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Market Outlook

Rama Krishna Vadlamudi, HYDERABAD July 18, 2011 www.scribd.com/vrk100 MY BLOG: www.ramakrishnavadlamudi.blogspot.com
Driven by negative sentiment about Infosys first quarter results and weak industrial growth numbers, the stock markets were volatile last week with the Sensex shedding close to 1.5 per cent and ended at 18,562 for the week. The Nifty closed at 5,582. The industrial growth, represented by the Index of Industrial Production or IIP, has dipped to 5.6 per cent in May 2011 due to a sluggish growth in manufacturing and capital goods sectors. The 5.6 per cent growth is much lower compared to 8.5 per cent growth recorded in May last year. The investment cycle in India is experiencing a slowdown due to a variety of factors.

First Quarter results


For the April-June 2011 quarter, Infosys Limited has shown a revenue growth of 3.2 per cent and net profit growth of minus 5.3 per cent compared to JanuaryMarch 2011 quarter. Even though the results matched the guidance given by the company, the market was clearly disappointed with the results and the stock was down 4 per cent the day the results were announced. The disappointment stemmed from the fact the company did not revise its estimates for the full year 2011-12. In contrast, TCS, Indias leading IT company, has posted good results with the net profit for the first quarter soaring by 27 per cent compared to the same quarter last year. The first quarter revenues shot up by 31 per cent. Unlike Infosys, TCS does not give any forecast of its revenues or profits. Among other companies, Bajaj Auto has posted good results for the first quarter with net profit rising by 21 per cent year-on-year. Sales turnover was up 23 per cent for the quarter.

Robust tax collections


Even as the industrial production is showing signs of weakness, the indirect tax collections have gone up by 30 per cent during first quarter of this fiscal. Between April-June 2011, the indirect tax (customs duty, central excise, and service tax) collections were at Rs 95,800 crore compare to Rs 73,600 crore last year. With such strong collections, the Government is confident of meeting this years tax targets which augurs well for the fiscal situation. However, the tax collections will be adversely impacted by the Governments latest decision to reduce taxes on crude oil and petroleum products. Another negative could be the large increase in tax refunds this year.

Rama Krishna Vadlamudi, HYDERABAD July 18, 2011 www.scribd.com/vrk100 MY BLOG: www.ramakrishnavadlamudi.blogspot.com

Golds dream run continues


The rally in international gold prices continues unabated. Gold rose to $ 1,595 per ounce on Thursday before closing at $ 1,583 at the weekend. Silver rose to $ 39.4 per ounce before closing at $ 38.2. Gold prices are mostly driven by investment demand rather than jewellery. The sovereign debt crisis in Greece, Portugal and other countries is contributing to the golds investment demand. The London Metal Exchange (LME) has doubled delivery size for top warehouses with a view to easing backlogs in Detroit and moving aluminium faster. It is interesting to note that many LME-approved warehouses in Detroit are owned by Metro International, a Goldman Sachs group company.

Money managers for EPFO


The Employee Provident Fund Organisation (EPFO) has appointed State Bank of India, ICICI Securities Primary Dealership, Reliance Capital and HSBC Asset Management Company as fund managers to manage its Rs 3 lakh crore corpus for the next three years. SBI will manage 35 per cent of the corpus, ICICI Securities PD 25 per cent, and the other two will manage 20 per cent each.

India is at 62nd place


According to the 2011 edition of the Global Innovation Index, India is ranked 62nd in innovation. For the year 2010, Indias rank was 56th and for 2009, it was 41st indicating that India has been losing on innovation to other competitors. For 2011, Switzerland is at the top followed by Sweden, Singapore, Hong Kong and Finland. The important parameters for computing the innovation index are: institutions; human capital & research; infrastructure; market sophistication; and business sophistication.

Global cues
In the next few weeks, the US congress will decide on raising the US debt level. The present debt limit is $ 14.3 trillion. There are some differences over raising the debt level between the Republicans and the President. If they fail to sink their differences, the country may plunge into an economic crisis. Meanwhile, Moodys Investor Services has warned that it would review the US rating, currently at Aaa since 1917, if the lawmakers do not raise the debt limit. Standard & Poor also gave a similar warning by putting the US on the negative watch list.

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Rama Krishna Vadlamudi, HYDERABAD July 18, 2011 www.scribd.com/vrk100 MY BLOG: www.ramakrishnavadlamudi.blogspot.com

The outlook
During the fourth week of this month, the Reserve Bank of India will be reviewing its interest rate policy. It is expected that RBI will raise the policy rates by another 25 basis points. With rising interest rates, auto sales have slowed down. The real estate sector is also listless. More quarterly results are expected next week. As such, the volatility in stock markets will continue for the time being.

Top Bankers
Managing Director, International Monetary Fund President, World Bank Governor, Bank of England Chairman, US Federal Reserve President, European Central Bank Governor, Bank of Japan Governor, Reserve Bank of India Christine Lagarde Robert B Zoellick Sir Mervyn King Ben Shalom Bernanke Jean-Claude Trichet Masaaki Shirakawa Duvvuri Subbarao

Disclaimer: The authors views are personal. The author has a vested interest in the stock markets. Before taking investment/trading decisions, consult your personal certified financial planner/adviser.

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