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Monthly Equity Commentary

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1-CNXNifty.CNX Nifty Index.NSE - 01/08/13 Trend7

Daily

Month Gone By • 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:

% Chg Week No Sensex Nifty Key Positives Key Negatives

1 +0.5 +0.4

• The HSBC/Markit purchasing managers index for the manufacturingindustry stood at 50.3 in June, slightly higher than 50.1 in May.However, output witnessed a decline for the second consecutivemonth.

• Sales of passenger vehicles in the Indian market are set for aseventh straight month of decline, with high financing costsincrease in fuel expenses and sluggish economic activity keepingcustomers away from showrooms. The industry’s overall volumes

Monthly Strategy Report – August 2013 Monthly Strategy Report – August 2013

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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.

2 +2.4 +2.4

• India's trade deficit narrowed in June to $12.24 bn from a7-month high, helped by a slowdown in gold imports,which should ease pressure on the current accountbalance and the beleaguered rupee.

• Growth in industrial production (IIP) for the month of May fell tominus-1.6% vs 1.9% for the previous month. A CNBC-TV18 poll hadestimated industrial growth at 1.5%. Industrial growth data alsorevealed that growth in the manufacturing sector fell at minus-2%versus 2.8% in the previous month.

• Government released Consumer Price Index (CPI) inflation datawhich showed that the June CPI food inflation was 11.84%, CPIInflation at 9.87% vs 9.31% (M-o-M), CPI inflation in urban areas at10.13% as against 9.65% (M-o-M and CPI Inflation in the rural areasat 9.63% vs 8.98% (M-o-M).

3 +1.0 +0.3

• The WPI inflation for the month of June came in betterthan expected at 4.86%. Core inflation came in at 2%.

• For the first time in its history, a perennially powerdeficit India is set to achieve its electricity capacityaddition target for any Plan period. The 12th Plan'scapacity target of 88,537 Megawatt (Mw) is likely to bemet with only minor slippages.

• India's gas output is expected to rise to 175 mscmd(million standard cubic metres per day) in 2016/17, from105 mscmd in the current financial year.

• The government has allowed 100% foreign directinvestment (FDI) in telecom. FDI in the telecom servicessector was increased from 74% to 100%,

• Industrial production declined 1.6% in May 2013, as against adownwardly revised 1.9% growth in April 2013. The output of themining sector declined 5.7% and that of the manufacturing sectordeclined 2% in May 2013.

4(till 31st July

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• India has achieved a record pulses production of 18.45million tonnes (MT) in the 2012-13-crop year ended June.

• The Reserve Bank of India imposed new restrictions on commercialbanks’ access to cash.

• The economy is unlikely to see any recovery in the second half asthe downturn is expected to engulf services and the remainingsectors after affecting fixed investment and manufacturing in thefirst half, Moody's Analytics said.

• The Reserve Bank of India (RBI) in its monetary policy review meetleft interest rates unchanged as it sought to support a batteredrupee but said it will roll back recent liquidity tightening measureswhen stability returns to the currency market, enabling it to resumesupporting growth.

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Global markets:

• 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.

BSE Indices 28-Jun-13 31-Jul-13 % chg Remarks Sensex 19395.8 19345.7 -0.26 Smallcap 5643.5 5311.1 -5.89 Midcap 5964.5 5543.1 -7.06 BSE 500 7164.1 6985.6 -2.49 BSE 200 2323.8 2270.9 -2.28 BSE 100 5802.3 5707.2 -1.64 Auto 10715.8 10568.8 -1.37

Bankex 13257.8 11441.0 -13.70

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

Indices Jun-13 Jul-13 % Change

US - Dow Jones 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

• 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.

Sectoral performance:

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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 9111.4 8227.0 -9.71 Consumer Durables 6134.7 6262.4 2.08

FMCG 6458.1 6791.8 5.17

• 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 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.

Healthcare 8845.3 9074.0 2.59

IT 6255.1 7458.2 19.23

• 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 seven quarters backed by growth in the US.

• Also, Mindtree Ltd’s 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 7753.8 6882.5 -11.24

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

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 8900.4 8578.6 -3.62 Power 1622.6 1495.6 -7.83

PSU 6163.0 5449.8 -11.57

• PSU OMCs tumbled as rupee once again fell below the psychological 60 mark against the dollar, raising concerns about increased costs of importing oil.

• 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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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 1511.0 1317.0 -12.84

• 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.

TECk 3679.1 4295.4 16.75

Fund Activity

Net Buy / Sell Net Buy / Sell Open Interest Open Interest Particulars June –13 July –13 June –13 July –13 Remarks

FII Activity (Rs. in Cr) FII Activity (Rs. in Cr) Equities (Cash) -10845 ** 1707.9 * • FIIs were reported as net buyer in July.

Index Futures -7172 1377 9233 11329 • FIIs were net buyers along with increase in open interest. This

indicates fresh long position taken by them in this segment.

Index Options 9063 8569 40790 45260

• FIIs were net buyers along with a significant increase in open interest.This indicates fresh long positions taken in option segment (put orcall).

Stock Futures 5361 -33 24491 25657 • FIIs were net sellers along with an increase in open interest. Stock Options 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) Equities (Cash) -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

• 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 two-year 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.

Bond Yields

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10 Year Government Bond Yield - Trend

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Period • 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

Gold 1312.4 1211.6 8.32%

• The US added 195,000 jobs in June, well above forecasts and a figure likely to encourage the US FederalReserve to think even harder over when to curb its monetary stimulus polices.

• Gold also rose on expectations for more demand from China. Gold prices finished higher gaining in partafter U.S. Federal Reserve Chairman Ben Bernanke said in congressional testimony that the central bankhad no set a timetable for slowing its monetary stimulus. The stimulus measures, known as quantitative

Commodities

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easing, have been considered supportive for gold prices.

Crude Oil WTI 105.03 96.56 8.77%

• Oil prices jumped boosted by concerns over rising tensions in Egypt and better-than-expected U.S.economic data. News of protests near the Suez Canal added to the alarm for oil traders. U.S. crude oilprices 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 drawingFederal Reserve closer to scaling back its massive monetary stimulus later this year, which would sapliquidity and drag on commodity prices. But for oil markets, the potential upside from increasedeconomic 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 thisyear, according to the IEA. OPEC, which pumps about 40 percent of the world’s crude, will boostexports 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 fourweeks ending July 27, up 630,000 barrels from 23.69 million in the period to June 29.

Aluminum 1777.5 1775 0.14%

• Alcoa Inc.’s June quarter earnings do reflect some of the troubles faced by the global aluminiumindustry but it’s not the picture of doom that some may have feared. The company has painted apositive outlook for the industry in 2013, despite the concerns one may have about China’s appetite formetals. Alcoa has maintained its earlier forecast of 7% growth for aluminium consumption in 2013,despite continuing worries about China’s economic slowdown and its impact on metals. The companysees demand continuing to come from end-user industries, especially aerospace.

Copper 6809 6775 0.50%

• Copper climbed to a three-week high in New York on speculation that central banks in China and theU.S., the world’s 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, thelowest 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 increasedChinese copper imports. But concerns over supply tightness have now eased a little and a slew of weakeconomic data from China, the world's top copper consumer, is also weighing on sentiment.

Zinc 1834.5 1854 -1.05%

Nickel 13645 13705 -0.44%

• Nickel slid to its lowest level in four years as a combination of weak demand from the stainless steelsector and oversupply weighed on the market. The ingredient for stainless steel has been the worstperformer 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 helpingto accentuate the already negative fundamentals depressing nickel prices.

Tin 19900 19850 0.25% • 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 forthe metal used in electronic goods.

Lead 2043.5 2065 -1.04% • Lead prices fell on global trend due to subdued demand.

• 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.

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• 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: 31-July-13 28-June-13 % Chg Reasons Pakistani rupee 102.77 99.82 3.0% Hong Kong dollar 7.76 7.76 0.0% Chinese yuan 6.18 6.19 -0.2%

Indian rupee 60.39 60.44 -0.1%

• The rupee fell from a two-week high driven by the RBI's liquidity-tightening measures. Earlier theIndian rupee gained modestly as the government eased rules for foreign investment, adding tomeasures 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 theydon’t have a price target and will not defend one. Behind the scenes however there have beenrumours about reducing speculative flows by talking to directly to dealers. Another soft tactic usedby the Central Bank is the fact that they have directed Oil refiners to centralize their USDtransactions with a single designated bank to avoid additional market speculation if they seekcompeting bids on their currency transactions.

Taiwan dollar 29.97 30.06 -0.3% Singapore dollar 1.27 1.27 0.1% Argentine peso 5.50 5.38 2.3%

Euro 0.75 0.77 -1.8%

• The U.S. unemployment rate remained unchanged at 7.6% June 2013, disappointing expectations fora decline to 7.5%.

• European Central Bank President Mario Draghi said the bank expects to maintain interest rates atcurrent or lower levels for an “extended” period of time. Draghi also said risks to growth in the eurozone remain “on the downside” and added that monetary policy will remain accommodative for aslong as is necessary.

• Concerns over a political crisis in Portugal eased amid hopes that the government wouldn't collapsefollowing talks between the coalition partners overnight. The future of the country's coalitiongovernment was thrown into doubt earlier, following the resignation of country's foreign ministerand finance minister in protest over government austerity policies.

• Eurozone financial ministers decided to release more bailout aid to Greece, but with a catch, asonly part of the scheduled tranche of 8.1 billion euros will be transferred to Athens. Under the newarrangement, 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 restructuringbefore the troika releases more bailout funds.

Currencies

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• Fed Chairman Ben Bernanke said the pace of the central bank's bond purchases are not a 'presetcourse'. Bernanke reiterated that the Fed will continue to maintain its accommodative monetarypolicy for the foreseeable future. The euro took advantage as the dollar took a hit following therelease of the minutes from the Fed’s last policy meeting, as well as dovish remarks from Fed chairBernard Bernanke.

• The ECB said it would maintain low rates and could even lower them if economic conditionswarranted such a move. The ECB said it remained flexible, and that inflation would be a key factorin future decisions. ECB policymaker Jens Weidmann echoed these sentiments, saying that the ECB’smonetary 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 holdoff from tapering QE in September.

Thai baht 31.30 31.17 0.4% Malaysian ringgit 3.24 3.19 1.5% Indonesian rupiah 10298.70 9950.25 3.5%

Japanese yen 98.10 98.07 0.0%

• Japanese Prime Minister Shinzo Abe gave a green light for prolonged monetary stimulus, whilefuelling hopes for reforms that could reflate the world's third-largest economy. Abe's LiberalDemocratic Party (LDP) and its partner, the New Komeito party, had won at least 4 seats, giving it astable majority in the upper house. That was partly because the win had been priced in and partlybecause the Japanese parliament would likely not start debating any new policies until some time inOctober.

• 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 woulduse quantitative and qualitative monetary easing to achieve an inflation level of 2%. TertiaryIndustry 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 index’s sharpest rise since January 2012, and points toinflation in the economy. Core Machinery Orders, an important manufacturing release, jumped10.5% in June, crushing the estimate of 1.9%.

Brazilian real 2.27 2.19 3.8%

Korean won 1115.70 1151.01 -3.1%

• The won advanced as an index of South Korean consumer confidence held at 105 in July, matchinglast’s month’s reading which was the most since May 2012.

• The economy expanded 1.1 percent in the second quarter from the previous three months, the mostin more than two years. The data signal the economy is overcoming the impact from a weak yen,with expansion still driven by exports.

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

MSCI Index LastMonthlyReturns

3 MonthReturns

YTDReturns

1 YearReturnsMSCI Index Last

MonthlyReturns

3 MonthReturns

YTDReturns

1 YearReturns

Emerging Markets Developed Markets BRIC 257.6 1.3% -11.4% -13.3% -3.2%EUROPE 1,551.5 7.3% 1.5% 7.3% 22.5%EM (EMERGING MARKETS) 947.6 0.8% -8.8% -10.2% -0.5%G7 INDEX 1,325.6 5.1% 3.3% 14.2% 21.2%EM ASIA 416.4 0.9% -6.7% -6.9% 4.5%WORLD 1,507.9 5.2% 2.2% 12.7% 20.6%EM EUROPE 418.6 2.2% -8.1% -11.6% 0.5% EM EUROPE & MIDDLE EAST 355.8 2.2% -8.1% -11.6% 0.5%SPAIN 416.9 12.2% 1.0% 3.4% 34.1%EM LATIN AMERICA 3,152.3 -1.1% -16.5% -17.0% -11.6%GREECE 89.8 11.6% -2.8% 10.9% 42.9% SWEDEN 7,480.8 11.0% 2.3% 11.3% 21.5%CHINA 56.7 4.0% -6.5% -9.8% 4.5% ITALY 249.9 10.3% -2.5% -1.9% 20.9%INDIA 380.3 -3.1% -12.7% -11.6% 2.6%NETHERLANDS 2,282.2 9.9% 8.4% 13.8% 30.6%INDONESIA 860.1 -6.8% -15.8% -3.0% -0.9%FRANCE 1,564.2 9.1% 4.1% 10.4% 30.4%KOREA 383.9 3.7% -4.4% -10.6% -0.6%DENMARK 6,328.6 8.3% 0.1% 6.9% 16.4%MALAYSIA 490.2 -2.8% -2.0% 0.7% 5.2%NORWAY 2,921.9 8.2% -4.0% -0.6% 9.1%PHILIPPINES 535.4 2.5% -9.2% 9.7% 24.5% BELGIUM 1,377.6 8.0% 1.5% 10.2% 27.4%TAIWAN 273.6 -0.7% -3.1% 0.6% 11.6% IRELAND 141.5 7.3% 4.8% 15.1% 23.5%THAILAND 404.0 -3.0% -14.2% -4.0% 8.9% ISRAEL 188.1 1.2% -2.5% 2.2% -1.2%BRAZIL 2,162.1 -1.6% -20.3% -20.7% -16.6%JAPAN 2,567.6 0.6% -3.6% 16.1% 23.4%CHILE 1,913.7 -9.2% -20.5% -20.1% -19.7% COLOMBIA 1,136.6 5.7% -5.1% -16.4% -6.0% Frontier Markets MEXICO 6,769.3 1.7% -8.1% -4.9% 4.5%FM (FRONTIER MARKETS) 554.4 5.1% 3.4% 13.2% 23.4%PERU 1,046.4 -6.0% -22.8% -34.5% -26.5% CZECH REPUBLIC 337.8 2.9% -8.0% -22.1% -16.4%UNITED ARAB EMIRATES 337.5 12.2% 13.9% 54.9% 66.6%HUNGARY 507.8 -3.1% -2.6% -1.1% 7.3%ARGENTINA 1,376.6 9.3% 1.9% 9.9% 29.1%POLAND 811.6 7.7% 0.9% -10.2% 13.0%PAKISTAN 125.6 9.1% 18.2% 25.3% 32.0%RUSSIA 718.3 3.4% -5.6% -11.0% -3.5%SLOVENIA 304.6 7.3% 7.7% 7.2% 34.9%TURKEY 541.6 -5.0% -21.8% -14.6% 5.2%BULGARIA 144.9 6.7% 18.2% 60.0% 49.2%EGYPT 563.4 12.1% 1.5% -11.5% -6.3%JORDAN 89.7 -3.2% -11.0% -14.2% -9.7%MOROCCO 277.1 -2.7% -12.2% -11.5% -12.8%UKRAINE 79.3 -4.0% -5.7% -12.0% -28.4%SOUTH AFRICA 493.9 2.4% -5.1% -14.9% -8.0%BANGLADESH 656.1 -6.4% 6.7% -3.4% 1.5%

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• 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 Spain’s 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 economy’s 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

Top performer – DevelopedMarkets; Emerging marketsgained the least

Spain, Greece and Swedenoutperform, Japan & Israelreported marginal gains.

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• 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, economy’s 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. That’s 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, Poland’s 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 country’s biggest lender, rose after the central bank eased borrowing costs.

UAE, Argentina outperformfrontier markets; Bangladesh,Ukraine restricted index gains.

Poland, Russia – top gainers inEM–Europe and Europe & MiddleEast

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• 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 year’s 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 & Poor’s 500. While bears say stocks are poised to drop further as elections loom, bulls point to economic growth that’s 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 China’s economic growth does not fall below 7%. China’s foreign-exchange regulator said separately during the month that the country wasn’t 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.

• 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 fund’s investment strategy division said that relaxing South Korean disclosure requirements will

Rise in EM-Asia index led byChina & Korea; Sharp fall inIndonesia restricts index gains

China & Russia pull the BRICindex higher.

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probably spur the nation’s 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.

• Chile’s 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 Mursi’s ouster could lead to a more technocratic government which addresses issues such as a sliding currency and ballooning state budget deficit.

Poor performance of LatinAmerican markets was led byChile & Peru

Egypt – top performer amongthe African markets

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• 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

Outlook going forward

Global Market Outlook

Chinese economy - facingchallenges

US economy still needs Stimulusand the Fed has hinted at ‘NOPULLBACK’

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society. The short term truth is that the consumers are saving, not spending and Europe — China’s biggest trading partners — isn’t shopping for Made in China either.

• As it is, China’s 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, China’s 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, China’s growth in 2012 fell to its slowest pace this century, and 2013 looks like it could be even slower.

• China’s 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

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with the scenario a few quarters back when there was tremendous pressure on China to revalue its currency.

• 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.

Emerging Markets are underperforming – Why?

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• 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 India’s elevated current account deficit and dependence on foreign capital flows for its financing. Taking cues from the Fed’s 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 RBI’s tone has hurt the INR, with USD-INR swiftly trading back above 60 after the monetary policy statement.

• Following the volatility in the rupee’s 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 they’re 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.

Is INR volatility controllable by theRBI’s monetary tighteningmeasures?

Threatening deficit concerns andcostly imports – Cause of concern

Indian Market Outlook

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• Crude oil and gold tops India’s 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

Interest rates unlikely to comedown over next few quarters

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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.

• It’s been early days so far in the current earnings season - defensives are growing well at 10% (albeit slowing), cyclical’s (-3%) are not recovering, and it’s mixed.

• Still early days…but 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.

• It’s 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.

Q1FY14 Results so far - Review

Political uncertainty ahead ofstate and general elections

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• 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:

Dim chance of earnings upgrade,fiscal deficit issues and weakrupee could lead to stock specificand range bound action

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• 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.

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

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• 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.

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• 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.

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The month gone by:

• 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.

Learning Technical Analysis • 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 X-points a day. That's just not a good way to structure a goal.

Trading Psychology - TheNumber One Goal-SettingMistake Traders Make inTrading

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• 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 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?

• 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.

A Better Trading Goal

Trading Goals Related toMoney

Example of a Better Trading

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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:

• 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.

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• 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.

• 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.

• 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

How to decide Price movementsin the futures & options market

Learning Derivatives Analysis

Daily Trading Volume

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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.

• 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 future’s 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

The Importance of Open Interest

Implied Volatility

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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 market’s 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 market’s opinion of the stock’s potential moves, but it

doesn’t 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 option’s 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 trade’s 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

Implied volatility as a trading tool

Basis

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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 Time Horizon Avg. Entry

Abs. Gain/Loss

1-Jul-13 S 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 B Bank Nifty Fut 11345-11415 11340 11530 11370.0 3-Jul-13 0.0 Premature Exit 2-3 days 11375 -5

8-Jul-13 B 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 B Bank Nifty Fut 11395 11330 11600 11600.0 11-Jul-13 1.8 Target Achieved 2-3 days 11395 205

15-Jul-13 B 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 B Bank Nifty Fut 11145 11085 11300 11116.0 17-Jul-13 -0.3 Premature Exit 2-3 days 11145 -29

24-Jul-13 S 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 B Bank Nifty Fut 10280 10210 10400 10210.0 31-Jul-13 -0.7 Stop Loss Triggered 2-3 days 10280 -70

Stock and Nifty Options Calls

Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry

Abs. Gain/Loss

1-Jul-13 B RCOM 130 Call Option 2-3.9 5.15 8 6.7 1-Jul-13 72.7 Premature Profit Booked 3-5 days 3.85 2.8

2-Jul-13 B RCOM 130 Put Option 9.2-7 5 17 5.0 8-Jul-13 -45.1 Stop Loss Triggered 2 days 9.1 -4.1

3-Jul-13 B JP Associates July 52.5 Put Option 2.65-1.9 1.6 5 3.6 3-Jul-13 35.8 Premature Profit Booked 3-5 days 2.65 0.95

10-Jul-13 B ICICI Bank 1060 Call Option 23.1 17 50 33.0 11-Jul-13 42.9 Premature Profit Booked 7 days 23.1 9.9

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17-Jul-13 B 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 B 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 B 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 1

23-Jul-13 B IB Real Estate 75 Call Option 1.25 0.7 3 1.9 23-Jul-13 52.0 Premature Profit Booked 2-3 days 1.25 0.65

25-Jul-13 B Bank of Baroda 600 Call Option 3.5 0.95 7 7.0 25-Jul-13 100.0 Target Achieved 1 day 3.5 3.5

26-Jul-13 B ICICI Bank 1000 Call Option 20.05 14 32.5 14.0 31-Jul-13 -30.2 Stop Loss Triggered 2-3 days 20.05 -6.05 BTST / STBT/ Calls

Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry

Abs.Gain/Loss

4-Jul-13 B TCS 1534 1505 1595 1558.0 5-Jul-13 1.6 Premature Profit Booked 1 day 1534 24

10-Jul-13 B Lupin 854 836 890 870.0 11-Jul-13 1.9 Premature Profit Booked 1 day 854 16

11-Jul-13 B BGR Energy 123.2 119.9 130 127.2 12-Jul-13 3.2 Premature Profit Booked 2-3 days 123.2 4

26-Jul-13 B Reliance Infra 374.65 367.5 387.5 367.5 29-Jul-13 -1.9 Stop Loss Triggered 1-2 days 374.65 -7.15 Trading/Futures Calls

Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry

Abs. Gain/Loss

1-Jul-13 B MCX 788-760 756 830 756.0 3-Jul-13 -4.1 Stop Loss Triggered 3 days 788 -32

1-Jul-13 B 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 B 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 B 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 B 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 B 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 B 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 S 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 B 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 S Reliance Infra Fut 358.4 370 334 352.2 30-Jul-13 1.8 Premature Profit Booked 1-5 days 358.4 6.2 Positional Calls

Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry

Abs. Gain/Loss

11-Jul-13 B 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 B 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 B 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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15-Jul-13 B 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 B 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 B Essar Oil 68.85 65.0 77.0 65.0 26-Jul-13 -5.6 Stop Loss Triggered 5-10 days 68.9 -3.8

26-Jul-13 B Jet Airways 356.6 335.0 380.0 380.0 26-Jul-13 6.6 Target Achieved 5-7 days 356.6 23.4

Gainers & Losers – July 2013

Price Price

28-Jun-13 31-Jul-13 % chg

HEXAWARE 86.75 116.35 34.12

WIPRO 349.00 438.00 25.50

HCLTECH 776.00 937.55 20.82

TCS 1518.15 1815.50 19.59

IDEA 141.50 168.95 19.40

APOLLOTYRE 56.50 67.30 19.12

INFY 2498.85 2969.65 18.84

TATAGLOBAL 134.40 159.70 18.82

OPTOCIRCUI 20.20 23.90 18.32

BHARTIARTL 291.75 344.50 18.08

Price Price

28-Jun-13 31-Jul-13 % chg

JPPOWER 19.00 10.05 -47.11

SINTEX 40.45 26.30 -34.98

LICHSGFIN 254.75 165.70 -34.96

ASHOKLEY 20.10 13.55 -32.59

JPASSOCIAT 53.60 36.15 -32.56

FINANTECH 779.30 539.85 -30.73

YESBANK 461.10 324.00 -29.73

UNIONBANK 186.35 133.10 -28.58

KTKBANK 112.05 81.00 -27.71

GMRINFRA 17.60 12.85 -26.99

Price Price

28-Jun-13 31-Jul-13 % chg

FKONCO 107.30 146.40 36.44

HEXAWARE 86.75 116.35 34.12

CLNINDIA 379.05 505.40 33.33

FSL 9.45 11.80 24.87

HCLTECH 776.00 937.55 20.82

TCS 1518.15 1815.50 19.59

IDEA 141.50 168.95 19.40

APOLLOTYRE 56.50 67.30 19.12

INFY 2498.85 2969.65 18.84

TATAGLOBAL 134.40 159.70 18.82

Price Price

28-Jun-13 31-Jul-13 % chg

GITANJALI 233.90 72.15 -69.15

WOCKPHARMA 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

VAKRANSOFT 79.55 47.80 -39.91

HINDCOPPER 74.35 46.90 -36.92

SINTEX 40.45 26.30 -34.98

LICHSGFIN 254.75 165.70 -34.96

BGRENERGY 129.40 84.45 -34.74

Top Gainers From F&O Top Losers From F&O Top Gainers From CNX 500 Top Losers From CNX 500

RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate OfficeHDFC 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: [email protected] 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 madeavailable 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 representthat 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 timesolicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional Clients only.