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DISHA - WEALTHRAYS RESEARCH

IMPACT OF FED STIMULUS ON INDIAN MARKETS

20TH SEPTEMBER 2013

US Fed move lifts Indian Equities Indian indices rose sharply on September 19th, with S&P BSE Sensex closing at 32-month high. Sensex closed up 684 points or 3.4 % at 20646, while Nifty ended at 6115, up 216 points or 3.6 %. Indices moved significantly up as US Federal Open Market Committee on September 18th decided to keep its monthly asset purchase program unchanged at $85 billion per month awaiting for more evidence that the economic progress will be sustained. Markets globally, which were expecting US Fed to taper the monthly asset purchase program by $10 billion-$15 billion, cheered the move with S&P 500 (USA) rising to record high after the statement. The rupee rose to a five-week high against the dollar. The Indian Rupee closed at 61.77 / US $ against Wednesday's close of 63.38 / US $. Liquidity driven rally Fed move helps Indian Equities as more money continues to chase all asset classes including equities, gold, etc. Once US Fed Reserve commences tapering, globally liquidity reduces & Indian bourses would start seeing reduction in investments & fundamentals take over with domestic concerns of Current Account Deficit, growth trajectory, inflation, IIP, GDP & other macro economic data driving markets. Also with general elections due in 2014, Indian bourses can witness some stagnation till stability is seen in new government. Kick-off to Broad based rally CNX NIFTY rose 15% from 5285 on August 28th, 2013 to 6115 on September 19th, 2013. However, during the same period CNX MIDCAP index moved up only 11% from 6456 to 7180 and CNX SMALLCAP index increased only by 10% from 2570 to 2842. Fed move may kick start broad based rallies across mid-caps and small-caps which have underperformed over past several months. Sector Adjustments (with Top Picks) CNXIT (Technology) With Indian Rupee () depreciating to lows of 68.8 per US $ over past few weeks, Technology stocks surged with CNXIT appreciating above 10% with gains in IT Bellwethers like TCS, INFY, WIPRO, HCLTECH & TECHM surging. However, with Fed move Rupee ploughs back to 61.77 levels & heading to levels of 60, Technology stocks might remain sideways as investments might not be attracted into this sector in short term. BANKNIFTY (Banks) Private sector banks like AXISBANK, ICICIBANK & YESBANK are top picks which may continue to outperform Public Sector banks which are grappling with growing NPAs. However amongst PSU banks, PNB, CANARABANK & SBI are top picks. CNXMETALS (Metals) Metal stocks would continue to dominate NIFTY with more liquidity in markets. Metal counters like SESAGOA, TATASTEEL, JINDALSTEEL and HINDALCO are top picks in this segment. CNXREALTY (Real-Estate) Realty stocks which underperformed NIFTY for past few months may start participating if broad-based rally commences across Indian markets. Realty major DLF & high beta mid cap stocks like HDIL, IBREALESTATE are top picks in this segment.

DISHA - WEALTHRAYS RESEARCH

Depreciation in Indian Rupee () to levels of 68.8 against US $ on August 28th, 2013 pushed CNXIT (Technology) sector to outperform NIFTY. As recovered to levels of 61.77 / US $ on September 19th, 2013, NIFTY outperforms CNXIT

METALS may continue their outperformance over NIFTY while BANKS & REALTY may move upwards as valuations look attractive

DISHA - WEALTHRAYS RESEARCH

Shift to Emerging Markets including Indian Equities S&P 500 index dominated NIFTY since April 2013 as US Fed Reserve showed signs of stimulus tapering as money moved into USA out of Emerging markets (EMs). With Fed announcement of holding back tapering for few more months, all asset classes across EMs stand to gain including Indian equities. In the short-term, NIFTY might dominate S&P 500 as most of stocks are still at lower valuation & technical levels are on verge of positive breakout. S&P 500 v/s NIFTY since January 2008 till date A Comparison

Fundamental head-winds In short-term, Indian equities may continue to move steadily upwards due to continued global liquidity, however long term investor should consider Indias macro-economic issues like inflation, CAD & growth issues and rebalance portfolio by including defensives like FMCG, Telecom, IT & Pharma at lower levels.

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