Monthly Strategy Report August 2013

Monthly Equity Commentary

1-C NXNifty.C NX Nifty Index.NSE - 01/08/13

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5860
5840
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Daily

The Benchmark indices ended negatively for the month of July 2013. BSE Sensex fell by
0.3%. Nifty fell 1.7 percent for the month, marking its second consecutive monthly fall,
after the Reserve Bank of India's measures to raise short-term interest rates to defend
the rupee have raised worries about the economic costs. The Nifty edged down to its
lowest close in a month, as lenders extended recent declines on uncertainty about how
long the Reserve Bank of India (RBI) will maintain its measures to defend the rupee by
raising short-term interest rates.

Frontline Indices:
Week
No

% Chg
Sensex Nifty

Key Positives

Key Negatives
The HSBC/Markit purchasing managers index for the manufacturing

+0.5

+0.4

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industry stood at 50.3 in June, slightly higher than 50.1 in May.

However, output witnessed a decline for the second consecutive
month.
Sales of passenger vehicles in the Indian market are set for a
seventh straight month of decline, with high financing costs
increase in fuel expenses and sluggish economic activity keeping
customers away from showrooms. The industrys overall volumes
1

fell by as much as six per cent in June.

India's foreign exchange reserves plummeted by a hefty $3.20 billion

at $284.65 billion on a heavy decline in the currency assets.

India's trade deficit narrowed in June to $12.24 bn from a Growth in industrial production (IIP) for the month of May fell to

7-month high, helped by a slowdown in gold imports,

which should ease pressure on the current account
balance and the beleaguered rupee.

+2.4

+2.4

+1.0

+0.3

4(till
31st
July
2013)

-4.0

-4.8

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minus-1.6% vs 1.9% for the previous month. A CNBC-TV18 poll had

estimated industrial growth at 1.5%. Industrial growth data also
revealed that growth in the manufacturing sector fell at minus-2%
versus 2.8% in the previous month.
Government released Consumer Price Index (CPI) inflation data
which showed that the June CPI food inflation was 11.84%, CPI
Inflation at 9.87% vs 9.31% (M-o-M), CPI inflation in urban areas at
10.13% as against 9.65% (M-o-M and CPI Inflation in the rural areas
at 9.63% vs 8.98% (M-o-M).
The WPI inflation for the month of June came in better Industrial production declined 1.6% in May 2013, as against a
than expected at 4.86%. Core inflation came in at 2%.
downwardly revised 1.9% growth in April 2013. The output of the
For the first time in its history, a perennially power
mining sector declined 5.7% and that of the manufacturing sector
deficit India is set to achieve its electricity capacity
declined 2% in May 2013.
addition target for any Plan period. The 12th Plan's
capacity target of 88,537 Megawatt (Mw) is likely to be
met with only minor slippages.
India's gas output is expected to rise to 175 mscmd
(million standard cubic metres per day) in 2016/17, from
105 mscmd in the current financial year.
The government has allowed 100% foreign direct
investment (FDI) in telecom. FDI in the telecom services
sector was increased from 74% to 100%,
India has achieved a record pulses production of 18.45 The Reserve Bank of India imposed new restrictions on commercial
million tonnes (MT) in the 2012-13-crop year ended June.
banks access to cash.
The economy is unlikely to see any recovery in the second half as
the downturn is expected to engulf services and the remaining
sectors after affecting fixed investment and manufacturing in the
first half, Moody's Analytics said.
The Reserve Bank of India (RBI) in its monetary policy review meet
left interest rates unchanged as it sought to support a battered
rupee but said it will roll back recent liquidity tightening measures
when stability returns to the currency market, enabling it to resume
supporting growth.

Global markets:
Indices

Jun-13

US - Dow Jones

Jul-13

% Change

14909.6

15499.5

4.0

US - Nasdaq

3403.3

3626.4

6.6

UK - FTSE

6215.5

6621.1

6.5

Japan - Nikkei

13677.3

13668.3

-0.1

Germany - DAX

7959.2

8276.0

4.0

Brazil - Bovespa

47457.0

48234.5

1.6

Singapore - Strait Times

3150.4

3221.9

2.3

Hong Kong Hang Seng

20803.3

21883.7

5.2

India - Sensex

19395.8

19345.7

-0.3

India - Nifty

5842.2

5742.0

-1.7

Indonesia - Jakarta Composite

4818.9

4610.4

-4.3

Chinese - Shanghai composite

1979.2

1993.8

0.7

Sectoral performance:

BSE Indices
Sensex
Smallcap
Midcap
BSE 500
BSE 200
BSE 100
Auto

28-Jun-13
19395.8
5643.5
5964.5
7164.1
2323.8
5802.3
10715.8

31-Jul-13
19345.7
5311.1
5543.1
6985.6
2270.9
5707.2
10568.8

The world markets ended the month of July 2013 on a positive note
except Jakarta Composite, Nifty, Sensex and Nikkei. Nasdaq, FTSE, Hang
Seng, DAX, Dow Jones, Strait Times, Bovespa and Shanghai composite
were the gainers, rising 6.6%, 6.5%, 5.2%, 4.0%, 4.0%, 2.3%, 1.6% & 0.7%
respectively.

Average daily volumes on BSE during the month of July 2013 rose 17.9%
M-o-M (NSE daily average volumes were higher by 1.8% M-o-M). The
average daily derivatives volumes on NSE fell 13.9% to Rs. 1,37,411 cr in
July.

All sectoral indices ended in the negative (except IT, Teck, FMCG, Healthcare and
Consumer Durable) in the month of July. The top four losers for the month were Bankex,
Realty, PSU and Metal, which fell by 13.70%, 12.84%, 11.57%, and 11.24% respectively. IT,
Teck, FMCG, Healthcare and Consumer Durable, the only gainers, rose by 19.23%, 16.75%,
5.17%, 2.59 and 2.08% respectively.
% chg
-0.26
-5.89
-7.06
-2.49
-2.28
-1.64
-1.37

Remarks

Public sector banks (PSBs) have declined on fears of growing non-performing assets (NPAs)

Bankex

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13257.8

11441.0

-13.70

in sectors like chemicals, pharmaceuticals, infra, steel and textiles, as well as the spectre of a
rising wage bill.
The RBI lowered the overall limit for borrowing under the daily liquidity adjustment facility
(LAF) -- which offers funds in exchange for collateral -- for each bank to 0.5% of deposits from
1%.
Banks have been under pressure in the month of July, largely weighed down by the RBI's
3

action to shore up the currency and pressure on asset quality on most of the PSU banks.
After cutting rates thrice in 2013, the RBI maintained status quo on rates for the second time

since June in order to address macro-stability concerns owing to a sharp INR depreciation.
Yes Bank, Union Bank, Canara Bank and Axis Bank were the top losers, falling 29.7%,

28.6%, 24.0% and 21.9% respectively.

Capital Goods
Consumer Durables

9111.4
6134.7

8227.0
6262.4

-9.71
2.08
FMCG stocks gained as a bountiful rainfall this year has prepared the ground for bumper

harvest.
India's monsoon is so far progressing well across the country and if the rains continue as

FMCG

6458.1

6791.8

5.17

Healthcare

8845.3

9074.0

2.59

expected, this could boost rural incomes as FMCG companies derive substantial revenue from
rural India.
ITC, Dabur India and Nestle India hit record high. Hindustan Unilever surged on reports that
the company has raised prices of several personal care products.
Tata Global, United Spirits, Nestle India and Jubilant Foods were the top gainers, rising
18.8%, 10.0%, 9.1% and 7.7% respectively.
IT sector index surged to a record, led by gains in shares of Tata Consultancy Services Ltd

(TCS), which also tested a new high on Friday after beating earnings estimates.
TCS posted a 15.5% rise in consolidated net profit as volume surged to its fastest growth in

IT

6255.1

7458.2

19.23

seven quarters backed by growth in the US.

Also, Mindtree Ltds June quarter profit jumped by nearly 50%, beating market expectations,

driven mainly by higher spending by clients and forex gains.

Hexaware Technology, Wipro, HCL Technologies and TCS were the top gainers, rising

34.1%, 25.5%, 20.8% and 19.6% respectively.

Metal pack declined on weak trade data in China.
Metal index had underperformed the market over the past one month, falling 11.2% compared

Metal

7753.8

6882.5

-11.24

with the Sensex's 0.3% fall.

Tata Steel, SAIL, JSW Steel and Sesa Goa were the top losers, falling 21.2%, 17.8%, 14.0%

and 10.5% respectively.

JSW Steel Ltd swung to a loss in the June quarter from a year earlier.

Oil & Gas

Power

8900.4
1622.6

8578.6
1495.6

-3.62
-7.83
PSU OMCs tumbled as rupee once again fell below the psychological 60 mark against the

dollar, raising concerns about increased costs of importing oil.

PSU

6163.0

5449.8

-11.57

MMTC, Hindustan Copper, GMDC and Indian Bank were the top losers, falling 58.1%, 36.9%,

31.4% and 29.5% respectively.

MMTC Limited declined after the government divested 93.31 million shares or 9.33% stake at

an average price of Rs 61.33 per share at a huge discount.

Hindustan Copper also fell after the President of India, acting through and represented by the

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Realty

1511.0

1317.0

-12.84

TECk

3679.1

4295.4

16.75

Ministry of Mines, Government of India, promoter of the company announced offer-for-sale

(OFS) to divest 4.01% stake to meet SEBI's guidelines on minimum 25% public shareholding.
Realty stocks dropped as the Reserve Bank of India (RBI) kept its key lending rate viz. the
repo rate and cash reserve ratio unchanged after a monetary policy review on Tuesday, 30
July 2013, as the central bank focused on managing the currency volatility rather than pushing
for growth.
Unitech, Sobha Developers, DLF and Prestige Estates were the top losers, falling 22.0%,
17.8%, 17.4% and 16.1% respectively.

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
June 13
July 13
June 13
July 13
Remarks
FII Activity (Rs. in Cr)
FII Activity (Rs. in Cr)
-10845 **
1707.9 *
FIIs were reported as net buyer in July.
FIIs were net buyers along with increase in open interest. This
-7172
1377
9233
11329
indicates fresh long position taken by them in this segment.
FIIs were net buyers along with a significant increase in open interest.
This indicates fresh long positions taken in option segment (put or
9063
8569
40790
45260
call).
5361
-33
24491
25657
FIIs were net sellers along with an increase in open interest.
0.60
47.71
582
1262
FIIs were net buyers along with an increase in open interest
MF Activity (Rs. in Cr)
MF Activity (Rs. in Cr)
-266
-2169
MF continued to be the net sellers for the last 13 consecutive months.

*Includes figures for 28 June 2013 **= excludes number for June 28, 2013

Bond Yields

Retail Research

Indian G-Sec bond yields ended higher by 73 bps at 8.17% at the end of July 2013 over
June 2013. The Indian yields took cues from bounce back in the US bond prices from twoyear lows and further Rupee movement is expected to be key in trade. Benchmark yield
rose as foreign funds continued to sell domestic debt as the rupee hovered near a record
low. Yields rose on concern of a plunge in the rupee will spur inflation and reduce room
for the central bank to cut borrowing costs.

10 Year Government Bond Yield - Trend

10.50
9.50
8.50

7.50
6.50
5.50

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

In July 2013, the Reuters/Jefferies CRB Index of 19 raw materials ended higher by 3.02%
to close at 283.94. Most commodities are priced in the dollar and gains in the currency
add to ownership costs for such raw materials. The rise in the Reuters/Jeffries CRB Index
was on account of a rise witnessed in commodities like Live Cattle (up by 1.63%), Silver
(up by 0.15.%), Gold (up by 5.51%), Coffee (up by 0.63%) Cocoa (up by 6.13%), Sugar (up
by 1.68%), Crude Oil (up by 8.77%) and Wheat (up by 3.22%) offset by Cotton (down by
1.24%), Nickel (down by 0.44%), Natural Gas (down by 3.42%).
Behaviour of commodity prices (including LME 3 month buyer prices for base metals)
during the month ended July 2013 is given below. Global commodity prices diverged last
week as traders bet on a rosier economic outlook for the United States amid mixed
signals surrounding Chinese growth. China reported that economic growth slowed to a
7.5-percent pace in the April-June quarter, down from 7.7 percent in the previous three
months. The slower growth rate came in as expected. Copper is widely used across
industries in products including consumer electronics, wiring and piping, making market
prices sensitive to such data.

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

31-July-13 28-June-13

% Chg

Reasons
The US added 195,000 jobs in June, well above forecasts and a figure likely to encourage the US Federal

Gold

Reserve to think even harder over when to curb its monetary stimulus polices.

1312.4

1211.6

8.32%

Gold also rose on expectations for more demand from China. Gold prices finished higher gaining in part

after U.S. Federal Reserve Chairman Ben Bernanke said in congressional testimony that the central bank
had no set a timetable for slowing its monetary stimulus. The stimulus measures, known as quantitative

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easing, have been considered supportive for gold prices.

Oil prices jumped boosted by concerns over rising tensions in Egypt and better-than-expected U.S.

Crude Oil WTI

105.03

96.56

8.77%

Aluminum

1777.5

1775

0.14%

Copper

6809

6775

0.50%

Zinc

1834.5

1854

economic data. News of protests near the Suez Canal added to the alarm for oil traders. U.S. crude oil
prices extended their string of 14-month highs.
The U.S. dollar index .DXY surged while gold and copper fell after the data on jobs was seen drawing
Federal Reserve closer to scaling back its massive monetary stimulus later this year, which would sap
liquidity and drag on commodity prices. But for oil markets, the potential upside from increased
economic activity outweighed risks from the rising dollar and possible policy tightening.
Global oil consumption will expand by 1.2 million barrels a day in 2014, up from a forecast 930,000 this
year, according to the IEA. OPEC, which pumps about 40 percent of the worlds crude, will boost
exports by the most this year as summer demand for motor fuels in the Northern Hemisphere peaks,
according to Oil Movements. Ten members of the group will ship 24.32 million barrels a day in the four
weeks ending July 27, up 630,000 barrels from 23.69 million in the period to June 29.
Alcoa Inc.s June quarter earnings do reflect some of the troubles faced by the global aluminium
industry but its not the picture of doom that some may have feared. The company has painted a
positive outlook for the industry in 2013, despite the concerns one may have about Chinas appetite for
metals. Alcoa has maintained its earlier forecast of 7% growth for aluminium consumption in 2013,
despite continuing worries about Chinas economic slowdown and its impact on metals. The company
sees demand continuing to come from end-user industries, especially aerospace.
Copper climbed to a three-week high in New York on speculation that central banks in China and the
U.S., the worlds biggest metals consumers, will maintain policies aimed at stoking economic growth.
Stockpiles monitored by the London Metal Exchange fell for a fifth session to 645,175 metric tons, the
lowest since June 21. Inventories have more than doubled this year.
Chinese buyers rushed to secure stock, sending premiums to record levels and sparking talk of increased
Chinese copper imports. But concerns over supply tightness have now eased a little and a slew of weak
economic data from China, the world's top copper consumer, is also weighing on sentiment.

-1.05%
Nickel slid to its lowest level in four years as a combination of weak demand from the stainless steel

Nickel

13645

13705

-0.44%

Tin

19900

19850

0.25%

Lead

2043.5

2065

-1.04%

sector and oversupply weighed on the market. The ingredient for stainless steel has been the worst
performer on the LME this year. With stainless steel surcharges dropping to their lowest since 2009,
buyers are in no hurry to purchase stainless steel, and this pro-cyclicality in the nickel market is helping
to accentuate the already negative fundamentals depressing nickel prices.
Indonesia's overhaul of tin trading rules that raises minimum purity levels is expected to slash shipments
from the world's top refined tin exporter over the next few months, potentially pushing up prices for
the metal used in electronic goods.
Lead prices fell on global trend due to subdued demand.

Retail Research

The Baltic Dry Index (BDI) declined 9.31% in the month to close at 1062. The Baltic Dry
Index, a measure of costs to transport minerals and grains by sea, fell as demand for the
two biggest vessels classes slowed. Demand for both vessel classes has slowed amid an
oversupply of ships in the global fleet.
7

Currencies

The USD was positive vs most other currencies in July 2013. The dollar rallied after U.S.
economic data came in better than expected and traders continued to speculate about
the future of Federal Reserve policy. Dollar also rose amid new signs the U.S. housing
recovery is gaining steam, supporting the view that the economy is strong enough for the
Federal Reserve to begin winding down its monetary stimulus later this year.

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

31-July-13

28-June-13

% Chg

102.77

99.82

3.0%

7.76

7.76

0.0%

6.18

6.19

-0.2%

Reasons

The rupee fell from a two-week high driven by the RBI's liquidity-tightening measures. Earlier the

Indian rupee

60.39

60.44

-0.1%

Taiwan dollar
Singapore dollar
Argentine peso

29.97

30.06

-0.3%

1.27

1.27

0.1%

5.50

5.38

2.3%

Indian rupee gained modestly as the government eased rules for foreign investment, adding to
measures taken by the central bank to suck out rupee liquidity.
The Reserve Bank of India has been powerless to stop the decline and has declared openly that they
dont have a price target and will not defend one. Behind the scenes however there have been
rumours about reducing speculative flows by talking to directly to dealers. Another soft tactic used
by the Central Bank is the fact that they have directed Oil refiners to centralize their USD
transactions with a single designated bank to avoid additional market speculation if they seek
competing bids on their currency transactions.

The U.S. unemployment rate remained unchanged at 7.6% June 2013, disappointing expectations for

a decline to 7.5%.

European Central Bank President Mario Draghi said the bank expects to maintain interest rates at

Euro

0.75

Retail Research

0.77

-1.8%

current or lower levels for an extended period of time. Draghi also said risks to growth in the euro
zone remain on the downside and added that monetary policy will remain accommodative for as
long as is necessary.
Concerns over a political crisis in Portugal eased amid hopes that the government wouldn't collapse
following talks between the coalition partners overnight. The future of the country's coalition
government was thrown into doubt earlier, following the resignation of country's foreign minister
and finance minister in protest over government austerity policies.
Eurozone financial ministers decided to release more bailout aid to Greece, but with a catch, as
only part of the scheduled tranche of 8.1 billion euros will be transferred to Athens. Under the new
arrangement, Greece will receive 3 billion euros in July and additional funds in August and October.
Greece has been put on notice that it will have to show more progress in economic restructuring
before the troika releases more bailout funds.
8

 Fed Chairman Ben Bernanke said the pace of the central bank's bond purchases are not a 'preset

course'. Bernanke reiterated that the Fed will continue to maintain its accommodative monetary
policy for the foreseeable future. The euro took advantage as the dollar took a hit following the
release of the minutes from the Feds last policy meeting, as well as dovish remarks from Fed chair
Bernard Bernanke.
The ECB said it would maintain low rates and could even lower them if economic conditions
warranted such a move. The ECB said it remained flexible, and that inflation would be a key factor
in future decisions. ECB policymaker Jens Weidmann echoed these sentiments, saying that the ECBs
monetary policy depended on the state of the Eurozone economy.
The dollar is weaker after recent data misses have led to speculation that the Fed may after all hold
off from tapering QE in September.
Thai baht
Malaysian ringgit
Indonesian rupiah

31.30

31.17

0.4%

3.24

3.19

1.5%

10298.70

9950.25

3.5%

Japanese Prime Minister Shinzo Abe gave a green light for prolonged monetary stimulus, while

Japanese yen

98.10

98.07

0.0%

Brazilian real

2.27

2.19

3.8%

fuelling hopes for reforms that could reflate the world's third-largest economy. Abe's Liberal
Democratic Party (LDP) and its partner, the New Komeito party, had won at least 4 seats, giving it a
stable majority in the upper house. That was partly because the win had been priced in and partly
because the Japanese parliament would likely not start debating any new policies until some time in
October.
In Japan, there were no surprises from the BOJ, which left its current monetary policy unchanged.
Revised Industrial Production looked sharp, posting a gain of 1.9%. At the end of a policy meeting,
the Bank of Japan sounded cautiously optimistic about the economy, and reiterated that it would
use quantitative and qualitative monetary easing to achieve an inflation level of 2%. Tertiary
Industry Activity climbed to 1.2%, its best performance since February. The estimate stood at 0.9%.
There was more good news from the Corporate Goods Price Index, which jumped from 0.6% to 1.2%,
matching the forecast. This is the inflation indexs sharpest rise since January 2012, and points to
inflation in the economy. Core Machinery Orders, an important manufacturing release, jumped
10.5% in June, crushing the estimate of 1.9%.
The won advanced as an index of South Korean consumer confidence held at 105 in July, matching

lasts months reading which was the most since May 2012.

Korean won

1115.70

Retail Research

1151.01

-3.1%

The economy expanded 1.1 percent in the second quarter from the previous three months, the most

in more than two years. The data signal the economy is overcoming the impact from a weak yen,
with expansion still driven by exports.

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

MSCI Index
Emerging Markets
BRIC
EM (EMERGING MARKETS)
EM ASIA
EM EUROPE
EM EUROPE & MIDDLE EAST
EM LATIN AMERICA
CHINA
INDIA
INDONESIA
KOREA
MALAYSIA
PHILIPPINES
TAIWAN
THAILAND
BRAZIL
CHILE
COLOMBIA
MEXICO
PERU
CZECH REPUBLIC
HUNGARY
POLAND
RUSSIA
TURKEY
EGYPT
MOROCCO
SOUTH AFRICA

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Monthly 3 Month
YTD 1 Year
Last Returns Returns Returns Returns MSCI Index
Developed Markets
257.6
1.3% -11.4% -13.3%
-3.2% EUROPE
947.6
0.8%
-8.8% -10.2%
-0.5% G7 INDEX
416.4
0.9%
-6.7%
-6.9%
4.5% WORLD
418.6
2.2%
-8.1% -11.6%
0.5%
355.8
2.2%
-8.1% -11.6%
0.5% SPAIN
3,152.3
-1.1% -16.5% -17.0% -11.6% GREECE
SWEDEN
56.7
4.0%
-6.5%
-9.8%
4.5% ITALY
380.3
-3.1% -12.7% -11.6%
2.6% NETHERLANDS
860.1
-6.8% -15.8%
-3.0%
-0.9% FRANCE
383.9
3.7%
-4.4% -10.6%
-0.6% DENMARK
490.2
-2.8%
-2.0%
0.7%
5.2% NORWAY
535.4
2.5%
-9.2%
9.7%
24.5% BELGIUM
273.6
-0.7%
-3.1%
0.6%
11.6% IRELAND
404.0
-3.0% -14.2%
-4.0%
8.9% ISRAEL
2,162.1
-1.6% -20.3% -20.7% -16.6% JAPAN
1,913.7
-9.2% -20.5% -20.1% -19.7%
1,136.6
5.7%
-5.1% -16.4%
-6.0% Frontier Markets
6,769.3
1.7%
-8.1%
-4.9%
4.5% FM (FRONTIER MARKETS)
1,046.4
-6.0% -22.8% -34.5% -26.5%
337.8
2.9%
-8.0% -22.1% -16.4% UNITED ARAB EMIRATES
507.8
-3.1%
-2.6%
-1.1%
7.3% ARGENTINA
811.6
7.7%
0.9% -10.2%
13.0% PAKISTAN
718.3
3.4%
-5.6% -11.0%
-3.5% SLOVENIA
541.6
-5.0% -21.8% -14.6%
5.2% BULGARIA
563.4 12.1%
1.5% -11.5%
-6.3% JORDAN
277.1
-2.7% -12.2% -11.5% -12.8% UKRAINE
493.9
2.4%
-5.1% -14.9%
-8.0% BANGLADESH

Monthly 3 Month
YTD 1 Year
Last Returns Returns Returns Returns
1,551.5
1,325.6
1,507.9

7.3%
5.1%
5.2%

1.5%
3.3%
2.2%

7.3%
14.2%
12.7%

22.5%
21.2%
20.6%

416.9
89.8
7,480.8
249.9
2,282.2
1,564.2
6,328.6
2,921.9
1,377.6
141.5
188.1
2,567.6

12.2%
11.6%
11.0%
10.3%
9.9%
9.1%
8.3%
8.2%
8.0%
7.3%
1.2%
0.6%

1.0%
-2.8%
2.3%
-2.5%
8.4%
4.1%
0.1%
-4.0%
1.5%
4.8%
-2.5%
-3.6%

3.4%
10.9%
11.3%
-1.9%
13.8%
10.4%
6.9%
-0.6%
10.2%
15.1%
2.2%
16.1%

34.1%
42.9%
21.5%
20.9%
30.6%
30.4%
16.4%
9.1%
27.4%
23.5%
-1.2%
23.4%

554.4

5.1%

3.4%

13.2%

23.4%

337.5
1,376.6
125.6
304.6
144.9
89.7
79.3
656.1

12.2%
9.3%
9.1%
7.3%
6.7%
-3.2%
-4.0%
-6.4%

13.9%
1.9%
18.2%
7.7%
18.2%
-11.0%
-5.7%
6.7%

54.9%
9.9%
25.3%
7.2%
60.0%
-14.2%
-12.0%
-3.4%

66.6%
29.1%
32.0%
34.9%
49.2%
-9.7%
-28.4%
1.5%

10

Top performer Developed

Markets;
Emerging
markets
gained the least

Spain, Greece and Sweden

outperform, Japan & Israel
reported marginal gains.

After a correction in June 2013, most of the equity markets across the globe ended the
month of July 2013 on a positive note. Developed markets were the top performers,
rising in the range of 5.2% to 7.3%, with Europe gaining at the upper end. Frontier
markets were the next in line, reporting positive returns of 5.1% during the month.
Emerging markets gained the least by 0.8%, helped by EM - Europe & EM - Europe &
Middle East (up 2.2% each). BRIC index grew by 1.3%, while EM Asia gained 0.9%. EM Latin America was the worst performer, reporting negative returns of 1.1% in July.

Among the Developed markets, Spain, Greece, Sweden & Italy were the top gainers, up
12.2%, 11.6%, 11% & 10.3% respectively. Netherlands, France, Denmark, Norway, Belgium
& Ireland also performed well, rising in the range of 7-10%. However, the index gains
were restricted due to underperformance from Japan & Israel, which registered marginal
gains 0.6% & 1.2% respectively during the month.
The Spanish markets outperformed during July on the back of improvement in the
economic data. Spain's economy contracted marginally by -0.1% in Q2 2013, which was
better than expectations. The growth was four tenths higher than that registered in the
previous quarter (0.5%). Further, during the month, the number of unemployed
Spaniards fell by 225,000 in the second quarter of the year, the largest such drop since
the financial crisis started more than five years ago. The improvement has fuelled
government claims that Spains painful two-year recession is ending, and that the
unpopular labour market reform pushed through by Madrid last year is starting to feed
through into the job market. Spain received more than 6m tourists in June, a record
figure, That trend was clearly reflected in labour market survey.
Sweden registered robust gains in July, as its retail sales rose more-than-expected in
June. The economys economic confidence improved notably in July, helped mainly by an
improvement in consumer sentiment. The headline economic tendency indicator rose to
95.4 in July from 94.6 in June.
Japan racked up its largest-ever trade deficit for the first six months of the year as the
economic policies of Prime Minister Shinzo Abe helped raise demand for imported
consumer goods but failed to give a boost to exports. It logged a 4.8 trillion ($48 bn)
deficit for the period, 66.1% wider than a year before.
Israel market underperformed during the month, led by a big drop in Israel Chemicals
shares on concerns about future profits. The mood was also soured by news that Tel Aviv
Stock Exchange Chairman Sam Bronfeld was stepping down, just a week after CEO Ester
Levanon said would be leaving

Retail Research

11

UAE,
Argentina
outperform
frontier markets; Bangladesh,
Ukraine restricted index gains.

Poland, Russia top gainers in

EMEurope and Europe & Middle
East

Retail Research

Among the Frontier Markets, UAE, Argentina & Pakistan gained the most by 12.2%, 9.3% &
9.1% respectively. Slovenia & Bulgaria also outperformed the index, rising 7.3% & 6.7%
respectively. However, Bangladesh, Ukraine & Jordan underperformed, falling by 6.4%,
4% & 3.2% respectively.
The UAE stock market rallied in July on improved global risk sentiments and in
anticipation of strong fiscal second quarter earnings of locally-listed blue-chip
companies. Market experts expect the bullish sentiments on the UAE markets to continue
in the medium term.
Argentina outperformed during the month as the economy expanded 7.8% in May from
the same month a year ago. The economy grew 4.9% in the first five months of the year
compared with a year earlier. May's growth, which points to an unexpectedly strong
economic performance, contrasts with the relatively slow growth posted by the economy
in 2012 and in the first months of 2013. Recently, economys unemployment rate fell to
7.2% in the second quarter of 2013 compared with 7.9% in the first quarter of the year.
Bangladesh market fell sharply, since the political turmoil continued in July. Some 322
people have perished this year from political violence. Thats the highest death toll
outside a conflict zone, and probably still worse than in Egypt. An estimated 300,000 to
500,000 Bangladeshis were killed in the nine-month conflict, the legacy of tragic
decisions made by Britain as it unwound its colonial presence.
Growth in the emerging markets was led by EM Europe and Europe & Middle, which
gained 2.2% each in July 2013. Poland & Russia led the growth, rising 7.7% & 3.4%
respectively. Czech Republic gained 2.9%. However, index growth was restricted on the
back of underperformance from Turkey & Hungary, which fell by 5% & 3.1% respectively.
International Monetary Fund stated in a report in July that Poland's economic growth may
bounce back next year, driven by an improvement in consumption and credit conditions.
Further, the gains reported by market was led on anticipation that the results of banks
would be better than expected (which came out to be true). Towards the end of July,
Polish banks reported a 7% rise in aggregate net profit in the Q2CY13, providing a positive
surprise. Further, Polands manufacturing expanded for the first time in 16 months,
adding to signs of a nascent recovery.
Russia outperformed in July on the back of rally (8.8%) in the crude oil price. The rise in
the stock prices also came, as OAO Sberbank, the countrys biggest lender, rose after the
central bank eased borrowing costs.
12

China & Russia pull the BRIC

index higher.

Turkish stocks, the best in the world last year, are now the cheapest in 12 months as
political protests and capital flight have curbed investor appetite for equities. Stocks in
the Borsa Istanbul-100 Index (XU100), which has lost 22% into a bear market from a
record on May 22, traded at 9.2 times the next years estimated earnings, near the
lowest since July 2012. That compares with 9.9 times for the MSCI Emerging Markets
Index and 14 for the Standard & Poors 500. While bears say stocks are poised to drop
further as elections loom, bulls point to economic growth thats more than double that in
Europe, the Mideast and Africa. Profits are estimated to climb 5% in the next 12 months,
compared with a 7% drop for the MSCI EM EMEA Index

Gains in BRIC index was driven by China & Russia, which rose 4% & 3.4% respectively
during the month. However, India & Brazil underperformed, falling by 3.1% & 1.6%
respectively.
Chinese markets surged in July on hopes that the government would take action to
ensure that Chinas economic growth does not fall below 7%. Chinas foreign-exchange
regulator said separately during the month that the country wasnt seeing any capital
flight. China's economy grew in line with expectations in the second quarter, belying
some fears of a sharper slowdown. The rally was also on the back of speculation that the
PMI data would be better than expected. On August 01, 2013, the government's PMI data
revealed that it rose to 50.3 in July from 50.1 in June, beating market expectations of
49.9 according to a Reuters poll. This marks the first sign of stabilization in the world's
second largest economy.
Brazilian stocks fell during July driven by shares of commodity-related companies.
Expectations for tighter liquidity in the United States and China sapped investor demand.
Stocks were also pressured during the month after China's government said that it would
move ahead with a plan to tighten credit in order to end the Chinese economy's
dependence on cheap debt. China is Brazil's biggest trading partner and a key purchaser
of Latin American commodities exports such as iron ore, soy, copper and petroleum.

Rise in EM-Asia index led by

China & Korea; Sharp fall in
Indonesia restricts index gains

Retail Research

Among EM-Asia, Indonesia lost the most by 6.8% followed by India, Thailand & Malaysia,
which fell by 3.1%, 3% & 2.8% respectively. However, China, Korea & Philippines
outperformed, gaining 4%, 3.7% & 2.5% respectively.
South Korean shares managed to end higher as foreign investors maintained their buying
streak due to upbeat manufacturing data in China. Further, the head of the funds
investment strategy division said that relaxing South Korean disclosure requirements will
13

Poor performance of Latin

American markets was led by
Chile & Peru

Egypt top performer among

the African markets

Retail Research

probably spur the nations biggest pension fund to increase shareholdings in some local
companies. The National Pension Service may boost stakes in some stocks above the 10
percent threshold that requires government institutions to report positions,
The Indonesian market fell sharply, as the property index fell on worries that the
parliament might cut budget spending for the public works and transportation ministries.
The Indonesian parliament had approved only 68.7 trillion Indonesian rupiah ($6.91
billion) or 60% from the proposed budget of 110 trillion rupiah for both the ministries.
Amongst the Latin American markets, Chile & Peru fell the most by 9.2% & 6%
respectively, while Brazil fell by 1.6%. However, Columbia, Mexico & Peru gained 5.7%,
1.7% & 4.6% respectively.
Chiles IPSA index ended sharply lower in July dragged down by declines in fuel and
forestry conglomerate Empresas Copec and wood-pulp and paper producer Empresas
CMPC. Copec represents about 10% of the IPSA.
Colombian stocks gained, led by state-controlled Isagen following the government's
announcement that it plans to sell its 58% stake in the power-generator company. The
rally in the stock market was fueled by gains in its most heavily traded shares, those of
oil companies Ecopetrol and Pacific Rubiales. The gains were mostly driven by rallies in
global crude oil prices.
Among the African markets, Egypt outperformed, rising 12.1%. South Africa gained
marginally by 2.4%. However, Morocco fell by 2.7% during the month.
Egyptian market posted sharp rally in July after the army ousted former president
Mohamed Mursi and an interim president was sworn in. The sharp rebound has erased
sharp losses during June that were triggered by severe political unrest. Although the
country still faces huge political and economic challenges, many investors feel Mursis
ouster could lead to a more technocratic government which addresses issues such as a
sliding currency and ballooning state budget deficit.

14

Outlook going forward

Global Market Outlook
US economy still needs Stimulus
and the Fed has hinted at NO
PULLBACK

Chinese
economy
challenges

Retail Research

facing

The U.S. Federal Reserve feels that the economy continues to recover but is still in need
of support, offering no indication that it is planning to reduce its bond-buying stimulus at
its next meeting in September.
The central bank said after a two-day meeting on July 31, 2013 that it would keep buying
US$85 billion in mortgage and Treasury securities per month in its effort to strengthen an
economy that it said was still challenged by federal budget-tightening. It also pointed to
a recent run up in mortgage rates.
Bernanke believes that the Fed could slow that pace later this year if the economy
strengthens. But he also cautioned that the Fed wants to see substantial progress in the
job market before scaling back the bond purchases. If conditions worsen, the Fed could
maintain its current pace or even increase it. The bond purchases are intended to keep
long-term interest rates low and encourage more borrowing and spending.
The committee recognizes that inflation persistently below its 2 percent objective could
pose risks to economic performance, but it anticipates that inflation will move back
toward its objective over the medium term. The Fed cut interest rates to almost zero in
late 2008 and has since more than tripled the size of its balance sheet to around US$3.6
trillion via three massive rounds of bond buying aimed at holding down longer-term
borrowing costs.
The Fed forecasts that the economy will grow between 2.3 per cent and 2.6 per cent this
year, which is more optimistic than many economists predict. The pickup in economic
growth that Fed officials expect is based in part on an assumption that the adverse
effects of the tax increases and government spending cuts will diminish over time. And it
assumes that the overall risks to the economy are lower now than they were when the
central bank began the latest bond-buying program.
Globally markets (whether commodity or equity) have reacted in the past two months on
fears that the QE could soon come to an end. Going by the recent pronouncements from
the Fed, we feel that the QE may be meaningfully withdrawn only from the end of the
calendar year.
Though there are two truths in China at the moment, but only one matters. The long
term truth is that the country is shifting its focus from a low cost exporter to a consumer
15

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society. The short term truth is that the consumers are saving, not spending and Europe
Chinas biggest trading partners isnt shopping for Made in China either.
As it is, Chinas 2013 started off with first quarter GDP coming in at a disappointing 7.5%
from fourth quarter growth of 7.7%. The market is expecting second quarter growth to
be even lower.
China's economic model has relied heavily on investment and debt. It shouldn't be a
surprise that after many years of tremendous growth driven at first by badly needed
investments, Chinese spending on infrastructure and manufacturing capacity is slowing
down.
China is even underperforming much weaker economies. The iShares FTSE China (FXI) is
down over the last month, three months, six months and year-to-date.
Beijing has huge challenges ahead. China's growth has been a boon to large businesses,
the state, the powerful and the wealthy elite. What the Chinese government needs to do
is recalibrate growth so that average household incomes can rise and consumers have
more money to spend. This will not be easy to pull off, but there are positive signs.
After 30 years of meteoric, double-digit GDP growth, Chinas economy is at a crossroads.
The main drivers exports and infrastructure investment have lost their punch.
Meanwhile, low wages and high housing costs have made it impossible for Chinese
consumers to fill the gap. As a result, Chinas growth in 2012 fell to its slowest pace this
century, and 2013 looks like it could be even slower.
Chinas economic stool looks even shakier when you consider other factors. Debt is
ballooning, and banks are being squeezed for cash. Last month, the inter-bank lending
rate shot up to a high of 25 percent when the central bank warned that it would not step
in to flood the market with liquidity.
However, the mood among many Chinese remains very optimistic. Nearly 90 percent of
Chinese people feel that the economy is doing well, according to a new survey of global
attitudes by Pew. But Chinese analysts warn against complacency.
A slowing Chinese economy has its own repercussions on the global economy. While the
commodity super cycle may have come to an end, overcapacity in the Chinese economy
is being tackled slowly, leading to focus for profitability getting shifted from raw
materials to intermediates and finished goods.
If exports from China slowdown majorly we could have a situation of China wanting to
devalue its currency to compete with Japan and other Asian economies. Compare this

16

with the scenario a few quarters back when there was tremendous pressure on China to
revalue its currency.
Emerging Markets are
underperforming Why?

Retail Research

The recent weakness in Emerging Market (EM) equities is structural. The developing
world has reached a crossroads in search for a new economic model to replace an
existing approach which, despite its success to date, has run its course.
Except a short patch during the financial crisis of 2007-8, the period from end-2010 to
present marks the only episode during which EM equities have consistently
underperformed for over ten years. The EM underperformance gap versus DM has
persistently widened over 2013.
The next emerging market model needs to learn from the last two, keep what works, and
move on. Emerging markets need to commit to free-floating exchange rates, keep hold of
their US dollar reserves and continue to develop non-US dollar sources of funding. But
they should abandon the world of cheap currencies and export-led growth and look to
look inward and focus on high end manufacturing and services exports.
Cheap currencies are no longer so cheap, and in real terms have largely recaptured their
lost purchasing power of 1997-98. Moreover, the export-led growth model is now crippled
by a developed world that is rapidly moving towards balanced current accounts. It was
good while it lasted, but the time has come for emerging markets to think anew.
Fiscal policy needs to find its way back on to the emerging market agenda. Structural
reform has given way to fiscal fine tuning over much of the past decade. Tax reform is a
priority, especially the mix between income and consumption taxes. In some developing
countries, momentum behind pension and social security reform has flagged, despite the
fact that demographics is turning into a headwind rather than the tailwind it has been for
some time.
The driving force behind the next leg down in EM is likely to be a further deterioration in
the Chinese economy, whose weakness is already having a pronounced effect on
commodity prices. EM equities may underperform their US peers by up to 50% before the
cycle is over, but the precise outcome is dependent on a number of variables, most
notably government policies, which are hard to predict, and on the outlook for DM
economies.
The emerging world has made progress over the past decade. Further steps in the right
direction will require a change to the economic model and some painful decisions. Those
that can take these steps will continue to prosper; those that do not may look back at
the past decade as a golden era.
17

Indian Market Outlook

Is INR volatility controllable by the
RBIs
monetary
tightening
measures?

Threatening deficit concerns and

costly imports Cause of concern

Retail Research

The RBI recently shifted its gaze to currency and financial stability from growth-inflation
mix. It undertook a few measures to tighten liquidity to contain volatility in the INR.
These measures included changes to the Liquidity Adjustment Facility, increases in some
interest rates and open market operations.
The INR remains vulnerable to external shocks owing to Indias elevated current account
deficit and dependence on foreign capital flows for its financing. Taking cues from the
Feds policy, since June 2013 FIIs have turned net sellers in the debt and equity markets
with outflows amounting to USD7.4bn in debt and USD2.8bn in equities. Consequently,
the currency has depreciated by almost 10% since May 2013. The RBI has maintained
caution on INR depreciation on account of the risks to the twin-deficits CAD and fiscal
deficit, reversal of capital flows and imported inflationary pressures.
The RBI left all policy rates the repo rate, reverse repo rate, marginal standing facility
and cash reserve ratio (CRR) unchanged at its policy meeting, much in line with
expectations. However, its dovish statement was surprising, especially after recent
measures to tighten Indian rupee (INR) liquidity and its strong focus on stabilising the
INR.
The shift in the RBIs tone has hurt the INR, with USD-INR swiftly trading back above 60
after the monetary policy statement.
Following the volatility in the rupees value against the dollar, fixed income fund
managers have increased their cash holding in long-term funds. Negligible in early April,
this proportion has gone up to about 20 per cent, indicating theyre bearish on the
market and are holding back on purchases.
A stable rupee is the number one priority for the Reserve Bank of India since a stable
currency implies a stable economy.
India has generally been a current account deficit country. In view of the large current
account deficit, the exchange rate of the rupee is susceptible to the influence of large
capital movements, especially during crisis periods.
A weak currency can make the situation worse for India as well as for the markets. Given
the fact that we import more, a weak rupee will put huge dent in our current account
deficit (CAD) numbers and push up inflation.

18

Interest rates unlikely to come

down over next few quarters

Retail Research

Crude oil and gold tops Indias import lists and a weak currency will widen its CAD.
Higher oil prices and weak rupee are expected to have negative impact on CAD and
inflation, which may prevent the Reserve Bank of India from lowering interest rates.
The recent rise in crude oil price has surprised many. It comes at a time when the price
of most other commodities has been relatively weak, including precious metals like gold
and silver, as investors seek to invest in Dollar on the back of US economy gaining
strength and the Fed talking of reducing liquidity.
OMCs (Oil Marketing Companies) will have to pay more to buy crude oil in the
international market. Falling rupee and rising crude oil prices have put pressure on them.
Fuel subsidy bill will keep rising unless the Govt. allows the pass through of price rise and
currency depreciation. This will put more pressure on the fiscal situation.
A large CAD reflects an import dependent economy (even in areas other than Oil and
Gold) and sluggish global economy. Manufacturing and service output need to be
encouraged on a war footing locally and ease of doing business in India need to improve
fast. No amount of FDI relaxations will help till the situation at the ground level
improves for entrepreneurs.
The finance ministry is working on various measures to raise forex to insulate the
economy from any outflows that may result due to tapering of the US QE. This includes
allocating a separate quota for sovereign wealth funds (SWF) in PSU divestment issues,
PSUs issuing long-term debt aboard in the nature of quasi sovereign bonds etc. However
once the withdrawal of QE begins, it would be more difficult to attract inflows whether
debt or equity. At such times only a sentimental turnaround induced by leadership
change may work.
Inflation, as measured by the wholesale price index, was 4.86 per cent in June 2013, the
highest in three months, but within the central bank's comfort zone of 5 per cent.
Despite the low headline inflation number, the RBI did not reduce its policy rate in the
monetary policy announcement on July 30 as the fallout of the rupee's battering in the
foreign exchange market has not yet shown up in inflation data.
The Indian rupee has been on a bumpy road. The currency's steep fall in recent times has
been a cause of worry. The fall has brought back to focus the issue of interest
rates. Raising interest rate would suck out the excess liquidity in the system which in
turn helps support the rupee.
The other side of the story is the general economic health of the country. Growth is
anemic. Demand, both domestic as well as external, has come down. This was visible in
19

Q1FY14 Results so far - Review

Political uncertainty ahead

state and general elections

of

Retail Research

the latest industrial production and export figures, both of which registered a decline in
June. Therefore a rise in interest rates could spell trouble for the economy.
The Government could concentrate on boosting economic growth by speed tracking
reforms and removing investment hurdles; but then that's not what seems to be
happening at the moment.
The first quarter earnings season (April-June 2013) for the fiscal year 2014 is panning out
as predicted. Pharma, IT and consumption stocks are beating street expectations while
rate sensitives, metals, capital goods and cement disappoint.
Its been early days so far in the current earnings season - defensives are growing well at
10% (albeit slowing), cyclicals (-3%) are not recovering, and its mixed.
Still early daysbut capital goods /Autos clearly seem to be the laggards, reflecting
industry and demand challenges, Margins getting a little shaky.a key point to watch
ahead.
Its the low expectation ones that have bettered, and the moderately high ones that have
lagged.
General elections in the country are less than a year away, and many FIIs see this as a
major risk to investments, as no national party is seen emerging with a clear mandate.
Some fear FII inflows will remain tepid till elections are over.
After the flurry of reforms announced in September last year there is a perception that
pace has slowed down and the political scenario in the run up to the general elections in
2014 will act as a dampener.
Recent measures such as FDI reforms, creation of the cabinet committee on investment
(CCI) to identify and remove bottlenecks delaying various projects and gas price hike are
encouraging. However, these are likely to boost growth and create jobs with a lag. With
business sentiments likely to remain cautious prior to the parliamentary elections,
private sector capital spending is unlikely to revive, resulting in sub-6 per cent economic
growth in 2013-14.
The structural reforms can only take us out of the woods, as the weak investment cycle is
held back by cost overruns, high leverage, deteriorating cash flows and eroding asset
quality. However, major economic policy reforms that require legislative changes are
most likely to slip away until the next general election.

20

Dim chance of earnings upgrade,

fiscal deficit issues and weak
rupee could lead to stock specific
and range bound action

The selling pressure by FIIs is likely to continue in the near term, with leading foreign
funds advising clients to hold back investments into India as there are not enough
compelling reasons to buy Indian stocks. So far very little foreign selling has occurred in
Indian equities relative to the massive foreign inflows over the past few years. There
could be increasing risk of a potential flow reversal in equities, particularly in FII
favourite sectors. Further highly leveraged stocks could come under selling pressure due
to risk aversion, rising interest rates and possibility of defaults. Banks and Finance sector
could also see selling pressure as the macro and hence the micro situation is unlikely to
improve in a hurry.
Slowdown in economic growth, possibility of sovereign ratings downgrade, rising fiscal
and current account deficit (CAD), depreciating currency, uncertainty over interest-rate
cuts and big-ticket reforms taking off and political uncertainty due to the upcoming
elections are likely to cap the market upside in the near term and in fact may trigger a
downmove in the markets.
Though markets are no longer expensive (MSCI India currently trades at a 13.5x forward
12-month P/E and 2.5x book value vs. 18x forward earnings and 3.5x book value at the
beginning of 2010) there are no upside triggers in the near term. If at all the markets
could first become more cheap and then much later, rise.
The markets could continue to remain in a range with a downward bias and is unlikely to
be re-rated until we see a turnaround in earnings, sharp recovery in rupee and quick
moderation in CAD. We expect the Sensex to trade in a range of 18,600-19,700 in the
month of August.

Technical Commentary:

Retail Research

21

Retail Research

We have tried to explain the concept of Overlap in the charts above and paragraph
below. The Sensex made an intraday high at 18,524 in the month of February 2012. And
for last 15 months the Sensex had revisited this level 3 times which is marked on the
chart above. The similar concept is also true in Nifty and we had given the chart of it
separetely.
In Neowave analysis the concept of the Overlap is present in 2 structures and which are
given below.
Contracting Triangle
Diametric Formation.

We feel the Sensex is forming Diametric formation for last one and half years and
whenever it takes place, the Overlaping moves take place and which means that every
wave enters the region which was formed by wave A
The structure of Diametric formation is given below.

22

Retail Research

As can be seen the chart above the Overlap concept is clearly visible.

23

Retail Research

We are assuming that the Sensex is in wave D of the Contracting Triangle which is
going on for last 5 years. This wave D is sub divided into a-b-c-d-e-f-g. and its structure
is Diametric Formation
Now we will come to wave g and its time and construction.
Wave g had so far taken 76 trading sessions and its construction is a Contracting
Triangle and each preceding wave is smaller in magnitude than the previous wave as
shown in the chart above.
We feel at this juncture the wave D is in progress and it is retracing wave C and the
retracement levels are given in the chart below.
Wave a took 23 days. Wave b took 25 days. Wave c took 21 days. Wave d so for had
taken 8 trading sessions.
Once wave d is over upward wave e will unfold and it will be smaller in size than wave
D and then the contracting triangle will get over and the entire wave D of the large
Contracting Triangle will get over.
Once this is done, a large downward facing wave E will begin which will retrace the
entire larger wave D which was of 1698 points (Nifty) or 5308 points (Sensex). This
retracement could be anywhere between 38.2% to 50% and has to be measured from the
top i.e.6,229 or 20,444.

24

Retail Research

The wave d retraced the wave c by exactly 80% which is a very important ratio in Neo
wave analysis when a contracting triangle is being formed . We feel the wave d will get
over around 5,676 levels +/- 50 points.
In case of the Sensex so far it had retraced 66% of the wave c and we feel it will
bottom out between 19,107 and 18,885 in coming 2 to 4 trading sessions.
The minimum and the maximum targets for wave e are given in the chart above.
25

The month gone by:

Learning Technical Analysis

Trading
Number
Mistake
Trading

Psychology - The
One
Goal-Setting
Traders Make in

Retail Research

In the month of July 2013, the Sensex opened at 19,352 and for 2 trading sessions, it
came down and made an intraday low at 19,147, which was held for the entire month.
For next 7 trading sessions the Sensex formed a Contracting Triangle on the daily chart
which took place in wave b of a Zigzag. The breakout of the triangle took place for
next 9 trading sessions and it took the Sensex up 20,250 level on the closing basis. On
closing basis it was a new close for wave D of the Contracting Triangle
Once the 20,351 level was achieved the down trend in the form of wave d began as
wave C took 21 trading sessions which is a Fibonacci number. For last 8 trading sessions
the Sensex is continuously coming down forming Lower Lows and Lower Highs on the
daily charts. Finally the Sensex ended the month of July 2013 at 19,346.
The number one goal-setting mistake traders make is setting goals related to money.
Active traders will often tell me that they have a goal of making X-Dollars a day or Xpoints a day. That's just not a good way to structure a goal.

26

Trading
Money

Goals

Related

to

What happens when the market trades in a very narrow range? Typically, price
movement will remain within the first hour's range throughout the day. That range might
only be 5 or 6 points -- too narrow to offer much trading opportunity. It is very difficult
to make money on such narrow range days.
So, if your goal was to make X Dollars a day how do you do that on a narrow range day?
Since it is nearly impossible to make good trades on such a day, you would have failed to
achieve your goal. And, if you couldn't read that the market has narrowed its range and
instead tried to reach your money goal, you would have likely been trying to trade at
every little turn and wound up over trading a choppy, range-bound day. At best your
money goal had set you up for failure because you couldn't achieve it. Worse, your
money goal caused you to force trades in a choppy market, and maybe you lost money.
Goals that promote failure, poor trading habits, and losses are not useful goals.

A Better Trading Goal

A better goal focuses on your development as a trader. It will help you improve your
trading knowledge, skills, or abilities. Rather than thinking about money, think instead
about the process of trading. The process of trading simply refers to the skillful actions a
trader takes in trading effectively. A useful question to ask is: What trading process, if I
were to improve and develop in this area, would add to my ability as a trader?

Example of a Better Trading

An example will help to illustrate how to do this. Let's say you want to improve your
ability in trading trends. You have done a self-assessment of your trading on trending
days and find that your greatest limitation is that you tend to counter trade the trend. A
simple solution might be to notice whether the market is moving with momentum and
making higher lows and higher highs (for a bullish trend). A useful process goal then
becomes:
Prior to taking a trade that fades a move, I will assess whether the market is moving with
momentum and making higher highs and higher lows. If it is trending, I will not take the
trade. I will execute this process on at least 85% of all trades considered over the next
20 trading days.
Note that this goal is useful because it builds skills and ability in assessing market
movement. It also keeps the trader from taking poor quality trades. The next step for
this trader would be to develop a goal to execute trades consistent with the trend again, a process goal.

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Trading goals should be designed to help you achieve. Goals related to money, points, or
other 'stats' won't help you do that. Work on trading goals that are related to
achievement by helping you to develop your trading skills.
(Acknowledgement: http://ezinearticles.com/?Trading-Psychology---The-Number-One-Goal-Setting-Mistake-Traders-Make-in-Trading&id=5048406)

Derivatives Commentary:

Retail Research

The month of July 2013 saw the Nifty rallying in the first three weeks of the month to
touch a high of 6093. However a sharp sell-off soon followed and wiped out all these
gains. The Nifty finally ended with M-o-M losses of 1.72%.
FIIs were reported as net sellers in the cash market of Rs. 1707 cr in July 2013 (In June,
they were net sellers of Rs. 10845 cr). In the F&O space, the FIIs were net buyers in the
Index Futures segment. Along with the increase in the open interest, it indicates long
positions were undertaken by FIIs in index futures segment. In the index Options
segment, the FIIs were net buyers, which was accompanied with an increase in the open
interest. In the Stock Futures segment, FIIs were net sellers, while open interest
increased over June. The Stock options segment witnessed very low participation during
the month of July.
The Aug 2013 series has started on a heavier note compared to the previous series. In
terms of value, the Aug 2013 series has begun with market wide OI at Rs.84,134crs. Vs.
Rs.82,160crs. at the beginning of the July 2013 series. It was Rs.88,418crs. at the
beginning of the June 2013 series.
The higher participation levels in the Aug series (compared to the previous series) is a
good sign as it indicates increased market participation.
28

This also explains the higher rollover figures. Nifty rollovers to the Aug series were at 76%
Vs. 57% (the avg. rollovers seen in the last 3 series). Market wide rollovers too were
higher at 77% Vs. 68% (the average rollover seen in the last 3 series). Rollover costs
remained at high levels given the high levels of currency hedging and funding cost.
Reflecting the weakness seen in the last week of July, the Nifty OI PCR slid to 1.09 at the
beginning of the Aug series from 1.31 levels (at the beginning of the July series).
Reflecting the lower volatility and trending moves in the markets, the Nifty IV slid to
16.17% (at the beginning of the Aug series) from 17.54% the same time in the previous
series.
Technically, the Nifty remains in a downtrend after breaking the short term trend
reversal levels of 5910 in the last week of July. The Nifty is now headed towards the next
intermediate lows at 5570 in the coming weeks. Any pullback rallies could find resistance
at 5761-5810.
Index option activity is suggesting a trading range of 5500-6000 in the near term as the
maximum Call OI is currently being seen in the 6000 strikes indicating this is the
maximum expected upside for the Nifty in the near term. In the put segment, maximum
OI is currently being seen in the 5700 5500 puts, suggesting this is the maximum risk on
the downside for the near term.

Learning Derivatives Analysis

How to decide Price movements
in the futures & options market

Price movements in the futures & options market result from the decisions of thousands
of traders. But there are a number of useful statistics besides price movements that tell
you what those other market participants are doing. Let us take a closer look at four
factors one should consider when trading options: daily trading volume, open interest,
Basis & IVs.

Daily Trading Volume

Trading volume gives you important insight into the strength of the current market
direction for the option's underlying stock. The volume, or market breadth, is measured
in shares and tells you how meaningful the price movement in the market is.
Keep in mind that trading volume is relative and needs to be compared to the average
daily volume of the stock in question. A large percentage change in price accompanied by
larger than normal volume is a solid indication of market strength in the direction of the
change. But large percentage increases in price accompanied by small trading volumes

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are less likely to indicate a market direction. In fact, they may indicate that a reversal is
likely in the near term.
The Importance of Open Interest

Implied Volatility

Retail Research

Open interest is a concept all futures & option traders need to understand. Although it is
always one of the data fields on most option quote displays - along with bid price, ask
price, volume and implied volatility - many traders ignore open interest. But while it may
be less important than the futures or option's price, or even current volume, open
interest provides useful information that should be considered when entering an option
position.
First, look at exactly what open interest represents. Unlike stock trading, in which there
is a fixed number of shares to be traded, future or option trading can involve the
creation of a new future or option contract when a trade is placed. Open interest will tell
you the total number of future or option contracts that are currently open - in other
words, contracts that have been traded but not yet liquidated by either an offsetting
trade or an exercise or assignment.
So when you are looking at the total open interest of an option, there is no way of
knowing whether the options were bought or sold - which is probably why many option
traders ignore open interest altogether. However, you shouldn't assume that the open
interest figure provides no important information.
One way to use open interest is to look at it relative to the volume of contracts traded.
When the volume exceeds the existing open interest on a given day, this suggests that
trading in that future or option was exceptionally high that day. Open interest can help
you determine whether there is unusually high or low volume for any particular future or
option.
Open interest also gives you key information regarding the liquidity of a future or option.
If there is no open interest for a future or option, there is no secondary market for that
future or option. When futures or options have large open interest, it means they have a
large number of buyers and sellers, and an active secondary market will increase the
odds of getting futures or option orders filled at good prices. So, all other things being
equal, the bigger the open interest, the easier it will be to trade that option at a
reasonable spread between the bid and ask.
Implied volatility (IV) is one of the most important concepts for options traders to
understand for two reasons. First, it shows how volatile the market might be in the
future. Second, implied volatility can help you calculate probability. This is a critical
30

Implied volatility as a trading tool

Basis

Retail Research

component of options trading which may be helpful when trying to determine the
likelihood of a stock reaching a specific price by a certain time. Keep in mind that while
these reasons may assist you when making trading decisions, implied volatility does not
provide a forecast with respect to market direction. Although implied volatility is viewed
as an important piece of information, above all it is determined by using an option
pricing model, which makes the data theoretical in nature. There is no guarantee these
forecasts will be correct.
Understanding IV means you can enter an options trade knowing the markets opinion
each time. Too many traders incorrectly try to use IV to find bargains or over-inflated
values, assuming IV is too high or too low. This interpretation overlooks an important
point, however. Options trade at certain levels of implied volatility because of current
market activity. In other words, market activity can help explain why an option is priced
in a certain manner.
Implied volatility shows the markets opinion of the stocks potential moves, but it
doesnt forecast direction. If the implied volatility is high, the market thinks the stock
has potential for large price swings in either direction, just as low IV implies the stock
will not move as much by option expiration.
To option traders, implied volatility is more important than historical volatility because
IV factors in all market expectations. If, for example, the company plans to announce
earnings or expects a major court ruling, these events will affect the implied volatility of
options that expire that same month. Implied volatility helps you gauge how much of an
impact news may have on the underlying stock.
How can option traders use IV to make more informed trading decisions? Implied
volatility offers an objective way to test forecasts and identify entry and exit points.
With an options IV, you can calculate an expected range - the high and low of the stock
by expiration. Implied volatility tells you whether the market agrees with your outlook,
which helps you measure a trades risk and potential reward.
Basis, also known as "Cash Futures Basis", is one of the most important pricing concepts
to understand in futures trading. You might have noticed that futures prices are always
higher than or lower than the prevailing price of the underlying asset (Spot Price) and
this price difference changes with futures contracts of different expiration months. This
price difference between futures price and spot price is known as the "Basis". Basis is an
31

important concept to understand because it gives rise to a few price behaviors which are
unique to futures trading and can affect your profitability.
Basis is basically the difference between the price of a futures contract and the price of
its underlying asset. Futures prices reflect fair future value and future price expectation
of the underlying asset and that is why futures prices will never be the same as spot price
Basis is simply the difference between futures price and spot price. As such, the formula
for basis is:
Basis = Futures Price - Spot Price
Positive and Negative Basis
Basis can be either positive or negative (also depending on the specific formula being
used). Using our first formula, when futures price is higher than spot price, it is known as
a Positive Basis and when futures price is lower than spot price, it is known as a Negative
Basis.

Extract of Calls during July 2013

Index Futures Calls
Date

B/S Trading Call

Entry at

Sloss

Targets

Exit Price /
CMP
Exit Date

% G/L Comments

Abs.
Time Horizon Avg. Entry Gain/Loss

1-Jul-13

Bank Nifty Fut

11695-11765

11770

11575

11644.0

1-Jul-13

0.5

Premature Profit Booked

2-3 days

11698

54

3-Jul-13

Bank Nifty Fut

11345-11415

11340

11530

11370.0

3-Jul-13

0.0

Premature Exit

2-3 days

11375

-5

8-Jul-13

Bank Nifty Fut

11280.45

11236

11400

11368.0

8-Jul-13

0.8

Premature Profit Booked

2-3 days

11280.45

87.55

10-Jul-13

Bank Nifty Fut

11395

11330

11600

11600.0

11-Jul-13

1.8

Target Achieved

2-3 days

11395

205

15-Jul-13

Bank Nifty Fut

11727.95

11640

11905

11793.1

15-Jul-13

0.6

Premature Profit Booked

1-5 days

11728

65.1

17-Jul-13

Bank Nifty Fut

11145

11085

11300

11116.0

17-Jul-13

-0.3

Premature Exit

2-3 days

11145

-29

24-Jul-13

Nifty Fut

6013.7

6070

5890

5983.7

24-Jul-13

0.5

Premature Profit Booked

1-2 days

6013.7

30

30-Jul-13

Bank Nifty Fut

10280

10210

10400

10210.0

31-Jul-13

-0.7

Stop Loss Triggered

2-3 days

10280

-70

Entry at

Sloss

Targets

Exit Price /
CMP
Exit Date

Stock and Nifty Options Calls

Date

B/S Trading Call

% G/L Comments

1-Jul-13

RCOM 130 Call Option

2-3.9

5.15

6.7

1-Jul-13

72.7

Premature Profit Booked

2-Jul-13

RCOM 130 Put Option

9.2-7

17

5.0

8-Jul-13

-45.1

Stop Loss Triggered

3-Jul-13

JP Associates July 52.5 Put Option

2.65-1.9

1.6

3.6

3-Jul-13

35.8

Premature Profit Booked

10-Jul-13

ICICI Bank 1060 Call Option

23.1

17

50

33.0

11-Jul-13

42.9

Premature Profit Booked

Retail Research

Abs.
Time Horizon Avg. Entry Gain/Loss
3-5 days

3.85

2.8

2 days

9.1

-4.1

3-5 days

2.65

0.95

7 days

23.1

9.9

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17-Jul-13

IB Real Estate 70 Call Option

1.7

0.9

3.5

3.5

18-Jul-13

105.9

Raised Target Achieved

2-3 days

1.7

1.8

18-Jul-13

R Com 150 Call Option

2.8

1.4

5.85

3.5

19-Jul-13

25.0

Premature Profit Booked

2-3 days

2.8

0.7

22-Jul-13

IB Real Estate 75 Call Option

1.1

0.45

2.5

2.1

22-Jul-13

90.9

Premature Profit Booked

2-3 days

1.1

23-Jul-13

IB Real Estate 75 Call Option

1.25

0.7

1.9

23-Jul-13

52.0

Premature Profit Booked

2-3 days

1.25

0.65

25-Jul-13

Bank of Baroda 600 Call Option

3.5

0.95

7.0

25-Jul-13

100.0

Target Achieved

26-Jul-13

ICICI Bank 1000 Call Option

20.05

14

32.5

14.0

31-Jul-13

-30.2

Stop Loss Triggered

Trading Call

Entry at

Sloss

Targets

Exit Price /
CMP
Exit Date

% G/L Comments

1505

1595

1558.0

1.6

1 day

3.5

3.5

2-3 days

20.05

-6.05

Time Horizon Avg. Entry

Abs.
Gain/Loss

BTST / STBT/ Calls

Date

B/S

4-Jul-13

TCS

1534

5-Jul-13

Premature Profit Booked

1 day 1534

24

10-Jul-13

Lupin

854

836

890

870.0

11-Jul-13

1.9

11-Jul-13

BGR Energy

123.2

119.9

130

127.2

12-Jul-13

3.2

Premature Profit Booked

1 day 854

16

Premature Profit Booked

2-3 days 123.2

26-Jul-13

Reliance Infra

374.65

367.5

387.5

367.5

29-Jul-13

-1.9

Stop Loss Triggered

1-2 days 374.65

Entry at

Sloss

Targets

Exit Price /
CMP
Exit Date

% G/L Comments

788-760

756

830

756.0

-4.1

-7.15

Trading/Futures Calls
Date

B/S Trading Call

3-Jul-13

Stop Loss Triggered

Abs.
Time Horizon Avg. Entry Gain/Loss

1-Jul-13

MCX

3 days

788

-32

1-Jul-13

Kolte Patil

70-74.5

69.85

82.5

77.7

1-Jul-13

4.7

Premature Profit Booked

2-3 days

74.2

3.5

4-Jul-13

Autoline Industries

73-77

72

86

79.4

4-Jul-13

3.3

Premature Profit Booked

2-3 days

76.85

2.5

8-Jul-13

Dishman Pharma

57.55

54

61

60.8

10-Jul-13

5.6

Premature Profit Booked

2-3 days

57.55

3.25

10-Jul-13

Jai Corp

48.1

46

52

49.3

15-Jul-13

2.4

Premature Profit Booked

2-3 days

48.1

1.15

11-Jul-13

NMDC

106.65

103

114

110.4

23-Jul-13

3.5

Premature Profit Booked

3-5 days

106.65

3.75

23-Jul-13

HDIL

40.3

38.9

44

38.9

24-Jul-13

-3.5

Stop Loss Triggered

5 days

40.3

-1.4

26-Jul-13

IRB Infra Fut

88

90.5

80

84.7

26-Jul-13

4.0

Premature Profit Booked

2-3 days

88

3.35

29-Jul-13

JB Pharma

81.55

78

89

78.0

30-Jul-13

-4.4

Stop Loss Triggered

7 days

81.55

-3.55

29-Jul-13

Reliance Infra Fut

358.4

370

334

352.2

30-Jul-13

1.8

Premature Profit Booked

1-5 days

358.4

6.2

Entry at

Sloss

Targets

Exit Price /
CMP
Exit Date

% G/L Comments

Positional Calls
Date

B/S Trading Call

Abs.
Time Horizon Avg. Entry Gain/Loss

11-Jul-13

LIC Housing Finance

233.1

227.0

245.0

227.0

16-Jul-13

-2.6

Stop Loss Triggered

5-7 days

233.1

-6.1

12-Jul-13

Escorts

81.2

77.0

90.0

85.8

17-Jul-13

5.7

Premature Profit Booked

7 days

81.2

4.6

12-Jul-13

Strides Arcolab

762

735.0

800.0

799.0

12-Jul-13

4.9

Premature Profit Booked

5-7 days

762.0

37.0

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33

15-Jul-13

Gold Bees

2532.7

2444.0

2711.0

2618.8

23-Jul-13

3.4

Premature Profit Booked

4-10 days

2532.7

86.1

22-Jul-13

Sintex

36.6

35.0

40.0

35.0

24-Jul-13

-4.4

Stop Loss Triggered

7 days

36.6

-1.6

23-Jul-13

Essar Oil

68.85

65.0

77.0

65.0

26-Jul-13

26-Jul-13

Jet Airways

356.6

335.0

380.0

380.0

26-Jul-13

-5.6

Stop Loss Triggered

5-10 days

68.9

-3.8

6.6

Target Achieved

5-7 days

356.6

23.4

Gainers & Losers July 2013

Top Gainers From F&O
Price
28-Jun-13
HEXAWARE

Top Losers From F&O

Price

Price
31-Jul-13 % chg

28-Jun-13

Price

Price

31-Jul-13 % chg

Price

28-Jun-13
107.30

146.40 36.44

GITANJALI

86.75

116.35 34.12

WOCKPHARMA

379.05

505.40 33.33

9.45

11.80 24.87

776.00

937.55 20.82

86.75

116.35 34.12

JPPOWER

19.00

10.05 -47.11

FKONCO

349.00

438.00 25.50

SINTEX

40.45

26.30 -34.98

HEXAWARE

HCLTECH

776.00

937.55 20.82

LICHSGFIN

254.75

165.70 -34.96

TCS

1518.15

1815.50 19.59

ASHOKLEY

20.10

13.55 -32.59

FSL

IDEA

141.50

168.95 19.40

JPASSOCIAT

53.60

36.15 -32.56

HCLTECH

56.50

67.30 19.12

FINANTECH

779.30

539.85 -30.73

TCS

1518.15

2498.85

2969.65 18.84

YESBANK

461.10

324.00 -29.73

IDEA

134.40

159.70 18.82

UNIONBANK

186.35

133.10 -28.58

APOLLOTYRE

INFY
TATAGLOBAL

CLNINDIA

OPTOCIRCUI

20.20

23.90 18.32

KTKBANK

112.05

81.00 -27.71

INFY

BHARTIARTL

291.75

344.50 18.08

GMRINFRA

17.60

12.85 -26.99

TATAGLOBAL

Price

31-Jul-13 % chg

WIPRO

APOLLOTYRE

Top Losers From CNX 500

Top Gainers From CNX 500

Price

28-Jun-13

31-Jul-13 % chg

233.90

72.15 -69.15

1000.85

468.40 -53.20

INNOIND

72.55

34.90 -51.90

JPPOWER

19.00

10.05 -47.11

SHREEASHTA

1.00

0.60 -40.00

1815.50 19.59

VAKRANSOFT

79.55

47.80 -39.91

141.50

168.95 19.40

HINDCOPPER

74.35

46.90 -36.92

56.50

67.30 19.12

SINTEX

40.45

26.30 -34.98

2498.85

2969.65 18.84

LICHSGFIN

254.75

165.70 -34.96

134.40

159.70 18.82

BGRENERGY

129.40

84.45 -34.74

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
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