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Monthly Equity Commentary

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Month Gone By • The Benchmark indices ended negatively for the month of November 2013. BSE Sensex

fell by 1.8%. Nifty fell 2.0% for the month. Profit-taking in blue-chips such as ICICI Bank hit shares reversing some of the previous gains on doubts about how quickly the Iranian nuclear accord would translate into higher supplies that pressure oil prices.

Frontline Indices: % Chg Week

No Sensex Nifty Key Positives Key Negatives

1 -2.50 -2.64

• With 8% Y-o-Y increase in gross tax collections, India’s1HFY14 fiscal deficit touched 76% of FY14BE. Notably,fiscal deficit in month of Sep 2013 decelerated to Rs 74bnfrom Rs 640bn in Aug 2013.

• After hitting a 39-month low in early September, India’sforeign exchange reserves reversed their downward trend,amid a stabilizing currency to add $9 billion to the totalover the next seven weeks.

• RBI issued guidelines for entry and expansion of foreignbanks which will treat foreign banks operating in thecountry on nearly equal terms with local lenders if theymove to a wholly owned subsidiary structure.

• The manufacturing activity in India continued to decline for a thirdstraight month in October, according to the widely tracked HSBCPurchasing Managers' Index (PMI).

• India’s private sector contracted for the fourth successive month,with the HSBC India Composite Output Index staying below 50 inOctober.

• Global credit rating agency Standard and Poor's (S&P) affirmed its'BBB-/A-3' sovereign credit rating on India while retaining negativerating outlook on Asia's third-largest economy.

2 -1.29 -1.38

• Trade deficit jumped in October after having fallen to atwo-and-a-half-year low the previous month, as overseaspurchases of gold picked up ahead of the festival season

• India's wholesale price inflation accelerated to the highest level ineight months in October pressured by an unabated rise in foodprices, aggravating worries for authorities trying to boost growthwithout allowing price pressures to spin out of control.

• The Index of Industrial Production (IIP) for the month of September

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

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grew at below market expectation. • The IIP for the April-September period now stands at 0.4%. • India’s annual consumer price inflation quickened more than

expected to 10.09 percent in October from 9.84 percent inSeptember, driven by food and fuel prices

3 -0.89 -1.00

• The finance ministry has asserted that the Centre's fiscaldeficit will be contained at 4.8% of GDP in 2013-14 aspegged in the Budget Estimate.

• Foreign institutional investors (FIIs) sold shares worth of 598 millionrupees ($9.5 million) to snap a 32-day buying streak that hadtotalled 238.84 billion rupees.

• The economy continued its sluggish run in the 2nd quarter of 2013-14, according to ZyFin estimates, lead indicator to official set ofnumbers

4 +2.84 +3.01

• The domestic gems and jewellery industry is likely todouble in the next five years on growing demand ofbullion for investment and ornaments for householdconsumption and gifting purposes.

• Peak power deficit in the country shrunk to 3% in October,as against 9.4% in the same month last year, helped byhigher hydel generation due to heavy rains and lowerindustrial growth.

• After sluggish growth in the first quarter, Indian economygrew by 4.8 per cent in the second quarter this fiscal dueto improved performance of farm, manufacturing,construction and services sectors.

• The Ministry of Commerce and Industry has proposed tighteroverseas investment norms in existing drug companies by limiting allforms of foreign participation in them, including FII and FDI, at 49%

• Centre’s fiscal deficit stood at Rs 4.57 lakh crore for the April-October period, against the Budget Estimate of Rs 5.43 lakh crorefor the entire financial year (84%).

Global markets:

Indices Oct-13 Nov-13 % Change

US - Dow Jones 15454.8 16086.4 4.1

US - Nasdaq 3919.7 4059.9 3.6

UK - FTSE 6731.4 6650.6 -1.2

Japan - Nikkei 14327.9 15661.9 9.3

Germany - DAX 9033.9 9405.3 4.1

Brazil - Bovespa 54256.0 52482.0 -3.3

Singapore - Strait Times 3210.7 3176.4 -1.1

Hong Kong – Hang Seng 23206.4 23881.3 2.9

India - Sensex 21164.5 20791.9 -1.8

India - Nifty 6299.2 6176.1 -2.0

Indonesia - Jakarta Composite 4510.6 4256.4 -5.6

Chinese - Shanghai composite 2141.6 2220.5 3.7

• The world markets ended the month of November 2013 on a mixed note. Jakarta Composite, Bovespa, Nifty, Sensex, FTSE and Strait Times were the losers, falling 5.6%, 3.3%, 2.0%, 1.8%, 1.2 & 1.1% respectively while the gainers were Nikkei, DAX, Dow Jones, Shanghai composite, Nasdaq and Hang Seng each gaining 9.3%,4.1%,4.1%,3.7%,3.6% and 2.9% respectively.

• Average daily volumes on BSE during the month of November 2013 rose

4.52% M-o-M (NSE daily average volumes decreased by 3.88% M-o-M). The average daily derivatives volumes on NSE fell 6.26% to Rs. 150,271 cr in November.

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• Sectoral Indices for the month of November ended on a mixed note. The top four gainers for the month were Capital Goods, Metals, Auto and Power, which rose by 7.26%, 2.56%, 2.04% and 1.71% respectively while the losers were Consumer Durable, FMCG, Oil & Gas and Bankex which fell by 8.90%, 3.70%, 3.19% and 2.73% respectively.

BSE Indices 31-Oct-13 29-Nov-13 % chg Remarks Sensex 21164.5 20791.9 -1.76 Smallcap 5896.1 6099.5 3.45 Midcap 6107.4 6325.6 3.57 BSE 500 7656.6 7598.2 -0.76 BSE 200 2490.5 2463.9 -1.07 BSE 100 6270.7 6177.8 -1.48

Auto 12074.9 12321.8 2.04

• Index rose after the Reserve Bank of India (RBI) after a monetary policy review raised itsmain lending rate viz. the repo rate by 25 basis points as expected.

• Gains were triggered by PSU OMCs cutting petrol price by Rs 1.15 a litre. • MRF, Cummins India, M&M and Tata Motors were the top gainers, gaining 9.9%, 9.1%, 6.4%

and 4.8% respectively. • M&M group's consolidated gross revenues and other income rose 3.9% to Rs 18675.6 crore in

Q2 September 2013 over Q2 September 2012. • Maruti Suzuki India’s total sales rose 1.9% to 1.05 lakh vehicles in October 2013 over

October 2012. Exports jumped 27% to 9,025 units in October 2013 over October 2012.

Bankex 13086.9 12730.3 -2.73

• Index closed down on the back of profit-taking. • Axis Bank, Indusind Bank, ICICI Bank, and Federal Bank were the top losers, falling 5.5%,

5.3%, 4.7% and 4.1% respectively. • Reserve Bank of India (RBI) last week said it would focus on the monitoring of banks' asset

quality and help improve the poor debt recovery process in the country. • The RBI on Friday, 22 November 2013, conditionally extended the deadline for banks to

swap dollars raised through overseas borrowings at discounted rates, further bolstering thelocal currency.

• Axis Bank Ltd rose after exchange operator BSE Ltd said it will include the lender in itsbenchmark BSE Sensex starting on December 23.

Capital Goods 9152.0 9816.8 7.26

• Index rose on renewed buying. • Sadbhav Engineering, Carborundum Uni, Crompton Greaves, IL&FS Transport and Fag

Bearings were the top gainers, rising 35.2%, 24.4%, 18.2%, 17.6% and 12.2% respectively. • L&T gained after the company said it is evaluating alternatives for monetisation of certain

assets of its subsidiary L&T Infrastructure Development Projects (L&T IDPL), including apotential initial public offering and listing in Singapore of selected road assets of L&T IDPL,through a business trust in Singapore.

• Sadbhav Engineering rose after the company said it has been declared the successful bidderby Delhi Metro Rail Corporation for a contract aggregating Rs 50.96 crore.

Sectoral performance:

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Consumer Durables 6306.5 5745.2 -8.90

FMCG 6814.2 6562.0 -3.70

• Index fell on the back of concerns over slowdown in volume growth after the festive seasonand high valuations resulted in sector-wide profit booking.

• Sector heavyweight ITC fell for the first time in two months after the company's quarterlyearnings disappointed investors and forced brokerages to downgrade the stock.

• United Breweries, Tata Global, Nestle India, and Dabur India were the top losers, falling14.3%, 9.2%, 8.1% and 7.3% respectively.

• United Breweries fell after it reported net loss to Rs 185.7 million for the quarter endedSept. 30, 2013 as compared to net profit of Rs 342 million in the same period last year.

Healthcare 9609.1 9500.9 -1.13 IT 8477.7 8414.3 -0.75

Metal 9176.1 9410.9 2.56

• Metal stocks rose on positive economic data in China. • Chinese manufacturing gauge rose to an 18-month high in October. • Tata Steel, SAIL, Jindal Steel and JSW Steel were the top gainers, rising 19.9%, 10.2%, 7.4%

and 6.7% respectively. • Tata Steel rose as the company's long products business on Tuesday, 29 October 2013,

announced restructuring proposals to help strengthen its competitiveness Oil & Gas 8936.1 8650.7 -3.19 Power 1604.3 1631.7 1.71 PSU 5804.2 5809.3 0.09 Realty 1343.5 1355.9 0.93 TECk 4814.7 4738.5 -1.58

Fund Activity

Net Buy / Sell Net Buy / Sell Open Interest Open Interest Particulars Oct –13 Nov –13 Oct –13 Nov –13 Remarks

FII Activity (Rs. in Cr) FII Activity (Rs. in Cr) Equities (Cash) +18084 +7201 • FIIs were reported net buyers in November.

Index Futures 5921 -2421 15745 12754 • FIIs were net sellers along with decrease in open interest suggesting

squaring up of earlier long positions. Index Options -7728 10123 38667 42634 • FIIs were net buyers along with an increase in open interest.

Stock Futures -3909 -2851 26830 29107 • FIIs were net sellers along with increase in open interest suggesting

cash-futures arbitrage possibilities thrown up during the month.

Stock Options -453 -142 210 360 • FIIs were net sellers along with increase in open interest suggesting

creation of fresh shorts. MF Activity (Rs. In Cr) (*= data till 27th Nov 2013) MF Activity (Rs. In Cr)

Equities (Cash) -1159.7 -1293.8 • MFs were net sellers in the month of November.

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• Indian G-Sec bond yields ended higher by 47 bps at 9.09% at the end of November 2013 over October 2013. Bond yields rose, tracking a weak rupee after Standard & Poor’s (S&P) warned it could downgrade the country’s sovereign rating if the next government fails to provide a credible plan to revive growth.

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Period • In November 2013, the Reuters/Jefferies CRB Index of 19 raw materials ended lower by

1.05% to close at 274.97. The fall in the Reuters/Jeffries CRB Index was on account of a fall witnessed in commodities like lean Hogs (down by 10.54%), Silver (down by 9.35%), Nickel (down 7.52%), Sugar (down by 7.05%), Aluminum (down by 6.56%), Gold (down by 5.5%), Coffee (down by 4.47%), Crude Oil (down by 3.8%), Copper (down by 2.9%), Wheat (down by 2.43%) and Corn (down by 0.99%) offset partly by Orange Juice (up by 18.19%), Natural Gas (up by 6.06%), Soybeans (up by 4.17%), Heating Oil (up by 2.56%), Cocoa (up by 2.29%), Cotton (up by 0.34%) and Live Cattle (up by 0.17%). Gold and other precious metals fell on the back of positive economic data from the U.S. A gauge of consumer sentiment rose to a final reading of 75.1 in November. And applications for unemployment benefits also fell with claims falling by 10,000 to 316,000 in the week ended Nov. 23.

• Behaviour of commodity prices (including LME 3 month buyer prices for base metals)

during the month ended November 2013 is given below. November has been a bad month

Bond Yields

Commodities

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for base metals, but none has done worse than nickel. Aluminium was the big loser, both supply and demand have been problematic. The metals are in surplus, and slowing demand growth from China means the world’s largest consumer of industrial metals may not be mopping up excess supply as quickly as it used to. A stronger dollar is also hurting metals, including nickel, which are denominated in the U.S. currency, making them more expensive for buyers using other currencies.

• US manufacturing PMI and Q3 GDP came in positive, rekindling concerns that the US

Federal Reserve may scale back QE3 sooner than expected. This drove the US dollar index higher.

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

Commodity 29-Nov-13 31-Oct-13 % Chg Reasons

Gold 1251 1324 -5.51%

• Gold headed lower, as expectations the U.S. Federal Reserve will maintain its economic stimulusseemed to have been factored in.

• Gold weakened on the back of a surprisingly stronger-than-expected U.S. employment report that playsinto the hands of U.S. monetary policy hawks. U.S. employment report for October showed a surprisinglylarger-than-expected 204,000 rise in non-farm payroll employment.

Crude Oil WTI

93 96 -3.13%

• Crude oil fell as ongoing concerns over rising U.S. inventories and weaker demand in the world's largestoil consumer drove prices lower.

• Traders also waited to see whether Iran's talks with six major world powers could eventually lead to theeasing of sanctions, which have reduced its crude exports by 1 million barrels a day in recent years.

• Oil declined after the U.S. and other world powers announced over the weekend an agreement with oil-rich Iran on its nuclear program. While the agreement between Iran and the six world powers does notallow Iran to export more oil, it potentially could make it easier for Iran to sell the oil it is allowed tosell under the 2012 sanctions.

Aluminum 1753 1876 -6.56%

• Aluminum, the second most widely used metal after steel, continues to be priced softer as the marketstruggles with oversupply and soaring stocks.

• Based on data from the World Bureau of Metal Statistics, the global aluminum market was in oversupplyby some 1.23 million tonnes in the first nine months of the year, while it had 539,000 tonnes in excess in2012. China accounts for around half of global production, and while Rusal and American competitorAlcoa have both announced production cutbacks this year, the key to next year’s market will be whetheror not smelting companies in China choose to scale back capacity.

Copper 7029 7240 -2.91%

• Copper fell as investors bet that the economic policies laid out by China's leadership wouldn't do enoughto boost growth in the world's top metals consumer.

• Weakness persisted as ongoing uncertainty over when the Federal Reserve will scale back its stimulusmeasures weighed on sentiment.

• The decline in Copper prices was also on signs that the U.S. housing recovery may be slowing, fueling

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speculation that demand will ebb for the metal used in pipes and wiring. Zinc 1877 1955 -3.99% Nickel 13475 14570 -7.52% • Nickel prices are down 22% in the year to date and 1.1% away from a four-year low. Tin 22575 22995 -1.83%

Lead 2075 2189 -5.21% • The fall in lead prices was on concern that the US Federal Reserve may start tapering stimulus in comingmonths, reducing the demand prospect for the metals.

Source:www.lme.com and www.barcharts.com

• The Baltic Dry Index (BDI) rose 21.08% in the month to close at 1821. The Baltic Exchange’s main sea freight index, which gauges the cost of shipping commodities such as iron ore, cement, grain, coal and fertiliser. Additional bauxite shipping ahead of the introduction of Indonesia’s export tax on unprocessed minerals was one reason for the uppish BDI.

• The USD strengthened vs other currencies in November 2013 except Chinese yuan and

Korean won. Dollar rose after data showed the U.S. economy grew more than forecast in the third quarter and jobless claims fell. Employers added 204,000 new jobs last month, the Labour Department said, suggesting the government shutdown had a more limited impact on the economy than initially feared.

• The dollar rose against most major peers as Federal Reserve officials said they might reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves, minutes of their last meeting show.

Given below is a table that shows the depreciation (-)/appreciation (+) of the dollar against various currencies for the month of November 2013: USD to: 29-Nov-13 30-Oct-13 % Chg Reasons Pakistani rupee 108.45 107.6 0.8% Hong Kong dollar 7.75 7.8 0.0% Chinese yuan 6.09 6.1 -0.7%

Indian rupee 62.39 61.1 2.0% • Indian rupee was put under pressure by increased demand for the US dollar from importers including

oil companies (whose partial demand came into the market). Taiwan dollar 29.59 29.4 0.6% Singapore dollar 1.25 1.2 0.9% Argentine peso 6.14 5.9 4.1%

Euro 0.74

0.7

1.7%

• The U.S. dollar jumped against the euro as euro-zone inflation in October dropped below 1% to itslowest level in nearly four years.

• The euro fell against the dollar, on growing expectations the European Central Bank will ease

Currencies

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monetary policy further to protect growth. Thai baht 32.05 31.1 3.0%

Malaysian ringgit 3.22 3.2 2.1% • The ringgit weakened against the US dollar in line with regional markets, on growing concerns of US

scaling back its economic stimulus programme. Indonesian rupiah 11962.00 11198.2 6.8%

Japanese yen 102.40 98.3 4.2%

• The dollar rallied against the yen after the Federal Reserve said that it will keep its stimulus for theeconomy in place but dropped a reference to tightening financial conditions.

• The dollar soared against the yen after data showing U.S. job growth unexpectedly accelerated inOctober.

• The yen tumbled to a six-month low against the dollar as a deal on Iran's nuclear program easedpolitical anxieties and boosted optimism about economic growth, sending global stocks higher. TheJapanese currency typically falls when share prices rise, with some investors selling the low-yieldingyen in search of greater returns with riskier assets such as equities.

Brazilian real 2.34 2.2 6.9% • Brazil's real weakened after the country posted a weaker-than-expected primary budget surplus for

October, fueling concerns about a deterioration in economic fundamentals that could trigger asovereign credit rating downgrade next year.

Korean won 1058.21 1061.5 -0.3% • The South Korean won strengthened, reaching the highest level in more than two months after

the nation’s foreign-exchange reserves climbed to a record level. • The nation’s reserves jumped to $285.96 billion in July from $274.22 billion in the month earlier.

(Source:www.oanda.com)

Comparison of Equity Returns in various markets - MSCI Indices in US$ terms MSCI Index Last MTD 3MTD YTD 1 Yr MSCI Index Last MTD 3MTD YTD 1 Yr BRIC 284.6 -1.0% 11.9% -4.3% 0.4% EUROPE 1,722.0 1.0% 12.7% 19.1% 22.4%

EM (EMERGING MARKETS) 1,018.3 -1.6% 9.6% -3.5% 1.1% G7 INDEX 1,428.2 2.0% 10.5% 23.0% 25.0%

EM ASIA 452.3 0.1% 10.1% 1.1% 4.6% WORLD 1,628.4 1.6% 10.6% 21.7% 23.8%

EM EUROPE 449.5 -3.8% 10.3% -5.0% 1.0%

EM EUROPE & MIDDLE EAST 382.1 -3.8% 10.3% -5.0% 1.0% ISRAEL 199.6 5.8% 9.7% 8.4% 1.5%

EM LATIN AMERICA 3,291.7 -4.7% 8.0% -13.3% -8.1% DENMARK 7,061.8 4.7% 11.2% 19.3% 22.1%

IRELAND 172.0 4.6% 17.1% 40.0% 48.1%

CHINA 65.3 4.9% 12.5% 4.0% 9.0% GERMANY 2,169.8 4.3% 19.8% 24.7% 29.8%

INDIA 394.4 -3.4% 16.3% -8.3% -8.3% FINLAND 498.7 3.6% 29.1% 39.9% 46.1%

INDONESIA 671.4 -12.2% -7.8% -24.3% -23.1% PORTUGAL 102.0 3.3% 8.7% 10.3% 20.5%

KOREA 449.9 1.3% 12.9% 4.8% 10.2% USA 1,725.2 2.6% 10.4% 26.7% 27.6%

MALAYSIA 501.7 -2.1% 6.9% 3.0% 7.0% AUSTRIA 1,314.0 2.5% 12.4% 14.2% 20.7%

PHILIPPINES 500.3 -5.9% 6.1% 2.5% 5.3% SINGAPORE 4,200.1 -1.6% 8.7% -0.2% 2.5%

TAIWAN 285.8 -1.5% 5.6% 5.1% 6.0% ITALY 295.8 -1.9% 17.3% 16.1% 20.3%

THAILAND 379.1 -8.9% 6.3% -9.9% -4.4% NORWAY 3,057.6 -2.6% 6.5% 4.0% 5.1%

BRAZIL 2,330.9 -6.8% 10.5% -14.6% -8.5% NEW ZEALAND 132.0 -5.4% 9.0% 6.7% 8.8%

CHILE 1,876.6 -6.4% -0.1% -21.6% -18.4%

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COLOMBIA 1,064.1 -9.3% -6.5% -21.8% -15.8% Frontier Markets

MEXICO 6,931.5 2.2% 9.7% -2.6% 1.4% FM (FRONTIER MARKETS) 582.3 1.7% 7.5% 18.9% 21.3%

PERU 1,047.6 -9.2% -0.5% -34.4% -30.5%

CZECH REPUBLIC 384.3 -6.2% 11.3% -11.4% -7.2% ARGENTINA 2,253.2 20.2% 46.1% 79.8% 112.8%

GREECE 121.3 -3.1% 28.8% 49.7% 53.4% KAZAKHSTAN 552.5 9.2% 14.0% -0.1% -2.8%

HUNGARY 471.6 -6.1% -1.1% -8.2% -11.0% ZIMBABWE 1,955.7 8.9% 33.8% 46.1% 50.9%

POLAND 931.2 1.0% 13.0% 3.0% 11.7% BULGARIA 159.0 8.4% 12.5% 75.6% 75.2%

RUSSIA 774.6 -5.3% 8.6% -4.1% 1.8% SERBIA 270.1 6.0% 7.6% 15.7% 22.5%

TURKEY 537.4 -4.1% 14.0% -15.3% -9.4% SRI LANKA 212.7 -5.0% 1.3% 0.7% 8.1%

EGYPT 620.0 -0.2% 17.3% -2.6% 5.4% BAHRAIN 155.5 -6.5% -8.2% -8.7% -11.2%

SOUTH AFRICA 523.6 -4.0% 7.5% -9.8% -0.9% MOROCCO 293.1 -7.0% 11.5% -6.4% -9.7%

• Equity markets across the globe ended the month of November 2013 on a mixed note. G7 was the best performer (up 2.0%) amongst the global equity markets and developed markets with Israel and Denmark being the best performers (up 5.8% and 4.7% respectively) during the month. New Zealand was the least performer with a fall of 5.4%. Among the Emerging Markets, all markets with the exception of Asia were in the red. Asia rose by 0.1%. Latin America fell the most (4.7%).The Frontier markets rose 1.7% in November 2013.

• Amongst the Developed markets, Israel was the biggest gainer (5.8%) followed by

Denmark (4.7%) and Ireland (4.6%). Other markets like Germany also did well at 4.3%. On the other hand, New Zealand fell 5.4% in November.

• Israel led the performance in the developed markets as Fitch Ratings raised the country’s credit outlook and after shares in the U.S. and Europe advanced. Fitch, which affirmed Israel’s A rating, raised the country’s outlook to positive from stable, citing the shrinking deficit as the country cuts debt and boosts tax income.

• Denmark rose 4.7% as Danish GDP rose to a seasonally adjusted 0.4% (over an expectation of 0.3% rise) from 0.6% in the preceding month.

• Upbeat German consumer-confidence data and better-than-expected economic reports from the U.S led to a 4.3% increase in Germany. Data from Germany showed consumer confidence rose to the highest level in more than six years, buoyed by a robust jobs market and solid income expectations. The forward-looking GfK consumer-confidence indicator for December came in at 7.4, up from 7.1 in November with most analysts

Developed markets end positivewith G7 as Top Gainer; MostEmerging Markets fell

Israel, Denmark, Ireland - topgainers in developed markets;New Zealand fell 5.4%

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having forecast a period of stagnation or a slight improvement at best. Also in Germany, the biggest political parties agreed to forge a coalition government led by Angela Merkel.

• New Zealand fell 5.4% as a kiwi dollar near five-year highs against the Australian dollar hurt companies such as Fletcher Building (the biggest company on the NZX 50) with Australian sales. New Zealand’s trade balance rose unexpectedly last month. The trade balance rose to a seasonally adjusted -168M, from -199M in the preceding month.

• All Emerging Markets with the exception of EM-Asia fell in November. BRIC fell 1%,

Emerging markets fell 1.6%, Europe 3.8% and Latin America 4.7%. Asia was up 0.1%. • Among EM-Asia, China and Korea ended on a positive note up 4.9% and 1.3%. Indonesia,

Thailand and Philippines fell the most at 12.2%, 8.9% and 5.9% respectively. • China’s economy entered the final quarter of 2013 with acceleration in manufacturing

and exports, momentum that offered confidence to Communist leaders gathering to determine policy shifts for the coming decade. Industrial output rose a more-than-estimated 10.3 percent from a year earlier in October and manufacturing investment strengthened. China’s stocks capped monthly gains after the government announced the biggest package of policy changes since the 1990s.

• November was not a good month for the Indonesian stock exchange. Negative market sentiments were caused by the looming end - or at least winding down - of the Federal Reserve's quantitative easing program in combination with Indonesia's prolonged current account deficit. This combination makes investors hesitant to invest in Indonesia's capital markets because an outflow is expected as soon as the Federal Reserve decides to alter its monthly USD $85 billion bond-buying program

• Thailand’s SET benchmark index was down as antigovernment protests in Bangkok turned violent and calls for the removal of Prime Minister Yingluck Shinawatra prompted investors to sell. The antigovernment protests, which have escalated over the past few weeks, pushed the market from a gain so far this year to a loss.

• Shares in the Philippines slid as investors sold on worries that the country's economy would slow as a result of the devastation left by Typhoon Haiyan, which hit the country earlier this month.

• Among the BRIC countries, China was the only gainer (4.9%) while the rest Brazil, Russia

and India fell 6.8%, 5.3% and 3.4% respectively.

All EMs fell except Asia;Indonesia, Thailand fell 12.2% &8.9% while China up 4.9%

China only gainer (4.9%) amongBRIC markets; Brazil, Russia andIndia fell

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• Brazilian stocks dropped on with investors eyeing the potential reduction of U.S. monetary stimulus and weaker economic data from top trade partner China. A business survey in China, a major buyer of Latin American commodities exports, suggested economic growth may have peaked in the third quarter. The outlook for Chinese growth often drives prices for widely-traded Brazilian stocks such as iron ore miner Vale SA.

• The Russian stock market edged down on the U.S. Federal Reserve’s hints of a sooner-than-expected tapering of its quantitative easing (QE) program and poor statistics from the E.U. and China

• Fall in Latin American markets was led by Colombia and Peru which fell by 9.3% and 9.2%

followed by Brazil and Chile, which ended down by 6.8% and 6.4% respectively. Mexico ended higher by 2.2%.

• Stocks in Peru had a negative performance during the last month. Gross domestic product grew at a slower annual rate of 4.4 percent in the third quarter than 5.6 percent in the second quarter. The growth rate, which was the weakest since 2009, matched economists' expectations. The slowdown reflected weaker performances by all the major sectors of the economy. Peru recorded a Current Account deficit of 2819.36 USD Million in the third quarter of 2013. According to the economists, growth will be dragged down by a further possible weakening of commodity prices and an extended downturn in capital inflows.

• Industrial production in Chile fell more-than-expected last month. Chilean Industrial Production fell to -3.2%, from -1.0% in the preceding month. Analysts had expected Chilean Industrial Production to fall to -3.0% last month.

• The only Latin American market to close on a positive note Mexico on better than expected trade balance figures. Mexico’s trade balance fell less-than-expected last month. Mexican Trade Balance fell to a seasonally adjusted USD -0.129B, from USD -0.659B in the preceding month and USD -1.625B a year ago.

• Among the Frontier markets, Argentina rose 20.2% followed by Kazakhstan and Zimbabwe

up 9.2% and 8.9% respectively. Morocco, Bahrain and Sri Lanka witnessed falls of 7%, 6.5% and 5% respectively.

• Argentina’s benchmark stock index rose the most in more than five months on speculation that the central bank will announce a measure that will help boost foreign reserves, shoring up the country’s finances and supporting economic expansion.

Mexico sole gainer in LatinAmerican markets at 2.2%

Frontier Markets rise 1.7% ledby Argentina (20.2%); Morocco,Bahrain fall 7% & 6.5% resp.

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• Industrial index on the Zimbabwe Stock Exchange continued with its marginal recovery with Hippo Valley and Delta Corporation driving recovery by the industrials. Also good news in the financial sector with the takeover of the US$1,35 billion Reserve Bank of Zimbabwe debt by Government in what should pave the way for the smooth re-capitalisation of the central bank and delisting of Trust holdings proved positive for Zimbabwe markets.

• Moroccon stock index was affected negatively with Morocco which has avoided the worst of its neighbours' turmoil (Egypt and Tunisia) becoming the latest casualty when it was relegated in the leading MSCI indices from the league of established emerging markets to the "frontier" division of economies with less developed capital markets. Morocco suffers from a gaping trade deficit and relies largely on outside aid from international financial institutions or richer Gulf states, while domestic politics remain unstable.

• Majority of investors expect the Fed to begin tapering QE in March next year, according to research from Bank of America Merrill Lynch. The Fed previously stressed that “there is no fixed calendar” for when it will begin pulling back on QE as part of an announcement in September, contrary to widespread expectations that tapering would begin that month. Since then fresh speculation has emerged as to whether the Fed may instead look to start tapering at its December meeting or possibly in March 2014, when current Fed vice chair Janet Yellen will take the helm as Fed chairman.

• As per the BofA ML fund manager survey for November asked global fund managers 48% of managers believe tapering is most likely to start in March 2014 in line with Yellen’s appointment as Fed chairman, while only 21% of managers overall expect the Fed to introduce QE tapering before this date. However 18% of investors also expect it will take place later in the second quarter of 2014.

• Despite the ongoing fears of QE tapering, we feel the Santa Claus rally is possible in the US markets in the month of December. The Dow Jones Industrial Average and S&P 500 typically see their largest gains of the year in December. Since 1929, the S&P 500 has averaged a 1.5% return in December, with markets posting positive returns more than 70% of the time. December is also tied for the highest average monthly gains for the Dow Jones Industrial Average. From 1910-2010, December has averaged a 1.32% gain. The biggest market jump is normally seen on the last five trading days of the year and the

Outlook going forward

Global Market Outlook

Majority of fund managers expectUS QE tapering to begin in March2014; Is Santa Claus rally possiblein December?

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first two of the New Year - which is how the rally became associated with Santa. The December bump can be attributed to many factors. Some people invest their Christmas bonuses. Others invest with end-of-the-year tax considerations in mind. Maybe it's just holiday cheer hitting Wall Street. Hence this year also, we expect the US markets to rally in December. Money flow into global stock markets remains strong, fuelling major averages higher into the holiday season. This along with strong gross domestic product (GDP) growth, recent unemployment figures would play large roles in this December's rally. The Santa Claus rally in the US markets could drive the markets higher across the globe. The only hitch this time around is that the markets have continued to rise in traditionally weak months like October.

• The Japanese economy has been recovering moderately as domestic demand has been firm and overseas economies have gradually been picking up. Since the turn of the year, real GDP has registered high growth of about 4% on an annualized basis for two consecutive quarters. Comparing external demand with domestic demand, while exports have generally been picking up at a somewhat slower pace, domestic demand, notably private consumption and public investment, has been firm.

• Going forward, while domestic demand is likely to maintain firmness as external demand is expected to increase, albeit moderately, the virtuous cycle among production, income, and spending is likely to be maintained. The real GDP projections that for fiscal 2013 is somewhat high, at 2.7%, partly reflecting a front-loaded increase in demand prior to the consumption tax hike. Thereafter, real GDP is expected to decline in fiscal 2014 to 1.5%, partly reflecting a drop following the tax hike. Therefore, while the economy will be affected by a swing of the front-loaded increase and subsequent decline in demand prior to and after the two scheduled consumption tax hikes, it is likely to continue growing at a pace above its potential, which is estimated to be around 0.5%, as a trend. Two points to be noted in looking to the future of Japan’s economy are the sustainability of firm domestic demand and the outlook for overseas economies.

• China has recently made major decisions about its economic future. On November 15, 2013, China announced dramatic new social and economic policies contemplating much greater reliance on market forces than it has in the past and inviting private-sector participation and foreign competition in industries long previously controlled by the central government. It also relaxed its one-child policy, opening the country and its people to vast new opportunities and inspiring new hopes and dreams.

Japanese economy couldcontinue to show moderateimprovement

Reform revolution accelerating inChina

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• Xi Jinping and other leaders have made it clear that China is willing to accept a slower growth pace if this will allow for a more sustainable, consumer-driven expansion of its economy. Some prognosticators are quick to conclude that China’s economy will soon significantly slow down, especially because China’s economy has sputtered following prior instances when the nation’s leaders have effected such fundamental economic reforms (such as in 1978 and 1993).

• But some sources believe that the current slowdown in China’s growth will not go on for long and that, under Xi’s leadership, the economy would continue growing at a rapid clip. The acceleration in the reform revolution in China would contribute immensely to China’s growth over the next 5-6 years. There are expectations that China’s leadership could ignite the capital economy, funding an aggressive growth program with major infrastructure investments to support urban development, including huge allotments for housing, schools, roads, and more. The new one child plus policy would substantially raise the birth rate, contributing up to 2 million new children to the 2014 economy, a 15% one-year lift that will only further boost consumer morale and spirit. The government both local and national would invest in more technology-driven sectors, including advanced agriculture, transportation, medicine and other sectors. This initiative will be aimed squarely at improving China’s productivity and manufacturing competitiveness.

• The results of the state elections in the four large states, namely, Madhya Pradesh (MP),

Rajasthan, Chhattisgarh and Delhi are due to be announced on Dec 08, 2013. These states account for around 13% of India’s 543 Lok Sabha seats and hence their outcome holds a lot of significance. The election results in these four states are is likely to act as a leading indicator of the extent of the pro-BJP sentiment in the nation as these states are a part of the Hindi-speaking belt of India.

• The October 2013 survey suggests that the BJP is set to win in 3 of the 4 election-bound states, garnering 67% of the seats in Madhya Pradesh, 60% seats in Rajasthan, 73% of the seats in Chhattisgarh and 36% of the seats in Delhi. Hence, the probability of the BJP forming a majority Government has increased.

• At present, the market seems to be pricing in a favourable outcome for the BJP. This is evident from the fact that most brokerages expect Narendra Modi-led BJP to come to power after the Lok Sabha elections. Corporate India expects investment-driven growth to government's prioritizing various forms of rural benefit schemes. The opinion poll

State election results on Dec 08;could set the direction for themarkets in the near term

Indian Market Outlook

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suggests that 90% of Indian corporates prefer the Opposition party. What's impressive about Gujarat is its investment-driven growth, and it's not based on one sector. People believe if Modi wins the Central elections in 2014, it would be positive for the Indian economy in the form of improved investment cycle and better growth.

• However, if the outcome is not as per the consensus expectations, then the market sentiments could change quickly in near term. Even though the opinion polls don’t happen to be 100% correct, the market has gone up on anticipation that BJP would win. Hence any unfavourable outcome could upset the market. In the event of Congress winning in majority of the states, we don’t see any significant impact on the markets. However, if the outcome is equally distributed, then the probability of a hung parliament in 2014 elections would increase and that could be taken negatively by the markets.

• On 24 Nov 2013, Iran, the US and five other world powers struck a deal aimed at curbing

Iran’s nuclear programme in exchange for an easing of the sanctions against the Islamic Republic. This is likely to have significant implications for India which, until recently, was Iran’s second-largest importer of oil. On the plus side, the easing of sanctions against Iran should pave the way for reduced overall oil prices, which will benefit India. On the other hand, as international demand for Iranian oil increases, it is likely to become less reliant on India. Accordingly, Iran may stop accepting Indian rupees as part payment for oil and instead favour trade with countries willing to pay wholly in US dollars.

• US-led sanctions against Iran have caused a significant decline in India’s crude oil imports from the Islamic Republic. In 2012-13, India’s crude oil imports from Iran declined by around 27%, from 18.1 mn tonnes in the previous fiscal year to 13.3 mn tonnes. The nuclear agreement struck on 24 November maintains the limit on Iranian oil sales of around one million barrels per day and, therefore, is unlikely to result in substantial increases in Iran’s exports to India. The deal does, however, allow for slight increases in Indian imports by removing the European Union’s restrictions on insurance for Iranian shipments. These restrictions had left refineries that processed Iranian oil without insurance cover and resulted in India’s imports falling below the level permitted by sanctions. The deal also marks return of political stability in the Middle –East. For India, there is considerable benefit to be gained by increasing oil imports from Iran. Since February 2012, Iran has accepted 45% of India’s payments for oil in Indian rupees, with the remainder in hard currency. Given the high rate of inflation in India and the low value of the Indian rupee, this is significant. Thus, the deal could benefit India by allowing it to import more oil at possibly reduced rates.

Iran Nuclear deal with India hasmixed implications

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• On the other hand, the easing of sanctions against Iran could cause Tehran to favour trade with countries willing to pay wholly in US dollars. As international demand for Iranian oil rises, there will be less incentive for Iran to continue the oil-for-rupee agreement with India.

• The Indian economy grew a higher-than-expected 4.8% in the three months through

September, helped by an uptick in agriculture and construction. Analysts polled by Reuters had forecast a 4.6% growth during the period. Though this was the fourth successive quarter with a sub-5% GDP growth, it was better than 4.4% reported in Q1FY14, which is encouraging, as it points towards some stability. Also, it is first sequential improvement in GDP growth in five quarters. Further, after contracting for three consecutive months, manufacturing activity saw an uptick in November, according to the widely tracked HSBC Purchasing Managers’ Index (PMI). The PMI for manufacturing stood at 51.3 points in November up from 49.6 points in October this year. This gives further evidence of economic recovery.

• While the above lead indicators do point towards stability going forward, it is too early to conclude that the economy has bottomed out. Sustainability in revival is a key. Further, we feel better than expected GDP numbers cannot be interpreted as a recovery yet, as services and industry are still struggling. The quarter's growth has been driven largely by a pick-up in agriculture (4.6%), financial services (10%) and industry (2.4%). Government spending has declined by 1% during the quarter and going forward, this will continue to decline as fiscal prudence will drive spending cuts. Though a good monsoon and favourable current account deficit would boost the numbers in the second half of the fiscal year, a higher inflation coupled with political uncertainty is perceived to be mid-term bottlenecks in improving the fundamental growth drivers and investment scenarios in the economy.

• While many question whether the recent rally in equity markets is out-running

fundamentals, the second quarter earnings from corporate India so far have suggested that earnings may be stabilizing with no significant negative surprises being reported. After many quarters, India Inc didn't disappoint materially, given the already low expectations and remarkable earnings performance by a few sectors like IT and automobiles.

• Indian companies reported encouraging earnings and sales in the fiscal second quarter as the weakening of the local currency against the dollar boosted exports. The rupee had

Better than expected Q2FY14GDP numbers, expansion in Novmanufacturing PMI isencouraging, pointing towardsstability; however sustainabilityin revival is a key

Q2FY14 results of India Inc werebetter than expected on anoverall basis

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depreciated about 11% within the quarter with the domestic currency reaching a lifetime low of 68.85 a dollar in August but on a close to close basis the Rupee had depreciated by 5.1%. The fall in the value of the rupee translated into higher realizations for export-driven sectors such as information technology and pharmaceutical companies.

• September quarter earnings have proven to be a mixed bag for companies. Companies at the aggregate level posted steady operating profit from the year earlier and a sales increase of 11.6%, the highest in four quarters but net profit fell 2.3%, the third drop in a row, reflecting rising pressure of non-operating costs on the bottom line. This was largely because the bulk of the revenue growth was on account of a robust performance by select sectors, including IT and pharmaceuticals, which benefited from the favourable impact of a weak rupee on export revenue. Operating margin before depreciation and other income marginally improved by 20 basis points y-o-y to 15.8%. Companies have been able to keep the margin in the range of 14-16% over the past nine quarters, reflecting tight cost control amid slower top line growth and an inability to pass on higher raw material costs.

• Sensex companies recorded a good set of Q2FY14 numbers with topline and PAT growing ~14% and ~11% Y-o-Y, respectively. Sales growth was largely driven by heavyweight sectors like auto, IT and pharma largely on account of seasonality and a positive currency impact. The EBITDA margin increased 50 bps Y-o-Y to 17.1% supported by 50 bps Y-o-Y drop in total cost. The decline in operating cost can mainly be attributed to a 120 bps Y-o-Y drop in raw material cost. The increase in EBITDA margin was partially offset by higher interest outgo (up ~33% Y-o-Y). Thus, PAT growth came in at ~11% Y-o-Y.

• If earnings and sales continue to show improvement into the March quarter, then we might have some evidence to believe a turnaround is round the corner, There has been consumption slowdown in tier-I cities, but it remains to be seen whether that gets compensated by election expenditure and good crop in tier-II or tier-III cities in the next quarter. While it's difficult to say precisely if this quarter marked the bottom of this downtrend or not, it looks incrementally likely a bottom may not be too far off.

• India's fiscal deficit touched Rs 4.57 lakh crore or 84.4% of budget estimates in the first

seven months of the current fiscal, reflecting signs of stress in government finances. The revenue deficit during seven months period went up to Rs 3.5 lakh crore, or 92.9% of the budget estimate, compared with 81.4% last year. The deficit is without accounting for subsidies that the government will have to pay for selling diesel and cooking fuels at prices below cost. As much as Rs 45,000 crore of fuel subsidy to be paid this fiscal will be

April-Oct 2013 fiscal deficit at84% of FY14 Budget Estimates;requires severe contraction inGovernment expenditure in thecoming months to meet the targetof 4.8%

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carried to the next year as all of the budgetary provisions have already been exhausted in the first six months. With nearly eight months of the fiscal getting over, the government has been able to raise a little over Rs 1,300 crore from disinvestment, against the budgeted target of Rs 40,000 crore.

• The fiscal deficit during 2012-13 came down to 4.9% of the GDP from 5.8% a year earlier. In the current financial year, the government plans to lower the deficit to 4.8% of the GDP. Finance Minister P Chidambaram at many occasions has reiterated that red line has been drawn for the fiscal deficit and it would not be breached. With aim to stick to fiscal deficit target, the government had last month announced slew of austerity measures, including reduction in non-plan expenditure, ban on holding seminars in five-star hotels and creation of new jobs. While announcing the steps, the government did not quantify the savings it would make by the expenditure rationalisation that was announced on September 18.

• We feel in order to manage its fiscal deficit and meet FY14 target, government would resort to substantial cut back in FY14 plan expenditure (in the range of 15-16%). The tax collections are clearly lagging the estimates, as evident from subdued growth of 9% in gross tax collections over April-Oct 2013. On the expenditure front, both plan (19% Y-o-Y) and non-plan expenditure (18% Y-o-Y) segments have seen substantial Y-o-Y growth. Risk to fiscal slippage in a pre-election year is high. However, there is a sense of confidence that the Government would stick to its promise and be able to manage its fiscal deficit through substantial cut back in expenditure.

• India’s wholesale price inflation (WPI) accelerated to an eight-month high in October, increasing pressure on the central bank to raise policy rates as it was followed by a double-digit rise in retail prices. The WPI rose to 7% in October from 6.46% in the previous month, mainly on high prices of manufactured items and food, especially vegetables. Further, the retail inflation based on the Consumer Price Index (CPI) quickened to 10.09% in October from 9.84% the previous month, mainly on account of higher food prices.

• The above data indicates that the inflation continues to remain at elevated levels and way above the comfort zone of RBI. The depreciation of the rupee and high vegetable prices have impacted inflation. This has increased the probability of further rate hikes in the upcoming monetary policy on Dec 18. The new RBI governor Mr. Raghuram Rajan is more focused on inflation and unless the inflation starts cooling off, some more rate hikes is possible.

Inflation continues to remain atelevated levels (Oct WPI at 7% -at a 8 month high; CPI at 10.09%)– Will RBI hike the interest ratesin its Dec monetary policy

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• While the consensus expectations are that the RBI would hike the interest rates in its upcoming monetary policy review, we cannot ignore the statement passed by Mr. Rajan on Nov 15 that “no single data point will determine the central bank's next move on curtailing high inflation amidst a weak economy”. Rajan had admitted that food inflation was “worryingly high”, but said he was “somewhat more heartened” by the decline in core consumer price inflation in October, to 8.1% from 8.5% in September. RBI said that it would watch the incoming data carefully, especially looking for the effects of the harvest on food prices as well as the second-round effects of fuel price increases and exchange rate depreciation, before it makes further decisions on interest rates. This gives a slight indication that RBI might keep the interest rates unchanged in the upcoming policy. Also, there are expectations that food inflation should come down as a good monsoon may help in correcting prices of vegetables substantially. But even if there is no rate hike, we feel the RBI governor would bring in measures to transmit the rate hikes on to the final borrower, which has not happened to the extent of the recent rate hikes by the RBI.

• Indian markets have been the best performing markets among emerging markets in the last few months, after witnessing a sharp decline in Aug-13. Though the market rally was largely restricted to IT, pharmaceuticals, and a few select stocks in the early part of the year, the past few months have seen performance in a few beaten down sectors like industrials and PSUs. Despite the Indian economy not showing any signs of material improvement, with falling Index of Industrial Production, and stunted capex cycle, the optimism for recovery has been building up in recent months. This is led by the change of guard at the Reserve Bank of India, possible stability at the Centre post the general elections, and the government's concerted effort to bring about certain substantial reforms such as increasing diesel prices and raising FDI limits in several key sectors. The upmove over the last one month has been mainly due to optimism that BJP would come back to power in 2014.

• While the stressed fiscal situation remains the big concern the government seems to have arrested the widening current account deficit. India's current account gap narrowed sharply to USD 5.2 billion, or 1.2% of GDP, in the July-September quarter of 2013-14 on the back of turnaround in exports and decline in gold imports. Further, though oil prices remain high and INR is under pressure, they seem to have found levels which are likely to hold in the near future, a key positive for Indian markets. On the negative side, interest rates have started showing signs of rising yet again.

Markets could move up in Dec inthe event of supportive globalcues, favourable outcome fromstate election and no rate hike byRBI

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• At the current levels, the BSE Sensex trades closer to 15x one-year forward earnings, which is not cheap, considering the current earnings growth. However, we believe that elections and rate cycle rather than earnings growth will drive markets in the near to medium term. Supportive global cues, favourable outcome from state election and positive surprise from RBI in the upcoming policy (due on Dec 18) could drive the markets higher in the month of December. However, the upside is likely to be limited due to fears of possibility of US QE tapering early next year. According to data compiled by the Business Standard Research Bureau, December month has historically been favourable to stock markets. In past one decade, in nine out of 10 years, the benchmark indices had given positive returns, except in calendar year 2012.

• The BSE Sensex is likely to trade in the range of 20200-21700 in the month of December. Technical Commentary:

• For the last 65 trading sessions, we are assuming that the common ‘x’ is unfolding and its

construction is an ‘Extracting Triangle’ • This type of triangle comes in the picture when ‘C’ is smaller in price than wave ‘A’ and

consumes more time. In the present case wave ‘A’ took 15 trading sessions and the wave

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‘C’ took 22 trading sessions. So in spite taking more time wave ‘C’ was of lesser magnitude. So the extraction is taking place on the upward movement.

• The wave ‘C’ took 22 trading sessions which is +1 Fibonacci number and at the same time wave ‘B’ took 8 trading sessions, which is also a Fibonacci number.

• The current wave ‘E’ so far had taken 6 trading sessions and experienced strong resistance at 20,941 level. This level is almost exactly 61.8% of its previous entire downfall from 20,322 to 20,162. 61.8% is a golden ratio and considered as very important ratio in technical analysis.

• We feel that unless the Sensex breaches this level violently and closes above 21,000/21,100 we will take the ‘Extracting Triangle’ as a proffered Neo Wave count and the moment this level is breached violently the alternate Neo wave count will come in the picture which is given in this report below

• In the chart above we have given downward projection once the ‘Extracting Triangle’ is

over. These are calculated by taking the length of the largest leg of the triangle, in the present case it is wave ‘A’ and then 61.8% and 75% of it are projected from the end of wave ‘E’. 61.8% comes to 18,904 and 75% is at 18,470 and these will be the downward targets for the Sensex in days to come.

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• As we had mentioned in the chart above if the Sensex closes above 21,000/21,100 level then this alternate count will come in the picture. Then this entire structure which is going on for last 65 trading sessions, will be taken as a-b-c after the rise of 15 trading sessions which is labeled as wave ‘A’ in the red color.

• In this case the Sensex will not go much below 20,162 and the upward rise will continue and first target for the Sensex will be 21,322 and then 21,876 will be the minimum target for the Sensex.

• In this scenario we feel the Sensex will not go below 19,844 (100% of length of wave ‘a’ drawn from end of wave ‘b’) which is marked on the chart above,

The month gone by:

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• In the month of the November 2013, the Sensex opened at 21,159 and on the next trading session, it made a new all time high at 21,322 on the Moorat trading session.

• Then onwards for 7 consecutive trading sessions it was coming down. Finally on 7th trading session, it made an intermediate bottom at 20,162. For the next 3 trading sessions it went up and formed an intermediate top at 20,934 which was almost exact 61.8% of the previous fall.

• For next 3 trading sessions it formed a large black candle and formed almost a double bottom at 20,138.

• For next 5 trading sessions it was moving in the upward direction forming ‘Higher Top and Higher Bottom’ formation. For the month of November the Sensex closed at 20,792

Learning Technical Analysis

• Making predictions pulls the ego in, warps our trading psychology, and sets us up for trading difficulties. We all seem to admire someone who can pick the high or low within a tick, don’t we? Wouldn’t it be great if we could do that? If anyone actually can do it, we put them on a pedestal and make them into a trading hero.

• If we look at this carefully, though, we can see the ego emerging. If I can make a prediction and be right, I must be great. Prediction also flies in the face of trading as a discipline based on probabilities. It gets us into trouble.

• Here’s a question for you to answer. Which seems more compelling or appealing, Choice

A or Choice B? A. I can predict the high and the low within a few ticks. B. When the birds stop singing and the sky darkens, it’s probably going to rain.

• Most of us would probably select Choice A, even though we know in our heart-of-hearts that B is the better answer for trading the markets. We choose Choice A because it reflects what psychologists call ego-syntonic. It strokes the ego because it places “I” in the driver’s seat (“I predict”). Our egos love that. In Choice B, there is no ego, there is no “I.” The birds are driving the bus! Not too appealing to the ego.

• There are psychological reasons why it less likely that we would select Choice B. From

behavioral finance, for example, we know that people in general ignore base rates, or the probability of an event. Researchers have discovered that most people will ignore probabilities in favor of familiarity, a single prominent quality, and other non-

Trading Psychology –Predictions, the Ego and Anxiety in Trading

What Psychology Says

Which Is More Compelling?

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probabilistic features, even when they know probabilities are important. This is one of the reasons we respond to gurus. We listen to the hype that the guru has predicted the last market rally perfectly from the bottom. That’s salience. But we should see how this guru does over the next 10 bottoms.

• We all know, too, that when the ego is on the line, anxiety goes up. Most people would

say that choice A is more stressful than choice B, other things being equal. When stress rises, our cognitive abilities plummet. We miss obvious things and tend to make poor choices.

• It is much better to anticipate than to predict. Prediction has a hard edge to it. You are

either right or wrong. Anticipation has a less hard edge. It has a softer focus. You can be more open to possibilities and the probability that the trade won’t work out. You are also more open to what the market is saying because it is a less stressful posture.

• An excellent trader was very successful trading just one pattern. But it wasn’t because he could identify the buy and sell signals; a little training and anyone can do this. His success was due to his attitude towards his trades. He would put a trade on and then always say, “OK, I’ve done my part. Now it’s up to the market to decide.”

• This was his mantra, and he always made a point of saying this with every trade. He acted very much like Choice B: He anticipated a change in direction, and then let the market drive the bus. Whichever way the trade turned out was OK with him. He did his part. He focused on the process that he could control, and did that well. In doing so, he was able to let the trade outcome go. His ego wasn’t involved. Few of us seem to be able to do that. This may be one of the reasons why many of us find trading so difficult.

• Here are a few suggestions you might want to consider to address ego, predictions,

letting the market decide, and becoming a psychologically savvy trader. • Focus on the process of trading, not the outcomes. Keep your attention on selecting the

trade, assessing the reward potential to risk, making the entry, setting your stop, managing your trade, and finding the exit. These are the processes of trading and these are where your attention should be. If you are worried about the trade outcome – whether the trade is going to be a winner or a loser – you have already lost.

• Keep a probabilistic attitude about trading. Understand and accept that trading is based on probabilities. If you have a trade setup with an edge, then you know it won’t work out every time, but it will lead to profitability over a large number of trades. Maintaining a

Ego and Anxiety and the Effects on Trading

Anticipation vs. Prediction – Letthe Market Decide

Here are three things you can doto start to develop mentaltoughness:

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probabilistic attitude also helps with a focus on process rather than the outcomes. When a trade fails, it’s expected. It is simply one of the trades that had the odds of not working out.

• Be aware of when your ego is pulled into a trade. Learn to recognize the signs that you’ve been hooked into believing you have to be right. It might be a tension in the body or thoughts of fear of a loss, or even the opposite: thoughts of grandiosity. Whatever your pattern, learn to recognize it so that you don’t get ambushed by your ego and make errors in your trading.

• When you notice your ego in the trade, take specific steps to address it. First, acknowledge it. You can even say to yourself, “Ah, there’s my ego at work” if that seems to help. Second, don’t fight the ego, try to suppress it, or get down on yourself in any way. We all have egos, and they can be quite valuable at times, though trading is typically not one of those times. Accept it as a natural part of being human. Finally, turn your attention back to the process of trading. Focus on whatever you need to do next for your trade and put your full attention there.

• Learn mindfulness skills if steps 1-4 aren’t enough. Mindfulness is increasingly being recognized as a highly valuable practice in psychology, and traders can take advantage of its many benefits. The practice of mindfulness can help you cultivate a mental space that is less responsive to the internal mental chatter that is so unhelpful for trading. If there is a holy grail of trading psychology, mindfulness may just be it.

(Acknowledgement: http://www.trademindfully.com/wp-content/uploads/2010/11/Preditions-Ego-Anxiety.pdf)

Derivatives Commentary:

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• The month of Nov 2013 saw the Nifty surging towards its lifetime highs in the early part of the month. However selling pressure soon resumed and brought the index lower. A pullback rally emerged from the lows of 5972 during the last two weeks of Nov and helped to curb the losses. The Nifty ended the month with losses of 1.95%.

• FIIs were reported as net buyers of Rs.7201 cr in the cash segment in Oct 2013 (In Oct, they were net buyers of Rs. 18084 cr). In the F&O space, the FIIs were net sellers of Rs.2421 cr in the Index Futures segment. Along with the decrease in the open interest, it indicates squaring up of earlier long positions undertaken by FIIs in index futures segment. In the index Options segment, the FIIs were net buyers of Rs.10123 cr, which was accompanied with a rise in the open interest. In the Stock Futures segment, FIIs were net sellers of Rs.2851 cr, while open interest rose over Oct.

• The Dec 2013 series has started on a lighter note compared to the previous series. In terms of value, the Dec 2013 series has begun with market wide OI at Rs.99,472 crs. Vs. Rs.102,732 crs. at the beginning of the Nov 2013 series. It was Rs.89,595 crs. at the beginning of the Oct 2013 series.

• While the lower participation levels in the Dec series (compared to the previous series) is a cautious sign, rollover figures were higher. Market wide rollovers were higher at 82% vs. 80% the same time seen in the last series. Nifty rollovers to the Dec series were however in line with the previous series figures at 73%.

• Sectorally, high rollovers were seen in Pharma, Telecom, Capital Goods and Metal sectors. Coming to stock specific action, the highest rollovers were seen in JSW Steel, Jain Irrigation, Tata Comm and Ranbaxy. The lowest rollovers were seen in Shriram Transport, Hexaware, Divis Lab and Godrej Ind.

• Reflecting the weakness seen in the month of Nov, the Nifty OI PCR slid to 1.13 at the beginning of the Dec series from 1.18 levels (at the beginning of the Nov series). Reflecting the Volatile market movements seen in Nov, the Nifty IV climbed to 21.12% (at the beginning of the Dec series) from 18.04% the same time in the previous series.

• Technically, the Nifty is now in an intermediate downtrend after breaking the intermediate supports of 6079 during the month of Nov. With the downtrend intact, we do not expect the Nifty to take out the recent intermediate highs of 6343 anytime soon. Downside targets of 5700 will come into picture once the immediate supports of 5972 are broken.

• Index option activity is suggesting a trading range of 6000-6500 in the near term as the maximum Call OI is currently being seen in the 6300-6500 strikes indicating this is the maximum expected upside for the Nifty in the near term. In the put segment, maximum

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OI is currently being seen in the 6200-6000 puts, suggesting this is the maximum risk on the downside for the near term.

• The market’s participants, and in particular traders, are well aware of it. Indeed, a

widespread belief among them holds that swings in implied volatility yield good clues on future directions of the market. An increase in the implied volatility value is associated with fear in the market, whereas a decline indicates complacency. As a measure of fear and complacency, implied volatility is often used as a contrarian indicator: prolonged and/or extremely high VIX readings indicate a high degree or anxiety – or even panic – among traders, and are regarded as a bullish indicator. Prolonged and/or extremely low readings indicate a high degree of complacency, and are generally regarded as a bearish indicator.

• While it is clear that negative returns are associated with increased implied volatility, there is a growing debate as how implied volatility indexes can indicate overbought or oversold market’s conditions. The main difficulty lies in the fact that the relationship between implied volatility and the option’s underlying spot price fails to be linear.

• It is clear from the previous VIX reading that the signal is loud and clear when the implied volatility is high (or, even better, when it spikes). On the contrary, at low levels of implied volatility the model is less effective.

• In stock market negative shocks make stocks riskier and therefore drive up volatility. VIX

products’ prices are not based on economic values as stocks are, since VIX is just a measure of market fear. Second, volatility of VIX instruments is a measure of fear in VIX, and fear is a very essential part of market behaviors. Stock negative news or negative shocks is associated with a larger increase in volatility than positive ones. One study also shows that when the value of a firm falls, its financial leverage increases as debt amount is hardly affected. Thus, the value of its equity becomes a smaller percentage of the firm’s total value, and thus bears more risks and volatility.

• The stock market volatility has drastically increased in recent days and economies are

currently passing through a turbulent period, as reflected in all financial markets and asset classes. The global economic slowdown, and fear of withdrawing of stimulus package by US worries the capital markets. Financial institutions and other companies around the world have been affected by volatility in the stock and property markets. In

Learning Derivatives Analysis

What drives the volatility?

The VIX - Implied VolatilityIndex - does it signal themarket’s future behaviour?

India VIX:

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India fluctuations in the currency market reveals that currency volatility can hamper the stability in the equity market thus increasing volatility in the Indian Equity market. The study of volatility is, therefore, imperative in an emerging market nation like India.

Nifty VIX Daily Chart

India VIX Weekly Chart:

• The forthcoming state elections result announcement which was due on Sunday & parliamentary elections scheduled to be held anytime till May 2014 could bring in an additional dose of volatility whose range could remain in the high range till elections are

India VIX in the run up to elections:

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over. Let’s take a look at what volatility based QTA (Quantitative Technical Analysis) can tell us.

• Look at the weekly and daily charts of the India VIX Volatility Index. These charts show volatility based technical analysis to provide levels of support and resistance, both projected (horizontal lines) and immediate (bands).

• We can begin to compare previous volatility events to now and draw some conclusions on what to expect of near term future volatility.

• VIX after breaching its downward sloping trend line is moving on the higher side. After sideways move of 3 weeks India VIX finally gave breakout on Monday and closed near the day’s high. Traders could expect VIX could sustain above 22.15 level in coming sessions ahead of the state elections results, which was due on Sunday.

• Even the MACD showing bullish trend by trading above the zero line. RSI also trading above 60 levels, which is a bullish indication. VIX is also making higher top higher bottom formation from last few weeks suggesting upward move to continue in the VIX index.

• On weekly time frame Index has a resistance of 32.75 level which is a change of polarity level. Past history suggest near the Election results volatility may cross this level and could trade on higher side. In India traders who currently wish to take a view on expected volatility have to take a position in the options segment and protect against a change in price by using Delta hedging (through futures). This necessitates multiple transactions and a process both more expensive than and more difficult to put through than a straight trade on a VIX derivative (which is yet to be launched in India).

• In coming months traders could expect volatility to remain on the higher side. This year traders could expect volatility to jump upto 24 – 33 level where it could remain until election result is announced. Short-term traders could create short positions in options segment to ride on theta, which has increased due to rise in options IVs.

• India VIX is a volatility index based on the index option prices of NIFTY. India VIX is

computed using the best bid and ask quotes of the out-of-the-money near and mid-month NIFTY option contracts which are traded on the F&O segment of NSE. India VIX indicates the investor’s perception of the market’s volatility in the near term. The index depicts the expected market volatility over the next 30 calendar days. i.e. higher the India VIX values, higher the expected volatility and vice-versa.

India VIX in the run up to elections:

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Extract of Calls during November 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

27-Nov-13 B Nifty Dec Fut 6122.4 6080 6210 6154.4 28-Nov-13 0.5 Premature Profit Booked 1-5 days 6122.4 32

20-Nov-13 S Nifty Fut 6194 6226 6120 6213.0 20-Nov-13 -0.3 Premature Exit 1-5 days 6194 -19

6-Nov-13 S Bank Nifty Fut 11450.25 11568 11210 11420.3 6-Nov-13 0.3 Premature Profit Booked 1-4 days 11450.25 30

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

25-Nov-13 B Nifty Dec 6200 Call Option 120 85 190 151.0 29-Nov-13 25.8 Premature Profit Booked 1-5 days 120 31

22-Nov-13 B SBI 1750 Put Option 26.55 14 50 35.0 22-Nov-13 31.8 Premature Profit Booked 5 days 26.55 8.45

21-Nov-13 B Tata Steel 370 Put Option 4.4 2.5 8 3.9 21-Nov-13 -11.4 Premature Exit 1-5 days 4.4 -0.5

20-Nov-13 B DLF 160 Call Option 3.3 1.8 6 1.8 21-Nov-13 -45.5 Stop Loss Triggered 2-3 days 3.3 -1.5

12-Nov-13 B LIC 220 Call Option 5.55 2.6 8 8.9 18-Nov-13 60.4 Premature Profit Booked 2-3 days 5.55 3.35

7-Nov-13 B Lupin 900 Call Option 19.3 13 35 25.1 8-Nov-13 30.1 Premature Profit Booked 5 days 19.3 5.8

7-Nov-13 B ITC 320 Call Option 10.2 6 20 6.0 13-Nov-13 -41.2 Stop Loss Triggered 5 days 10.2 -4.2

7-Nov-13 B Nifty Nov 6300 Call Option 98.3 70 160 125.8 7-Nov-13 27.9 Premature Profit Booked 1-5 days 98.3 27.45 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

25-Nov-13 B Orient Bank 189.15 183 202 185.5 26-Nov-13 -2.0 Premature Exit 1-2 days 189.15 -3.7

19-Nov-13 B Grasim 2657 2585 2760 2614.0 20-Nov-13 -1.6 Premature Exit 1-2 days 2657 -43

19-Nov-13 B MRPL 43.65 42 47 44.3 20-Nov-13 1.5 Premature Profit Booked 1-2 days 43.65 0.65

19-Nov-13 B Aban 274.5 264 294 290.5 19-Nov-13 5.8 Premature Profit Booked 2-3 days 274.5 16

18-Nov-13 B Canara Bank 262.8 257.5 272 266.5 19-Nov-13 1.4 Premature Profit Booked 1-2 days 262.8 3.65 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

28-Nov-13 B Reliance Infra 415.3 405 436 428.5 29-Nov-13 3.2 Premature Profit Booked 1-5 days 415.3 13.2

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27-Nov-13 B KEC 41.2 38 48 43.7 27-Nov-13 6.1 Premature Profit Booked 7 days 41.2 2.5

22-Nov-13 S PFC Nov Fut 146.8 151 140 151.0 25-Nov-13 -2.8 Stop Loss Triggered 1-5 days 146.8 -4.2

20-Nov-13 S Century Textile Nov Fut 283.5 295 260 272.8 21-Nov-13 3.9 Premature Profit Booked 4-7 days 283.5 10.7

19-Nov-13 B ABB 592.95 574 630 612.0 20-Nov-13 3.2 Premature Profit Booked 3-7 days 592.95 19.05

18-Nov-13 B Orient Bank 184.25 176.5 197.5 189.7 19-Nov-13 2.9 Premature Profit Booked 2-3 days 184.25 5.4

13-Nov-13 S BOI Fut 213.85 222 195 222.0 14-Nov-13 -3.7 Stop Loss Triggered 5 days 213.85 -8.15

11-Nov-13 B Bombay Dyeing 68.1 64.9 75 71.4 20-Nov-13 4.8 Premature Profit Booked 5 days 68.1 3.3

8-Nov-13 B Jubilant Inds 115.85 110.5 128 112.4 7-Nov-13 -3.0 Premature Exit 1-5 days 115.85 -3.45

6-Nov-13 B Purvankara 84 77 92 90.5 7-Nov-13 7.7 Premature Profit Booked 7 days 84 6.5

5-Nov-13 B Chennai Petro 58.75 55 67 62.1 5-Nov-13 5.7 Premature Profit Booked 5 days 58.75 3.35

1-Nov-13 B Yes Bank Fut 381.3 370 400 370.0 6-Nov-13 -3.0 Stop Loss Triggered 5 days 381.3 -11.3 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

14-Nov-13 B Renuka Sugar 20.2 19.2 23.0 22.1 20-Nov-13 9.4 Premature Profit Booked 3 weeks 20.2 1.9

11-Nov-13 B Nectar Life 16.65 15.0 21.0 18.0 11-Nov-13 7.8 Premature Profit Booked 5-7 days 16.7 1.3

6-Nov-13 B Tata Coffee 1161 1121.0 1250.0 1121.0 7-Nov-13 -3.4 Stop Loss Triggered 2-3 days 1161.0 -40.0

1-Nov-13 B TBZ 167.75 159.0 183.0 159.0 1-Nov-13 -5.2 Stop Loss Triggered 2-3 days 167.8 -8.8

30-Oct-13 B Cox & Kings 90.9 86.0 97.5 97.5 5-Nov-13 7.3 Target Achieved 5-7 days 90.9 6.6

21-Oct-13 B Bajaj Holding 832.5 780.0 940.0 872.3 12-Nov-13 4.8 Premature Profit Booked 10-14 days 832.5 39.8

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Gainers & Losers – November 2013

Price Price

31-Oct-13 29-Nov-13 % chg

AUROPHARMA 216.7 293.55 35.5

ADANIENT 207.65 263.15 26.7

VOLTAS 89.15 111.05 24.6

IRB 79.8 96.9 21.4

INDIACEM 49.65 60.15 21.1

ARVIND 106.15 127.7 20.3

TATASTEEL 334.9 400.6 19.6

DIVISLAB 972.5 1152.3 18.5

PFC 134.4 159.15 18.4

HDIL 42.55 50.35 18.3

Price Price

31-Oct-13 29-Nov-13 % chg

UBL 925.2 793.05 -14.3

TITAN 267.2 229.05 -14.3

SUNTV 420.15 370 -11.9

BHARTIARTL 367.1 327 -10.9

SSLT 202 183.1 -9.4

TATAGLOBAL 164 148.9 -9.2

GLENMARK 563.6 515.85 -8.5

RENUKA 22.45 20.55 -8.5

HEXAWARE 132.95 122.3 -8.0

GODREJIND 296.3 272.65 -8.0

Price Price

31-Oct-13 29-Nov-13 % chg

SIMPLEXINF 53.5 85.2 59.2

PFIZER 1082.8 1704.0 57.4

WYETH 638.8 985.9 54.3

ABAN 253.7 378.0 49.0

TORNTPOWER 84.2 124.9 48.3

JUBILANT 100.1 139.2 39.0

TATAELXSI 217.6 299.7 37.7

JKIL 132.7 180.8 36.2

SADBHAV 63.7 86.3 35.6

AUROPHARMA 216.7 293.6 35.5

Price Price

31-Oct-13 29-Nov-13 % chg

ERAINFRA 37.8 22.6 -40.3

GUJNRECOKE 13.1 10.0 -23.4

TBZ 163.4 130.6 -20.0

KGL 1.7 1.4 -17.6

GITANJALI 64.6 53.3 -17.5

LOVABLE 334.1 282.4 -15.5

PFOCUS 32.3 27.4 -15.0

UBL 925.2 793.1 -14.3

TITAN 267.2 229.1 -14.3

EDELWEISS 30.5 26.4 -13.6

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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.