Financial Market & Economy Update

• India's foreign exchange reserves stood at $292.52 billion as of  January 13, down from $293.54 billion as reported in the previous week. 
• Fitch revised its growth forecast for the Indian economy this fiscal. It declined to 7% from the earlier projected figure of 7.5% owing to the high interest rate regime and global slowdown.
• Food price index for the week ended January 7 stood at negative 0.42%. This is the third consecutive weeks when food price index remained at negative terrain. However non food article index inched up from 1.29% to 1.84% while the fuel index remained unchanged at 14.45%.
• Inflation for the month of December plunged to 7.47% as against 9.11% reported in last month and 9.45% recorded in the corresponding month previous year. However, the October figure revised upward from 9.73% to 9.87%. Food inflation moved to 0.74% as against 8.54% in the last month however manufacturing and fuel inflation remained high at 7.41% and 14.91% respectively.
• Domestic export for the month of December grew by 6.7% YoY to $25 billion while imports increased by 9.8% to $37.8 billion in the reported period. Trade deficit of stood at $12.8 billion for the month.

Equity Market Update

• The domestic markets extended gains for the second consecutive day to end the week on a cheerful note surging around 3.62%. During the week, Sensex rose 584.39 points, to close at 16,739.01, whereas Nifty went up 182.60 points, to settle at 5,048.60.
• On the global front, Asian markets closed higher with around 1% gains whereas  European markets were mixed.

Equity Market Outlook

The long term outlook continues to remain positive for Indian equities as the economic growth momentum remains healthy with real GDP growth remaining at around 7%. We expect this growth to result in healthy corporate earnings and the earnings growth to translate on growth in equity markets. While the long term positive outlook remaining intact, the near term challenges can influence markets as it gets impacted by events / newsflows that can have a near term negative implications.

The US Economy reported robust numbers last week. Signs of a recovery picking up steam in the US are being seen. Banking results were also positive last week. Fears of asset quality deterioration are subsiding as banks report healthy asset quality. Axis bank reported a good set of numbers allaying fears of asset quality. We could be close to the bottoming of the inflationary phase in the Indian economy. The RBI has also indicated that it is not in favor of any more rate hikes. This would lead to the bottoming out of the stock market and a rally in equity markets from here. However the political situation is deteriorating with a non-functional parliament and increasingly populist moves by the government and a burgeoning fiscal deficit. The upcoming UP elections will be an indicator of political compulsions going forward. Valuations are very cheap especially in midcap stocks at this point and quite a few stocks look to be promising buys. The RBI meeting on the 24^th will decide on rate cuts to boost growth. Further the Fed meet on the 26-26th will also provide direction to the global markets.

Debt Market Update

• The yield on the 10 year benchmark bond rose 0.15% to 8.20% from last week's close, after trading in the range of 8.12% to 8.21%, as traders were reluctant to take positions before the central bank review on Tuesday.
• RBI will conduct auction of 91 and 364 days T-Bill worth Rs. 10,000 crore on January 25, 2012.
• RBI conducted the auction of 7.83% GS 2018, 8.79% GS 2021 and 8.83% GS 2041 worth Rs.14,000 crore. The cut off yields stood at 8.17%, 8.14% and 8.50% respectively.

Debt Market Outlook

The RBI is expected to be dovish and with the liquidity being tight; there are chances that RBI might do a CRR cut.We expect the 10 year to trade in the range of 8.10-8.20.

Kotak Mutual Fund Update

Kotak Mutual Fund has announced the launch of Kotak FMP Series 72. It is a close ended fund with maturity of 370 days.Minimum application amount during NFO is Rs.5000.NFO opens:24^th January 2012 and NFO closes on 24th January 2012.

Commodity Market Update

• Gold declined marginally over last week, as dollar strengthened and the debt worries continued to linger amid markets awaited the outcome of talks between Greece and private lenders. Spot gold was down by 0.76% at Rs. 27195 per 10 gram.
• Oil prices were steady during the week, as improved optimism of debt deal in Greece supported the prices, which also helped in balancing against the strong dollar. Brent crude traded at $110.64 a barrel marginally lower by $0.14.

Currency Market Update

• INR fell due to oil related dollar buying and nervous sentiments ahead of the debt swap talks between Greece and its private creditors. However, suspected RBI intervention helped it recover from week's low, to settle at 50.32/33 to the dollar, posting a weekly gain of 2.41%.
• The euro hit its two-week high against both dollar and yen on the back of a successful Spanish debt auction triggered by positive risk appetite. It traded at $1.2898, up by 0.3% from the previous close.