maximum Call OI is currently being seen in the 6300-6500 strikes indicating this is the
maximum expected upside for the Nifty in the near term. In the put segment, maximum
26

OI is currently being seen in the 6200-6000 puts, suggesting this is the maximum risk on
the downside for the near term.
Learning Derivatives Analysis
The VIX - Implied Volatility
Index - does it signal the
markets future behaviour?

The markets participants, and in particular traders, are well aware of it. Indeed, a
widespread belief among them holds that swings in implied volatility yield good clues on
future directions of the market. An increase in the implied volatility value is associated
with fear in the market, whereas a decline indicates complacency. As a measure of fear
and complacency, implied volatility is often used as a contrarian indicator: prolonged
and/or extremely high VIX readings indicate a high degree or anxiety or even panic
among traders, and are regarded as a bullish indicator. Prolonged and/or extremely low
readings indicate a high degree of complacency, and are generally regarded as a bearish
indicator.
While it is clear that negative returns are associated with increased implied volatility,
there is a growing debate as how implied volatility indexes can indicate overbought or
oversold markets conditions. The main difficulty lies in the fact that the relationship
between implied volatility and the options underlying spot price fails to be linear.
It is clear from the previous VIX reading that the signal is loud and clear when the
implied volatility is high (or, even better, when it spikes). On the contrary, at low levels
of implied volatility the model is less effective.

What drives the volatility?

In stock market negative shocks make stocks riskier and therefore drive up volatility. VIX
products prices are not based on economic values as stocks are, since VIX is just a
measure of market fear. Second, volatility of VIX instruments is a measure of fear in VIX,
and fear is a very essential part of market behaviors. Stock negative news or negative
shocks is associated with a larger increase in volatility than positive ones. One study also
shows that when the value of a firm falls, its financial leverage increases as debt amount
is hardly affected. Thus, the value of its equity becomes a smaller percentage of the
firms total value, and thus bears more risks and volatility.

India VIX:

The stock market volatility has drastically increased in recent days and economies are
currently passing through a turbulent period, as reflected in all financial markets and
asset classes. The global economic slowdown, and fear of withdrawing of stimulus
package by US worries the capital markets. Financial institutions and other companies
around the world have been affected by volatility in the stock and property markets. In

Retail Research

27

India fluctuations in the currency market reveals that currency volatility can hamper the
stability in the equity market thus increasing volatility in the Indian Equity market. The
study of volatility is, therefore, imperative in an emerging market nation like India.
Nifty VIX Daily Chart

India VIX Weekly Chart:

India VIX in the run up to

elections:

Retail Research

The forthcoming state elections result announcement which was due on Sunday &
parliamentary elections scheduled to be held anytime till May 2014 could bring in an
additional dose of volatility whose range could remain in the high range till elections are
28

India VIX in the run up to

elections:

Retail Research

over. Lets take a look at what volatility based QTA (Quantitative Technical Analysis) can
tell us.
Look at the weekly and daily charts of the India VIX Volatility Index. These charts show
volatility based technical analysis to provide levels of support and resistance, both
projected (horizontal lines) and immediate (bands).
We can begin to compare previous volatility events to now and draw some conclusions on
what to expect of near term future volatility.
VIX after breaching its downward sloping trend line is moving on the higher side. After
sideways move of 3 weeks India VIX finally gave breakout on Monday and closed near the
days high. Traders could expect VIX could sustain above 22.15 level in coming sessions
ahead of the state elections results, which was due on Sunday.
Even the MACD showing bullish trend by trading above the zero line. RSI also trading
above 60 levels, which is a bullish indication. VIX is also making higher top higher bottom
formation from last few weeks suggesting upward move to continue in the VIX index.
On weekly time frame Index has a resistance of 32.75 level which is a change of polarity
level. Past history suggest near the Election results volatility may cross this level and
could trade on higher side. In India traders who currently wish to take a view on
expected volatility have to take a position in the options segment and protect against a
change in price by using Delta hedging (through futures). This necessitates multiple
transactions and a process both more expensive than and more difficult to put through
than a straight trade on a VIX derivative (which is yet to be launched in India).
In coming months traders could expect volatility to remain on the higher side. This year
traders could expect volatility to jump upto 24 33 level where it could remain until
election result is announced. Short-term traders could create short positions in options
segment to ride on theta, which has increased due to rise in options IVs.
India VIX is a volatility index based on the index option prices of NIFTY. India VIX is
computed using the best bid and ask quotes of the out-of-the-money near and mid-month
NIFTY option contracts which are traded on the F&O segment of NSE. India VIX indicates
the investors perception of the markets volatility in the near term. The index depicts
the expected market volatility over the next 30 calendar days. i.e. higher the India VIX
values, higher the expected volatility and vice-versa.

29

Extract of Calls during November 2013

Index Futures Calls
Date

B/S Trading Call

27-Nov-13

Nifty Dec Fut

20-Nov-13

Nifty Fut

6-Nov-13

Bank Nifty Fut

Entry at

Sloss

Targets

Exit Price / CMP

Exit Date % G/L Comments

6122.4

6080

6210

6154.4 28-Nov-13

6194

6226

6120

6213.0 20-Nov-13

11450.25

11568

11210

Sloss

Targets

120

85

190

151.0 29-Nov-13

25.8 Premature Profit Booked

1-5 days

26.55

14

50

35.0 22-Nov-13

31.8 Premature Profit Booked

5 days

11420.3 6-Nov-13

0.5 Premature Profit Booked

-0.3 Premature Exit
0.3 Premature Profit Booked

Time Horizon

Avg. Entry

Abs.
Gain/Loss

1-5 days

6122.4

32

1-5 days

6194

-19

1-4 days

11450.25

30

Stock and Nifty Options Calls

Date

B/S Trading Call

25-Nov-13

Nifty Dec 6200 Call Option

22-Nov-13

SBI 1750 Put Option

Entry at

Exit Price / CMP

Exit Date % G/L Comments

Time Horizon

Avg. Entry

Abs.
Gain/Loss

120

31

26.55

8.45

21-Nov-13

Tata Steel 370 Put Option

4.4

2.5

3.9 21-Nov-13

-11.4 Premature Exit

1-5 days

4.4

-0.5

20-Nov-13

DLF 160 Call Option

3.3

1.8

1.8 21-Nov-13

-45.5 Stop Loss Triggered

2-3 days

3.3

-1.5

12-Nov-13

LIC 220 Call Option

5.55

2.6

7-Nov-13

Lupin 900 Call Option

19.3

13

35

7-Nov-13

ITC 320 Call Option

10.2

20

7-Nov-13

Nifty Nov 6300 Call Option

98.3

70

160

Sloss

Targets

189.15

183

202

185.5 26-Nov-13

-2.0 Premature Exit

1-2 days

189.15

-3.7

2657

2585

2760

2614.0 20-Nov-13

-1.6 Premature Exit

1-2 days

2657

-43

8.9 18-Nov-13
25.1 8-Nov-13
6.0 13-Nov-13
125.8 7-Nov-13

60.4 Premature Profit Booked

2-3 days

5.55

3.35

30.1 Premature Profit Booked

5 days

19.3

5.8

-41.2 Stop Loss Triggered

27.9 Premature Profit Booked

5 days

10.2

-4.2

1-5 days

98.3

27.45

BTST / STBT/ Calls

Date

B/S Trading Call

Entry at

Exit Price / CMP

Exit Date % G/L Comments

Time Horizon

Avg. Entry

Abs.
Gain/Loss

25-Nov-13

Orient Bank

19-Nov-13

Grasim

19-Nov-13

MRPL

43.65

42

47

44.3 20-Nov-13

1.5 Premature Profit Booked

1-2 days

43.65

0.65

19-Nov-13

Aban

274.5

264

294

290.5 19-Nov-13

5.8 Premature Profit Booked

2-3 days

274.5

16

18-Nov-13

Canara Bank

262.8

257.5

272

266.5 19-Nov-13

1.4 Premature Profit Booked

1-2 days

262.8

3.65

Entry at

Sloss

Targets

405

436

Trading/Futures Calls
Date
28-Nov-13

B/S Trading Call

B

Reliance Infra

Retail Research

415.3

Exit Price / CMP

Exit Date % G/L Comments

428.5 29-Nov-13

3.2 Premature Profit Booked

Time Horizon
1-5 days

Avg. Entry

Abs.
Gain/Loss

415.3

13.2

30

27-Nov-13

KEC

41.2

38

48

43.7 27-Nov-13

22-Nov-13

PFC Nov Fut

146.8

151

140

151.0 25-Nov-13

6.1 Premature Profit Booked

-2.8 Stop Loss Triggered

7 days
1-5 days

41.2

2.5

146.8

-4.2

20-Nov-13

Century Textile Nov Fut

283.5

295

260

272.8 21-Nov-13

3.9 Premature Profit Booked

4-7 days

283.5

10.7

19-Nov-13

ABB

592.95

574

630

612.0 20-Nov-13

3.2 Premature Profit Booked

3-7 days

592.95

19.05

18-Nov-13

Orient Bank

184.25

176.5

197.5

189.7 19-Nov-13

2.9 Premature Profit Booked

2-3 days

184.25

5.4

13-Nov-13

BOI Fut

213.85

222

195

222.0 14-Nov-13

5 days

213.85

-8.15

11-Nov-13

Bombay Dyeing

8-Nov-13

Jubilant Inds

6-Nov-13

Purvankara

84

77

92

90.5 7-Nov-13

7.7 Premature Profit Booked

7 days

84

6.5

5-Nov-13

Chennai Petro

58.75

55

67

62.1 5-Nov-13

5.7 Premature Profit Booked

5 days

58.75

3.35

1-Nov-13

Yes Bank Fut

381.3

370

400

370.0 6-Nov-13

5 days

381.3

-11.3

Sloss

Targets

68.1

64.9

75

115.85

110.5

128

71.4 20-Nov-13
112.4 7-Nov-13

-3.7 Stop Loss Triggered

4.8 Premature Profit Booked
-3.0 Premature Exit

-3.0 Stop Loss Triggered

5 days
1-5 days

68.1

3.3

115.85

-3.45

Positional Calls
Date

B/S Trading Call

14-Nov-13

Renuka Sugar

11-Nov-13

Nectar Life

6-Nov-13

Tata Coffee

1-Nov-13

TBZ

30-Oct-13

Cox & Kings

21-Oct-13

Bajaj Holding

Retail Research

Entry at

Exit Price / CMP

Exit Date % G/L Comments

Time Horizon

Avg. Entry

Abs.
Gain/Loss

20.2

19.2

23.0

22.1

20-Nov-13

9.4 Premature Profit Booked

3 weeks

20.2

1.9

16.65

15.0

21.0

18.0

11-Nov-13

7.8 Premature Profit Booked

5-7 days

16.7

1.3

1161

1121.0

1250.0

1121.0

7-Nov-13

-3.4 Stop Loss Triggered

2-3 days

1161.0

-40.0

167.75

159.0

183.0

159.0

1-Nov-13

-5.2 Stop Loss Triggered

2-3 days

167.8

-8.8

90.9

86.0

97.5

97.5

5-Nov-13

832.5

780.0

940.0

872.3

12-Nov-13

7.3 Target Achieved

5-7 days

4.8 Premature Profit Booked

10-14 days

90.9

6.6

832.5

39.8

31

Gainers & Losers November 2013

Top Gainers From F&O
Price

Top Losers From F&O

Price

Price

AUROPHARMA
ADANIENT
VOLTAS
IRB
INDIACEM
ARVIND

Price

Price

31-Oct-13 29-Nov-13 % chg

31-Oct-13 29-Nov-13 % chg

Top Losers From CNX 500

Top Gainers From CNX 500

Price

Price

31-Oct-13 29-Nov-13 % chg

216.7

293.55

35.5

UBL

925.2

793.05

-14.3

SIMPLEXINF

207.65

263.15

26.7

TITAN

267.2

229.05

-14.3

89.15

111.05

24.6

SUNTV

420.15

370

79.8

96.9

21.4

BHARTIARTL

367.1

49.65

60.15

21.1

SSLT

106.15

127.7

20.3

TATAGLOBAL

Price

31-Oct-13 29-Nov-13 % chg

53.5

85.2

59.2

ERAINFRA

37.8

22.6

-40.3

PFIZER

1082.8

1704.0

57.4

GUJNRECOKE

13.1

10.0

-23.4

-11.9

WYETH

638.8

985.9

54.3

TBZ

163.4

130.6

-20.0

327

-10.9

ABAN

253.7

378.0

49.0

KGL

1.7

1.4

-17.6

202

183.1

-9.4

TORNTPOWER

84.2

124.9

48.3

GITANJALI

64.6

53.3

-17.5

164

148.9

-9.2

JUBILANT

100.1

139.2

39.0

LOVABLE

334.1

282.4

-15.5

TATASTEEL

334.9

400.6

19.6

GLENMARK

563.6

515.85

-8.5

TATAELXSI

217.6

299.7

37.7

PFOCUS

32.3

27.4

-15.0

DIVISLAB

972.5

1152.3

18.5

RENUKA

22.45

20.55

-8.5

JKIL

132.7

180.8

36.2

UBL

925.2

793.1

-14.3

PFC

134.4

159.15

18.4

HEXAWARE

132.95

122.3

-8.0

SADBHAV

63.7

86.3

35.6

TITAN

267.2

229.1

-14.3

HDIL

42.55

50.35

18.3

GODREJIND

296.3

272.65

-8.0

AUROPHARMA

216.7

293.6

35.5

EDELWEISS

30.5

26.4

-13.6

RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves,
Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website: www.hdfcsec.com
Email: hdfcsecretailresearch@hdfcsec.com
Disclaimer: This document has been prepared by HDFC securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made
available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent
that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time
solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional Clients only.

Retail Research

32