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1-1.BSE SENSITIV.BSE - 01/03/13 Trend7

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Month Gone By Frontline Indices:

% Chg Week No Sensex Nifty Key Positives Key Negatives

1 -2.06 -2.17

• Oil Minister M Veerappa Moily said Diesel prices would be hiked by 40-50 paise per litre every month till losses on the fuel are completely wiped out

• HSBC Services Business Activity Index rose to 57.5 in January, up from 55.6 in December

• India's per capita income is estimated to have gone up 11.7% to Rs 5,729 per month in 2012-13 at current prices

• Manufacturing Purchasing Managers' Index (PMI) stood at 53.3 in January, down from 54.7 in December

• Government revised the economic growth for fiscal 2011-12 to 6.2% from the earlier estimate of 6.5%

• Government's fiscal deficit touched 78.8% of the budget estimates (BE) in the nine months to Dec 2012

2 -0.09 -0.27

• India’s headline inflation declined sharply to 6.62% in January from 7.18% in December – its slowest pace in three years

• After contracting for eight straight months, India's exports grew by a meagre 0.82% in January to $25.58 billion

• Petrol price was hiked by Rs 1.50 per litre and diesel by 45 paise a litre

• Industrial output contracted by 0.6% in December, the second consecutive month of decline, mainly due to muted activities in manufacturing and mining sectors

• Consumer price index advanced 10.79% on an annual basis in January, faster than the 10.56% gain seen in December

3 -0.78 -0.63

• The Reserve Bank of India set the stage for entry of new banks in the private sector by unveiling the much-awaited final guidelines

• Retail inflation for agriculture workers (India) increased to 12.30% in January mainly due to increase in prices of food items and bus fare. The same for rural labourers was 12.28% in January

• India's foreign direct investment (FDI) inflows declined nearly 19% to $1.10 billion in December 2012 due to global economic uncertainties. For the April-December period of 2012-13, the inflows declined by

Monthly Strategy Report – March 2013

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about 42% to $16.94 billion

4 -2.36 -2.69

• The index of eight core industries grew by 3.9% in January 2013, as against its growth of 2.2% in the corresponding period of the previous year. The cumulative growth of the index of the core industries in the April-December period is 3.2%, against its growth of 5.0% in the previous year

• The government raised freight charges (by ~5%) while leaving passenger fares untouched in the railway budget for 2013-14

• The FY13-14 Union Budget disappointed on various counts, the most significant being no major initiatives to tackle the growing current account deficit

• India’s GDP grew at a 10-year low of 4.5% during the third quarter of the current financial year, far lower than 6.1-6.7% growth projected in the Economic Survey

Global markets:

• All sectoral indices ended in the negative (except IT and TECk) in the month of February.

The top four losers for the month were Metal, Capital Goods, Power and PSU, which fell by 14.5%, 12.5%, 10.6%, and 10.4% respectively. IT and TECk, the only gainers, rose by 5.6% and 2.6% respectively.

BSE Indices 28-Feb-13 31-Jan-13 % chg Remarks Sensex 18861.5 19895.0 -5.19 Smallcap 6206.2 7074.1 -12.27 Midcap 6302.8 6970.9 -9.58 BSE 500 7163.7 7665.7 -6.55 BSE 200 2308.0 2461.1 -6.22

Indices Jan-13 Feb-13 % Chg

US - Dow Jones 13860.6 14054.5 1.4

US - Nasdaq 3179.1 3160.2 -0.6

UK - FTSE 6276.9 6360.8 1.3

Japan - Nikkei 11191.3 11559.4 3.3

Germany - DAX 7776.1 7741.7 -0.4

Brazil - Bovespa 59761.0 57424.0 -3.9

Singapore - Strait Times 3282.7 3270.0 -0.4

Hong Kong – Hang Seng 23729.5 23020.3 -3.0

India - Sensex 19895.0 18861.5 -5.2

India - Nifty 6034.8 5693.1 -5.7

Indonesia - Jakarta Composite 4453.7 4795.8 7.7

Chinese - Shanghai composite 2385.4 2365.6 -0.8

• The world markets ended the month of February 2013 on a mixed note with a negstive bias. Indonesia, Nikkei, Dow Jones and UK FTSE were the only gainers, rising 7.7%, 3.3%, 1.4% & 1.3% respectively. Nifty and Sensex were the largest losers falling 5.7% and 5.2% respectively, followed by Bovespa and Hang Seng, which fell 3.9% and 3.0% respectively.

• Average daily volumes on BSE during the month of Feb 2013 fell

13.9% M-o-M (NSE daily average volumes were lower by 11.7% - M-o-M). The average daily derivatives volumes on NSE declined 2.8% to Rs. 1,28,303 cr in Jan (In Dec: Rs. 1,32,020 cr).

Sectoral performance:

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BSE 100 5720.1 6091.5 -6.10

Auto 10458.6 10993.9 -4.87

• Car makers reported falling sales in February as high costs and sluggish economic growthcontinued to weigh on demand, threatening to result in the industry's first decline in annualsales in a decade. Car sales during the first 10 months of the current financial year weredown 1.8% compared to the same period last year

• Carmakers also gave poor guidance for this quarter after announcing mediocre results,expecting margins to inch down

• The FM announced an increase in excise duty on SUVs from 27% to 30% • Maruti Suzuki, Ashok Leyland, Hero Motocorp and Bharat Forge were the major losers, which

fell by 14.3%, 9.2%, 8.5% and 6.9% respectively

Bankex 13203.9 14580.3 -9.44

• Banks fell heavily (3.6%) after the budget as the government made slightly unrealisticprojections for fiscal deficit in spite of an increase in spending.

• Bank of Baroda, IDBI Bank, Union Bank and State Bank of India were the major losers, falling19.0%, 17.6%, 16.8% and 14.4% respectively

Capital Goods 9184.5 10495.6 -12.49

• Hopes that the budget would increase duties on imported equipment were not fulfilled • Given the high fiscal deficit and the resulting squeeze in government spending, the onus

remains on the private sector to kick-start the capex cycle • Companies declared poor results for the quarter ended December 31st • Welspun Corp, Suzlon Energy, Punj Lloyd and Siemens were the majorlosers, which fell by

41.8%, 34.5%, 23.4% and 22.8% respectively

Consumer Durables 7172.1 7581.5 -5.40 • Companies declared poor results for the quarter ended December 31st • VIP Inds, Bajaj Electrical, Whirlpool and Titan Inds were the major losers, which fell by

17.2%, 8.5%, 7.4% and 6.9% respectively FMCG 5669.1 5921.9 -4.27 Healthcare 7810.3 8016.9 -2.58

IT 6754.3 6393.6 5.64

• Index rose making it the largest gainer in the month across the board on a weak Rupee • TCS announced enpansion plans in the UK • TCS, Hexaware, HCL Technologies and Tech Mahindra were the top performers, rising 12.8%,

8.6%, 5.2% and 4.7% respectively and Financial Technologies and Oracle Fin Serv were thelargest losers, falling 24.6% and 11.6% respectively

Metal 9068.0 10606.1 -14.50

• Base metals fell across the board with Nickel, Tin and Lead leading the fall • There were concerns that strength in the Chinese property market and other factors may

lead Beijing to tighten policy • Metal companies reported very poor results for the quarter ended December 31st • SAIL, Sterlite, Sesa Goa and Jindal Steel were the top losers, falling 18.1%, 17.6%, 17.1% and

17.0% respectively

Oil & Gas 8648.1 9359.2 -7.60

• Lower provision for under-recoveries in the budget led to a large fall for oil marketingcompanies that will face higher losses

• ONGC Videsh Ltd acquired participating interest in some foreign fields for a largeinvestment of $1bn

• HPCL, IOCL, BPCL and RIL were the top losers, falling 11.9%, 10.5%, 9.4% and 8.1%

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respectively

Power 1744.1 1951.2 -10.62

• Power companies reported very poor results for the quarter ended December 31st • Promoter stake sale in Suzlon Energy led to large selling in the stock • Suzlon Energy, Adani Power, JSW Energy and Siemens were the top losers, falling 34.5%,

36.8%, 23.5% and 22.8% respectively

PSU 6862.4 7661.8 -10.43 • UCO Bank, MMTC, Dena Bank and Bank of Baroda were the top losers, falling 25.2%, 23.2%,19.8% and 19.0% respectively

Realty 2010.4 2238.6 -10.19

• Realty companies reported poor results for the quarter ended December 31st • HDIL fell as a partial stake sale by Vice Chairman and Managing Director raised worries that

other stakeholders would also sell shares. Post Wadhawan’s 5 million share sale, Citigroupsold 49.30 lakh shares and Credit Suisse sold ~1 crore shares

• DB Realty, Unitech, Anant Raj and Indiabulls Real Est were the top losers, falling 48.1%,25.9%, 23.9% and 22.3% respectively.

TECk 3897.1 3798.4 2.60

Fund Activity

Net Buy / Sell Net Buy / Sell Open Interest Open Interest Particulars Feb –13 Jan –13 Feb –13 Jan –13 Remarks

FII Activity (Rs. in Cr) Equities (Cash) 13032.3 21617.7 • FIIs were reported as strong net buyers in February. Index Futures -7783 -266 8520 7215 • FIIs were large net sellers along with an increase in open interest. Index Options 5560 11159 38077 32734 • FIIs were net buyers along with an increase in open interest. Stock Futures 6403 -221 23236 30795 • FIIs were large net buyers along with a decrease in open interest. Stock Options 358 -1127 314 161 • FIIs were net buyers along with an increase in open interest.

MF Activity (Rs. in Cr) Equities (Cash) -802 -5212 • MF continued to be the net sellers for the last 8 consecutive months.

• Indian G-Sec bond yields ended lower by 4 bps at 7.87% at the end of February 2013 over January 2013. The yield on India’s bonds was near a 31-month low on optimism Finance Minister Palaniappan Chidambaram will announce steps to cut the budget deficit. Yields closed lower as the absence of more debt auctions and hopes of more bond purchases via open market operations boosted prices.

Bond Yields

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10 Year Government Bond Yield - Trend

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

3.63% to close at 292.95. This was on account of a fall witnessed in commodities like Lean Hogs (down by 10.6%), Silver (down by 10.0%), Nickel (down by 9.5%), Wheat (down by 8.0%), Crude Oil (down by 5.6%), Aluminium (down by 5.1%), Gold (down by 5.0%), Copper (down by 4.4), Heating Oil (down by 3.6%), Coffee (down by 2.1%), Sugar (down by 1.9%), Cocoa (down by 1.5%) and Corn (down by 1.4%). In January, the CRB rose 3%, helped by stronger oil, corn and cotton prices. Index has fallen more than 9 percent over the past year as Europe’s debt crisis and slowing growth in China cut demand.

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

during the month ended February 2013 is given below. Base metals dropped largely as negative news from China weighed on the London Metal Exchange. Worries about housing-based demand for the metals set a bearish tone causing prices to extend declines.

Behaviour of commodity prices (including LME 3 month buyer prices for base metals) during the month ended February 2013: Commodity 28-Feb-13 31-Jan-13 % Chg Reasons

Gold 1578.1 1660.6 -4.97%

• Gold prices fell 5% in February, ending down without a break from October in the longest string ofmonthly declines since 1996.

• Strength in the dollar and a rise in U.S. equities helped lure investors away from the precious metal. • Prices fell after the comments by European Central Bank (ECB) President Mario Draghi ignited renewed

economic fears over the euro zone.

Commodities

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• Prices dropped on speculation the Federal Reserve will wind down U.S. monetary stimulus. • Lack of liquidity during the Asian Lunar Year also exacerbated volatility, exaggerating downward moves.• Emergence of selling by stockists at prevailing higher levels amid a weak global trend mainly led the fall.

Crude Oil 92.05 97.5 -5.59%

• Prices fell as the dollar rose against other major currencies • Disagreement among U.S. Federal Reserve officials about its super easy monetary policy weighed on

prices. • Investors sold off commodities with the stock market surging toward a record high. • Prices pressured by a weak outlook for demand as the U.S. economy faces renewed risks. • Worries about an inconclusive Italian election revived investor concerns about instability in the euro

zone and threatened the outlook for fuel demand. Aluminium 2004.5 2111 -5.05%

Copper 7850 8215 -4.44%

• Prices on the LME fell below the psychologically significant $8,000 tonne level dragged down bypersistent demand concerns as post-holiday buying from top consumer China remained subdued.

• Strong dollar also weighted on prices. • Slipped its lowest level in two months on concerns about the global economy & the demand for

industrial metals. Zinc 2080 2160 -3.70%

Nickel 16710 18460 -9.48% • Prices fell the most in four months in London on concern supply is ample amid signs of weaker economic

growth in China, the world’s biggest consumer of the metal. • Inventories of nickel tracked by the London Metal Exchange reached the highest level since 2010.

Tin 23500 25095 -6.36% • Prices maintained falling trend on heavy selling pressure amidst poor demand from alloy industries. • Declined on disappointing Chinese factory data and concerns over US spending cuts.

Lead 2290 2441 -6.19%

• The Baltic Dry Index (BDI) lost 3.9% in the month to close at 757. The Baltic Dry Index, a measure of costs to transport minerals and grains by sea, fell as the market slowed at the start of the Lunar New Year holiday in China, the world’s biggest importer of commodities and as the fleet’s growth outpaced demand for commodities. The Baltic Dry Index averaged the lowest in 26 years in 2012.

• The USD was positive vs other currencies in February 2013. The USD remained strong

against several peers during the month except Brazilian Real holding to higher ground following a round of upbeat U.S. economic data and as Federal Reserve Chairman Ben Bernanke backed the central bank’s stimulus efforts. The greenback found support after separate reports showed sales of new U.S. homes jumped to their highest pace since mid-2008, home prices in 2012 posted their best gain in seven years, and consumer confidence climbed in February, reaching its highest level in three months.

Currencies

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Given below is a table that shows the depreciation (-)/appreciation (+) of the dollar against various currencies for the month of February 2013: USD to: 28-Feb-13 31-Jan-13 % Chg Reasons Pakistani rupee 99.08 96.55 2.6% Hong Kong dollar 7.76 7.76 0.0% Chinese yuan 6.29 6.28 0.1%

Indian rupee 53.94 53.34 1.1%

• Nosedived against the dollar dragged down by disappointment surrounding the new governmentbudget for the next fiscal year.

• Rupee fell to a six-week low against the U.S. dollar as investors fretted over slower-than-expecteddomestic growth in the October-December quarter.

• Heavy capital outflows as Budget failed to cheer investor sentiment. • Month-end dollar demand from importers, mainly oil companies, also hit the domestic currency. • Globally, strengthening of the dollar against a basket of major currencies also put pressure on

rupee. Taiwan dollar 29.70 29.49 0.7% Singapore dollar 1.24 1.24 0.3%

Argentine peso 5.04 4.97 1.5% • Argentina, fell, as investors feared Italy might abandon austerity measures aimed at restoring

confidence in its economy. • Peso fell 13% over the past 12 months.

Euro 0.76 0.74 3.4%

• Euro fell to its lowest since January 10, after the German Ifo survey showed a big jump in businessmorale in Germany, suggesting a brighter outlook for the euro zone's largest economy.

• German economy had contracted more-than expected, leaving the euro zone on track for a deeperrecession

• The euro weakened as traders worried that Italy's political crisis will hurt efforts to resolve thecountry's fiscal problems.

• Euro extended losses to versus the dollar as political uncertainty in Italy and renewed fears of adebt crisis drove some investors to sell the currency.

Thai baht 29.87 29.72 0.5% • Thailand’s baht dropped on speculation the central bank will cut interest rates to slow fund inflows

that helped fuel a 2.3 % rally in the currency this year.

Malaysian ringgit 3.10 3.08 0.9%

• The Malaysian ringgit fell against the dollar on Thursday as interbank speculators shrugged off stongeconomic growth data and added dollar positions on expectations the U.S. Federal Reserve may stopbuying bonds sooner than expected.

• Ringgit fell as a deadline for U.S. spending cuts that may push the world’s largest economy intorecession nears, damping demand for riskier assets.

Indonesian rupiah 9718.17 9680.54 0.4%

Japanese yen 91.84 91.03 0.9%

• The yen fell against all 16 of its major peers, extending losses that made it the worst-performingmajor currency in the past three months.

• The yen fell versus the dollar in the longest streak since at least 1971, amid bets Prime MinisterShinzo Abe will pick a new central-bank governor who will boost monetary stimulus.

• Japan’s Labor Force Survey showed the nation’s unemployment rate climbed to 4.2% in December

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from 4.1% in the previous month. • Spending among households fell 0.7% in the same period from a year earlier. • Traders sold the currency near this month’s high on speculation the Bank of Japan will ease

monetary policy further to boost growth in the world’s third-largest economy. Brazilian real 1.98 1.99 -0.1% Korean won 1086.96 1084.01 0.3% Comparison of Equity Returns in various markets - MSCI Indices in US$ terms

MSCI Index Last MTD 3Mo. YTD 1 Yr MSCI Index Last MTD 3Mo. YTD 1 Yr Emerging Markets Developed Markets BRIC 296.3 -4.3% 4.5% -0.3% -8.8%EUROPE 1,483.2 -3.0% 5.4% 2.6% 6.5%EM (EMERGING MARKETS) 1,054.6 -1.4% 4.7% -0.1% -2.3%G7 INDEX 1,216.1 0.0% 6.4% 4.7% 7.6%EM ASIA 451.1 -0.2% 4.3% 0.8% 2.0% WORLD 1,405.2 0.0% 6.8% 5.0% 8.2%EM EUROPE 468.6 -4.5% 5.3% -1.0% -5.0% EM EUROPE & MIDDLE EAST 398.4 -4.5% 5.3% -1.0% -5.0% ITALY 242.5 -12.6% -1.4% -4.8% -7.4%EM LATIN AMERICA 3,824.6 -2.9% 6.8% 0.7% -10.1%PORTUGAL 93.6 -8.4% 10.6% 1.2% -1.6% NETHERLANDS 2,019.7 -6.7% 3.5% 0.7% 9.8%CHINA 62.9 -3.9% 4.8% 0.0% 0.8%SPAIN 401.2 -5.9% 3.7% -0.5% -5.6%INDIA 418.1 -7.4% -2.8% -2.8% -4.9%NORWAY 3,006.4 -4.1% 3.3% 2.3% -2.6%INDONESIA 998.5 10.1% 14.4% 12.6% 12.5% GERMANY 1,756.6 -3.9% 5.1% 1.0% 7.5%KOREA 430.4 4.6% 5.4% 0.3% 4.7%FRANCE 1,445.0 -3.4% 5.5% 2.0% 6.3%MALAYSIA 470.1 1.4% 0.2% -3.5% -1.6%DENMARK 6,390.3 -3.1% 10.5% 7.9% 17.1%PHILIPPINES 571.2 8.6% 20.3% 17.0% 45.2% BELGIUM 1,327.9 3.1% 8.2% 6.2% 27.5%TAIWAN 273.7 0.4% 1.5% 0.6% -2.5%AUSTRALIA 954.3 3.2% 11.9% 8.9% 14.2%THAILAND 455.0 2.2% 14.7% 8.1% 16.8%GREECE 95.4 3.4% 20.7% 17.8% 1.8%BRAZIL 2,730.9 -2.6% 7.2% 0.1% -20.3% IRELAND 133.0 3.6% 14.5% 8.2% 6.9%CHILE 2,549.1 -0.9% 10.8% 6.5% -3.7% COLOMBIA 1,311.6 -5.4% 3.8% -3.6% 8.0% Frontier Markets MEXICO 7,272.5 -3.2% 6.3% 2.2% 17.4%FM (FRONTIER MARKETS) 524.1 -0.4% 9.2% 7.0% 9.2%PERU 1,477.3 -6.5% -2.0% -7.5% -2.2% CZECH REPUBLIC 391.0 -4.0% -5.6% -9.8% -21.0%BULGARIA 1,158.2 -20.8% 9.4% -7.6% -39.5%HUNGARY 534.8 -6.3% 0.9% 4.1% -5.0%CROATIA 108.0 -12.6% 19.0% 19.3% -16.7%POLAND 843.5 -3.7% 1.2% -6.7% 2.6%ESTONIA 891.7 -11.3% -10.4% -17.6% -28.7%RUSSIA 810.1 -5.6% 6.5% 0.3% -12.6%KAZAKHSTAN 290.1 -7.0% 10.4% 2.0% -0.5%TURKEY 634.8 -1.6% 7.0% 0.1% 26.5% GHANA 108.1 6.1% 10.5% 7.8% 13.1%EGYPT 606.3 -2.6% 3.1% -4.7% -6.9%JAMAICA 1,163.1 8.3% 18.1% 16.0% 27.0%MOROCCO 306.7 -3.2% -5.6% -2.0% -23.5%TRINIDAD AND TOBAGO 113.2 18.3% 30.1% 25.7% -35.6%SOUTH AFRICA 536.7 -2.0% 1.6% -7.6% -8.0%ZIMBABWE 1,324.9 32.2% 37.4% 37.0% 56.2%

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• The equity markets across the globe ended the month of Feb 2013 on a weak note. Among the developed markets, Europe was a top loser, which fell by 3% during the month. However, G7 & World Index ended flat. The EM - Emerging Markets fell by 1.4% with EM – Europe, EM – Europe & Middle & BRIC being top losers, down 4.5%, 4.5% & 4.3% respectively. EM – Latin America & EM – Asia fell by 2.9% & 1.4% respectively. Frontier markets fell the least by 0.4% during the month.

• Amongst the Developed markets, Italy, Portugal, Netherlands & Spain were the top

losers, which fell by 12.6%, 8.4%, 6.7% & 5.9% respectively. Norway, Germany, France & Denmark also underperformed, falling in the range of 3.1-4.1%. However, the index losses were restricted due to outperformance from Belgium, Australia, Greece & Ireland, which reported decent gains of 3.1%, 3.2%, 3.4% & 3.6% respectively.

• Italy fell sharply during the month on the back of disappointing economic data and due to inconclusive elections, which left the economy facing political deadlock and rekindled fears of a new euro zone debt crisis. Among the economic data, Italy’s consumer confidence unexpectedly slipped in January to its lowest level in at least 17 years. Italy’s National Institute for Statistics (Istat) said that the country’s confidence index dropped to 84.6 from 85.7% in December, the worst slump since the series began in 1996. Further, unemployment was at the highest in more than 13 years. As regards, the election fears, Italy's messy vote, which gave a majority to the centre-left in the lower house but no clear control of the Senate to any party, sent shockwaves across the market.

• Portugal markets fell on concerns over the country's meager economic growth and high deficit. Part of the correction can also be attributable to sharp gains reported by the index in the previous month. The country was among the top three gainers in the month of January 2013, as Portugal's finance minister said that his government's budget deficit likely fell below the target of 5% of GDP last year, reflecting successful measures to cut spending. Portugal raised €1.5 billion ($2 billion) in a debt sale at sharply lower rates as the bailed-out country continues to benefit from improving market confidence, despite forecasts saying its recession will deepen.

• The Australian index outperformed during the month, as analysts estimated a turnaround in the US trade post better-than-expected housing and consumer confidence data in US.

• Ireland market reported decent gains during the month in anticipation of better than expected economic data. Operating conditions in the Irish manufacturing sector continued to improve modestly in February, with slight rises seen in both output and new orders. A return to growth of employment was also signaled (as per the reports on March

Top Losers - EM Europe and EMEurope & Middle East; FrontierMarkets fell the least

Italy, Portugal & Netherlands -top losers in developedmarkets; Belgium, Australia &Greece restrict index loss

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01, 2013). Meanwhile, output prices were raised in response to further cost inflation. The seasonally adjusted NCB Purchasing Managers’ Index (PMI), an indicator designed to provide a single-figure measure of the health of the manufacturing industry, rose to 51.5 in Feb, from 50.3 in the previous month, to signal another modest improvement in business conditions.

• EM-Europe and EM-Europe & Middle East fell sharply during the month mainly on the back

of disappointing performance by Hungary & Russia, which fell sharply by 6.3% & 5.6% respectively during the month. Even Czech Republic, Poland & Turkey fell by 4%, 3.7% & 1.6% respectively.

• Hungary’s business confidence index deteriorated slightly from -11.3 to -12 in February. In the business sphere industrial and commercial expectations deteriorated. Hungary’s economy is in its second recession in four years after the euro-area crisis cut export demand, while the government raised corporate taxes and levied the highest bank tax in Europe, which curbed lending and investment. According to the latest forecast by the European Commission, the country’s GDP will contract by 0.1% this year after shrinking 1.7% in 2012.

• The Russian markets underperformed during the month as the oil prices fell. Russia receives about half of its budget revenue from the oil and natural gas industry. The stocks extended declines as Russia’s industrial output unexpectedly contracted in January for the first time in more than three years, while industrial production in the U.S. also shrank last month.

• BRIC index fell during the month as all its constituents ended lower during the month

with India & Russia, being the top losers, down 7.4% & 5.6% respectively. China & Brazil also underperformed, falling by 3.9% & 2.6% respectively during the month.

• Bovespa index of Brazil underperformed during the month, as economists covering Brazil reduced their 2014 growth forecasts to 3.65% from 3.85% estimated earlier, rekindling concern that a slower recovery will hurt corporate earnings. The index also fell as pulpmaker Suzano Papel & Celulose SA led declines by commodity exporters as the real surged after the central bank said inflation requires attention.

• China slumped to a month low amid doubts over the sustainability of China's economic recovery, as well as tighter monetary policy after the central bank drained funds from the market. China's manufacturing grew at its weakest rate in five months in February as demand faltered and factories shut down for the Lunar New Year holiday. An industry

Hungary & Russia drag the EM –Europe and EM – Europe &Middle East index lower

India & Russia pull the BRICindex lower. Even China &Brazil underperform.

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group, the China Federation of Logistics and Purchasing, said its purchasing managers index declined to 50.1, down 0.3 points from January. A separate index by HSBC Corp. fell to 50.4 from January's 52.3. Though, China's economic growth rebounded to 7.9% in Q4CY12, analysts warn the recovery will be weak and gradual, and growth could be vulnerable if trade or investment weakens.

• The underperformance of EM-Latin America was mainly led by Peru & Columbia, which

fell by 6.5% & 5.4% respectively. Mexico, Brazil & Chile also disappointed with monthly losses of 3.2%, 2.6% & 0.9% respectively.

• Peru fell during the month as the economy’s trade-surplus fell by nearly 50%, as demand for commodities fell. Further, the index fell on the back of decline in the shares of mining companies during the month.

• Columbia reported negative returns during the month, as labour problems and environmental issues have reduced the country’s coal exports by 75%. Colombia's coal sector, which typically sits in the shadow of the country's dominant oil industry, has been thrust to the spotlight as labor unrest and environmental incidents pushed coal prices higher. Coal shipments account for 12% of Colombia's total exports, placing it second to oil, which makes up 40% of all exports.

• Mexican stocks slumped to their lowest level of the year during the month as telecom giant America Movil's share price decline weighed on the IPC stock index. Shares in America Movil drove losses as investors continued to voice concern about the company's results, its foreign investments, and the impact of a pending telecom reform in Mexico that could threaten the company's dominant market position. Further, Mexico’s industrial production dropped by 2.1% in Dec for the first since November 2009. This further spoiled the market sentiments.

• Despite underperformance by India & China, the fall in EM-Asia was marginal during the

month largely due to strong gains reported by other Asian markets like Indonesia, Philippines & Korea, which reported strong gains of 10.1%, 8.6% & 4.6% respectively during the month. Malaysia & Taiwan reported marginal gains of 1.4% & 0.4% respectively.

• Jakarta index of Indonesia rose sharply during the month on improved earnings outlook. Morgan Stanley upgraded Indonesia from neutral to positive and now ranks it as its most preferred Asean 3 market. The securities firm is of the belief that a current account deficit won’t hurt the market. The firm said that its economist Deyi Tan continues to

Underperformance of EM-LatinAmerica was mainly led by Peru& Columbia

Strong performance fromIndonesia, Philippines & Korearestricted the fall in EM – Asia

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believe that Indonesia will run a current account deficit of 2.4% of gross domestic product in 2013, but concerns are waning with regard to unfunded current account deficit due to a combination of improving global growth and loose global monetary policy.

• The Philippine’s stock index breached the 6,700-mark for the first time in history during the month as cash-awash investors sought better yields from equities, driving valuations to dizzying heights. The market continues to remain strong driven by continued flows domestically and overseas as evidenced by the pick up in value turnover last week versus the previous week. However, analysts recommend to buy on weakness as market looks overbought and a correction is due.

• Kospi index rose, as foreign investors backed their view of a further short-term rise on the main board by snapping up futures, triggering algorithmic trading buy orders. The index had decoupled from a global rise in risk markets in January, underperforming due to exacerbated concern over local exporters' outlooks from the weakening yen and strengthening won. But as currency moves recently showed signs of slowing, South Korean shares have been racing to catch up.

• Among the African markets, South Africa, Morocco & Egypt all fell by 2%, 3.2% & 2.6%

respectively. South African stocks ended lower with energy-intensive firms including the local arm of mining giant ArcelorMittal taking the most points off the main index after the government said it planned to tax carbon emissions. Egypt's bourse fell as experts believe that the announced tax on stock market transactions will probably make investors more reluctant to enter the Egyptian market. A hot air balloon crash in Luxor on Tuesday, killing 18 tourists, also had negative repercussions on the market.

• Frontier markets fell the least by 0.4% during the month. Bulgaria, Croatia & Estonia

were the top three losers, which fell by 20.8%, 12.6% & 11.3% respectively. However, the index losses were restricted on the back of outperformance by markets like Zimbabwe, Trinidad & Tobago and Jamaica, which reported strong gains of 32.2%, 18.3% & 8.3% respectively.

• Bulgarian markets ended the month of Feb on a weak note largely on the back of political instability. Bulgarian Prime Minister Boyko Borissov submitted his resignation to Parliament after more than a week of anti-government protests sparked street violence in the European Union’s poorest country. Borissov fell victim to anti-austerity movements that have shaken governments from Spain to Greece. His focus on budget cuts, which

Morocco leads the fall in Africanmarkets

Frontier markets fell the least –Zimbabwe, Trinidad & Tobagoand Jamaica outperform

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kept the country out of turbulent international bond markets, boosted unemployment, cut incomes and angered voters.

• Zimbabwe stock market stole the show with significant outperformance. It seems that the index reacted positively to the long-awaited conclusion of the constitution-drafting process, which had been outstanding for four years. Analysts contend that this signals the arrival of a less volatile political environment. Others refer to the so-called de-risking of Africa in general, the positive results of mitigating investment risks on the continent.

• A crisis of the system is what emerges from the Italian elections of February 24/25, 2013.

So far as the market is concerned, the Italian elections have produced the worst possible outcome.

• European national governments, the European Central Bank, the International Monetary Fund, together with the international media are all calling in unison for a “stable government”. The problem is that no one can guarantee such a government: the bourgeoisie no longer has a party that can guarantee such stable government. The election result has instilled real terror among the powers-that-be from Brussels to London, from Berlin to Washington.

• Parliament is scheduled to reconvene on March 15 and the parties must work together to appoint presidents in both the senate and the lower house — two key positions that must be filled in order to keep the business of state moving.

• The Italian economy is suffering — for the past six quarters, its gross domestic product has been contracting and it is now 7.8 per cent below its pre-crisis peak in 2007.

• The political chaos in Italy undermines its ability to secure financial help from European partners such as Germany, and affects the European Union as a whole. Access to financial assistance programs, such as the European Stability Mechanism, depends on a stable government.

• Economists and bankers have become the masters of Europe and they have chosen Italy as the experimental centre of their power, where they are starting to take the place of politicians, who are now completely subservient and corrupt.

• Moody’s Investors Service said Italy’s inconclusive election outcome is credit negative because it raises the possibility of new elections, prolonging the country’s political uncertainty. It could consider downgrading Italy’s government debt rating in the event of

Outlook going forward

Global Market Outlook Italian political crisis worsens

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additional material deterioration in the country’s economic prospects or difficulties in implementing reform.

• The reasons Europe is in this mess are the same ones the gloom-and-doom types have been pointing out all along. Europe has no region-wide strategy to spur growth; the banks haven’t been fixed; progress towards integration remains mired in mud; the austerity-obsessed approach to reform is counterproductive. The political uncertainty in Italy is just the latest manifestation of these problems, and the latest signal of how unresolved the problems are.

• Indeed, Italy is facing its worst recession in 20 years, and its austerity measures have pushed unemployment - particularly among the youth to new highs now above 11 per cent. Some economists estimate that as many as one in three youth is out of a job in Italy, and many are looking to emigrate.

• To make things even more complicated, the term of Italian President Giorgio Napolitano, an 87-year-old ex-communist, comes to an end on April 15. As head of state, his successor must be agreed upon by those recently elected to parliament. If there is no agreement on his successor, Italy could fall further into the abyss.

• Since mid-November, the Japanese Yen has weakened substantially against the USD, Euro

and other currencies. The rapid decline was fueled by aggressive policy announcements by Shinzo Abe, before and after he became the prime minister in December 2012, calling for more fiscal stimulus and for bold monetary easing, including a new 2 per cent inflation target.

• Other than an initial JPY10.3 trillion stimulus package, concrete actions have been missing so far. The Yen’s decline is rather reflecting the expectations of capital market players in Japan and more so abroad. Dubbed “Abenomics,” the new economic policies have been outlined by the government in a very consistent and convincing way and thus moved the markets.

• The Feb. 15-16 Group of 20 meeting in Moscow confirmed that Japan’s economic policy and a weaker yen are internationally accepted, at least for the time being. The final statement did not mention any individual currency or country, though currency issues were obviously heavily discussed among the G-20 officials.

• But even if Tokyo continues to avoid international friction over its currency, a weak yen will by far not be sufficient to restore the Japanese economy. Abenomics can only work and succeed if all of its three elements are fulfilled: renewed fiscal stimulus, higher inflation and still-unspecified structural reforms.

Growth Concerns for Japan

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• A weaker yen will help the economy by promoting net exports. Raising inflationary expectations should also lower real interest rates in the short run, which is good.

• Abe has increased the central bank’s target rate of inflation from 1% to 2%, in order to enable a looser monetary policy. He is also nominating a new central bank governor more supportive of stimulus measures. The currency markets actually began to shift in advance, indeed even ahead of the election, in anticipation that Abe would be successful in implementing these polices.

• The latest devaluation, to around ¥92 per dollar, returns the exchange rate to its early-2010 level. However, putting this in context, the yen had been appreciating during most of the previous five years, strengthening from 123 to the dollar to just 76 in early 2012.

• This should help Japanese exporters versus the competitiveness challenges they faced when the yen was strong. As a result, it has led to sharp criticism from some of Japan’s trading competitors such as South Korea.

• Upping the fiscal deficit will also boost demand in the short run, which is helpful after three quarters of economic contraction. Of course, old-style pork-barrel spending won’t do the trick. Deregulation and market-oriented structural reforms are indispensable.

• But all of this still does not address the core of Japan’s economic woes: structurally weak private-sector demand. Japan’s economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption, bolstering Prime Minister Shinzo Abe’s case for more monetary stimulus to end deflation. Gross domestic product contracted an annualized 0.4 per cent, following a revised 3.8 per cent fall in the previous quarter. The median forecast of 32 economists surveyed by Bloomberg News was for 0.4 per cent growth. Nominal GDP shrank 0.4 per cent on quarter.

• The prolonging of the nation's recession shows that the benefits from a weaker yen and rising stocks are yet to be felt. Banks from Goldman Sachs Group Inc. to Nomura Holdings Inc. have raised their growth forecasts for this year on Abe’s plan to revive the economy through fiscal and monetary stimulus as central bank Governor Masaaki Shirakawa prepares to exit next month.

• Japan’s parliament has approved a supplemental budget of JPY13.1 trillion (US$142.43 billion) designed to finance an economic stimulus package. Despite the fact that the governing Liberal Democratic Party lacks a majority in the upper house, lawmakers approved the budget thanks to the votes of the LDP’s coalition partner, the conservative Buddhist New Komeito party, and other groups on the right. The DP, which governed

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from 2009 to 2012, says that the stimulus package depends too much on large “and unnecessary” public works projects.

• Prime Minister Shinzo Abe’s government also hopes that this new extra budget will give a 2 per cent push to Japan’s GDP and create about 600,000 new jobs. To finance the supplementary budget, the government is planning to issue new debt amounting to some JPY7.8 trillion (US$85 billion). That, however, has sparked concerns about a worsening of the Japanese public debt, which is already the largest in the developed world.

• In recent years, while Europe and the United States economy remained in the doldrums,

China's economic growth has made increasing contribution to world economic recovery. The Chinese market has become the safeguard for the profit growth of the global top 500 enterprises and the demand from China has become the "ballast" for global economic growth.

• Since the 2008 financial crisis, the demand from major economies has remained weak. The sovereign debts of developed countries were constantly growing; trade and disinvestments protectionism was clearly on the rise and the pace of world economic recovery slowed down. During the next period of time, as the entire world economy goes into a deep transformation adjustment, economic downturn will become the new normal state of global economy.

• Although all countries around the world are faced with weak demand and decline in exports, China's huge demand and broad market remains one of the few bright spots in the current world economy. Demand from China is contributing positive energy to the world economy. In the next 5 years, the total scale of China’s imports of goods will exceed US$10 trillion and could provide global companies with more investment opportunities and markets.

• However, China’s slower manufacturing casts shadow over recovery. China’s manufacturing in Feb is expanding at the slowest pace in four months, a private survey showed, underscoring the headwinds faced by policy makers in the world’s second-biggest economy. The preliminary reading of a Purchasing Managers’ Index was 50.4 in February, according to a statement from HSBC Holdings Plc and Markit Economics. The report may damp optimism that an economic rebound is gaining traction following a seven-quarter slowdown and the weakest annual expansion in 13 years.

• Despite some economic data in the recent past that showed an upside surprise, there are numerous concerns about the sustainability of China's economy. Some of the major ones include the excessive growth of credit over the past five years, staggering levels of

China - Economic indicators not pointing to sustained economic recovery

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overcapacity in several key industries, heavily indebted local governments, wasteful state-owned enterprises that continue to siphon money away from savers, and the threat of social instability if economic growth were to slow sharply.

• For decades, China's economy has prospered in large part because of a massive supply of cheap labor. Workers from rural parts of the country migrated to the cities to find employment, mainly in manufacturing. Until recently, manufacturing wages in China remained comparatively low, which attracted multinational corporations in droves.

• Another key area of concern is clearly real estate investment. Whereas most countries (developed and emerging) usually spent not much more than 5%-10% of GDP on real estate fixed asset investment, in the case of China, this ratio has, over the last five years, blown far ahead of most other economies and historic trends. In 2012, real estate fixed asset investment accounted for 18% of China’s GDP (or over Rmb9 trillion or US$1.5 trillion) and an acceleration path indeed started at the time of the GFC and the pace has been broadly maintained. Whilst the contribution of public vs. private sector varies (public sector was a larger contributor in 2H2011-1H2012) and increased spending is an imbedded requirement of rapid urbanization; nevertheless, it does feed fears of overcapacity and ghost towns.

• India Inc had flattered only to deceive. After the early birds posted sterling numbers in Q3FY13, it has been a story of continued deceleration in corporate earnings.

• The universe of 2,314 firms compiled reported core revenue growth of 9.3%, the lowest in at least three years and a decline of 500 bps from that reported in the September quarter. Tepid volume growth squeezed India Inc’s operating margin, which declined 110 bps on a sequential basis to 16.4 per cent in the current quarter (a basis point is one-hundredth of a per centage point). This is mostly due to higher employee cost, which grew twice as fast as revenues, indicating lower capital utilisation.

• Aggregate performance of BSE Sensex companies was in-line. Sensex PAT grew 7% EBITDA grew 8%. EBITDA margins for the Sensex universe came at 18.1%. Overall EBITDA margin declined 78 bps y-o-y (up 24 bps q-o-q) for Sensex companies. Margin pressure was apparent in most sectors, the worst affected being auto, industrials, infra, and metals. The big growth contributors to Sensex PAT growth in Q3 were Reliance and ONGC. These two contribute 22% of the total earnings and grew by 22% (almost contributing 60% of the growth). Both the earnings were much above estimates. The highest disappointments were from Tata Steel, Bharti, Tata Motors and Hero Motocorp.

Q3FY13 Review – Lowest salesgrowth in last 3 years

Indian Market Outlook

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• Service sector companies, such as private banks, IT services firms, trade and hotels and restaurants continue to expand, with little risk of a slowdown in the near term. This has put a floor on the earnings and economic growth

• The slump in industrial and consumer demand appears to be hurting Indian corporates where it matters the most. A little over one third of PBIT was spent on serving debt during the December quarter. The sharp jump in interest expenses relatively is because the slack in demand has reduced revenue generated by capacities which were added over the past three years, largely funded by debt.

• During the December quarter, select companies from a handful of sectors, including IT and pharmaceuticals, performed well. With the growth in the domestic market being muted for most companies, the performance of pharma companies was predominantly driven by their show in the US market.

• Far from showing any signs of revival, the engineering and capital goods sector saw a further slide in its order book, with BHEL reporting its lowest order backlog in four years. Capital goods was also hounded by delay in execution. Delay and deferral in decision-making at customers’ end and liquidity crunch were key reasons for weak execution. The sector’s margins further deteriorated owing to weak pricing and delay in execution. The sector's order book declined y-o-y for third consecutive quarter (down 6% y-o-y), leading to grimmer revenue visibility.

• The divergence between PSU banks and their private sector counterparts continued in Q3FY13 as well. PSU banks’ results were characterised by weak asset quality, moderating loan growth and higher provisioning on restructured assets. Private banks, meanwhile, showed little stress on asset quality.

• Given the slowing momentum in economic growth, discretionary demand took a hit with categories like food and certain personal products posting a slowdown; however, non-discretionary items were impervious. Premiumisation trend continues with no major signs of down trading and rural demand remained healthy.

The way forward: • One is not too worried about margins; one would stay glued to the demand drop. It's hard

to call a demand bottom – this could undermine more positive margin trends (profitability, pricing rationality, corporate focus on costs - Indian companies have an inherent ability to control costs during crises). Not only are corporates cautious – the consumer is too. It’s the top line that’s driving down everything that represents demand and it needs to stabilize before earnings can start moving up

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• Fixed costs like wages and interest continue to rise faster than sales, further pressuring margins. As new capacities get commissioned, interest and depreciation costs continue to rise, thus hurting interest coverage.

• While the situation on the ground level is not that great and could worsen further before it improves, the street looks forward to the policy measures to be announced in the forthcoming Budget. Going by current trends, Q4 could shape up to be the worst Q4 in atleast 3 years.

• The FY14 Budget was not expected to be path breaking or populist. It was expected to be

practical or reasonable. Despite the low hopes it has disappointed on various counts. • The Budget shows no major initiative to tackle the growing current account deficit.

Despite the best efforts of the FM to avoid a ratings downgrade, this is one issue that could undo his other good measures in the Budget.

• The FM however needs to be complimented for minimal tinkering of various tax structures.

• The fiscal deficit for FY13 has been achieved by slashing plan expenditure by Rs.74,000 cr (Communication and IT, Atomic Energy, Health and Family welfare, Home affairs, Rural development, Steel and Railways being main heads). This was partly offset by rise in non-plan expenditure by Rs.34,000 cr (Mainly Food, Fertiliser, Economic Affairs and Fuel subsidy). Receipts were down by Rs.60,000 cr compared to the original Budget estimates. Hence the original fiscal deficit target of 5.1% (later raised to 5.3%) was exceeded by 10 bps to reach 5.2%.

• For FY14, the FM has projected a lower growth of 10.8% in non-plan expenditure but a higher growth in plan expenditure of 29.3%. How far is this likely to be achieved is another question as implicit in these assumptions for non-plan expenditure are expectations that there will be no hike in Fertiliser subsidy in FY14 vs FY13 (meaning international fertilizer prices will be down or Rupee will be steady vs the USD), minimum rise in Food subsidy (up 6% - despite the National Food security Bill) and Fuel subsidies will fall 33% to Rs.67,000 cr (meaning that crude prices and USD will not strengthen and diesel/petrol price hikes will continue as planned). It is likely that the total cost of subsidies may exceed the government's budgeted 2% of GDP in fiscal 2013-2014, compared with 2.6% in the current year.

• Measures for kickstarting capex spending and removing bottlenecks in infrastructure and mining space have been at best weak. While the reintroduction of investment allowance is welcome, one will also have to keep in mind the overcapacity faced by most industries,

Union Budget 2013-14 – A let down

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land acquisition issues, power problems and possibility of further NPAs for Banks going forward due to this asset based tax incentive.

• Corporate profitability could get impacted a bit by hike in surcharge. • Inflation could remain high due to the fact that service tax collections have been

estimated to rise 36% to Rs.1,80,141 cr (a jump of Rs.47,000 cr). Rail and road transport could be one of the contributors. Further freight hikes due to the latest Rail Budget and diesel price hikes could also keep inflation at higher than comfortable levels.

• While one appreciates that a lot of action could happen out of the Budget and every demand is not possible to be addressed in this event, the FM could have excited the Indian public and the foreign investors by being a little more bold, radical and out of the way. This could have revived the business sentiments more than the individual measures that could be taken in a staggered manner later during the year. Given the current political climate and the economic conditions, one doubts about the extent to which reforms can be carried out outside of the Budget ahead of the forthcoming elections.

• The Finance Minister may have tried his best to arrest the widening fiscal deficit in the

Budget 2013-14, but the risk of slippage in 2013-14 fiscal deficit still continues. While the finance minister has pegged 2013-14 fiscal deficit at 4.8 per cent, the actual fiscal deficit could come in higher.

• India’s fiscal deficit (Centre and States taken together) of 8-9 per cent of the GDP is high by any standard. It far exceeds all other BRIC nations — China (1 per cent), Brazil (2.9 per cent) or Russia (1 per cent). The combined fiscal deficit of the States stands at 2.5 per cent of India’s GDP, which is well below the limits set by the Thirteenth Finance Commission. Clearly, the Centre seems to be more responsible for India’s fiscal mess.

• Indian rupee remains under pressure because of high current account deficit in the range of 4 per cent of GDP — caused mainly by import of crude and gold. To maintain overall balance on external account, India needs FII and FDI inflows equivalent to 4 per cent of its GDP. Of the two, FII is highly volatile and its net inflow depends on expected risk-weighted return in equity markets. FDI inflows, on the other hand, depend upon the overall attractiveness of India as an investment destination of which macroeconomic stability is a key determinant and maintaining fiscal deficit at low levels, a key component of that.

• Inflation in India is primarily a supply-side problem and needs supply-side solutions. Fiscal deficit (because of rising subsidy), by crowding out private investment, only adds to the

Fiscal Deficit Target of 4.8 per cent– Achievable?

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supply constraints. Subsidy, at the most, is a temporary solution with many negative side effects, fiscal deficit being just one of them.

• The worrisome fact is that India has seen good growth over a period of 5 years post 2008.

In spite of reasonable growth, the performance of stock market has been very disappointing. This has resulted in small and midcaps underperforming severely in the past few weeks with retailers exiting these even at a loss. Bringing the retail interest back in the stock markets is a Herculean task given the recent experience.

• Indian markets could underperform in the near term affected by local factors and global events one after the other. Till the general elections are announced (in early 2014 if on schedule), speculative buildup in the markets is likely to be subdued and hence the upside momentum even in bounces could be weak. The macro situation in India could take a few quarters to get corrected, even as the micro situation throws up sharp differences in the ability of corporates to withstand difficult times. Highly leveraged companies and companies without pricing power could continue to get derated. Continued FII interest in largecaps could arrest any large fall in the mainline indices. Even as other countries face different challenges in the near term, India despite its often repeated problems could still get a fair share of emerging market inflows.

• We expect the Sensex to be in the range of 18,200 to 19,400 over this month. Technical Commentary:

Market to trade in the 18,200-19,400 range on the Sensex overthis month

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• The Sensex breached the trend line, which was in effect for last 8 months and according to the theory of breaching of the trendline if we examine the validity of this breach than this breach is valid. We have used time filter as well as price filter to check the validity of this breach.

• At the same time we had used various tools which are as follows: - 1) Violence 2) Point of acceleration. 3) Western Gap Down 4) Large black Candle. 5) Lower Top and Lower Bottom Formation. 6) Non filling of the gap after 6 trading sessions.

• And all the above-mentioned tolls are suggesting that the bearish trend has begun as the wave 5 had ended at 19,742.

• We have given Neowave count on the chart above, according to it the wave 5 must have

ended at the lower top of 19.742. • As we have marked on the chart above there is an ‘Ovelap’ between wave 4 and wave 2

and that is the technical reason we are labelling wave 5 as a terminal impulse. It has

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taken 64 trading sessions and in last 6 trading sessions, it had been retraced 63% of the previous upmove. Now the first downward target is given in the chart below.

• According to the Neowave theory the entire terminal impulse which took 64 trading sessions must be retraced in next 16 trading sessions which is 25% time taken by the entire terminal and the maximum time allowed is 32 trading sessions.

• Out of this 16 trading sessions, 6 trading sessions are already over and we have 10 more trading sessions to achieve the first target, which is at 18,256.

• If we take retracement theory into account we get almost the same target, which is explained in the chart below.

• Now as the wave ‘D’ of the contracting trangle is over a new wave ‘E’ has opened in the downward direction. Now if we take 38.2% of the entire wave ‘D’ from 15,749 to 19,742 it comes to 18,215 which will be the first downward target of wave ‘E’ in coming days.

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The month gone by:

• For the month of February 2013, the Sensex opened at 19,907 made an intra day high at 19,967 which was also the high for the month.

• For the next 6 trading sessions it came down continuously and finally made an intermediate bottom at 19,415. For the next 8 trading sessions, it went into a sideways phase. On 2 occasions it made highs of 19,723 and 19,742 but it could go much higher than that which resulted in to a gap down action on 21st February 2013.

• The Sensex formed a ‘Western Gap Down’ between 19,620 to 19,555 and after 5 trading sessions this gap remained unfilled which is a bearish indication.

Learning Technical Analysis

• “Tradingpsychologie" is a book on trading psychology that was published in Germany in 2012 and was received with great enthusiasm. Many readers and reviewers commented that it was the best book on the subject that they had ever read or that it was the first, which was of any real use. The book's author, Norman Welz, is a psychologist and journalist who developed a keen interest in the stock market and the associated psychology. His specialty is trading psychology, a subject on which he has not only extensive experience but also some unique insights. Among other things, he trains traders to develop their brains in the right direction.

How To Develop A Trading Brain

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• Welz stresses that what differentiates both his work and his book from the vast literature in the field is the emphasis on applied trading psychology. It is common knowledge that traders need discipline, but accepting this idea is simply not enough to enable investors to operate in the appropriate manner.

• The essence of the problem is that most people like and need security in all its forms, but "trading is the most insecure business you can be in," Welz says. He argues that no other profession creates so many and such intense emotions and reflects so much of our personalities. He goes so far as to state that stock market activities personify money: "we don't just trade assets and money, we become the money," according to Welz.

• To trade effectively, the right mindset is essential. Yet, nothing is harder than divorcing ourselves from the multitude of factors that have created our mindsets in the first place and that dictate how our brains function. We are influenced by parents, family, friends, the environment, society, the media, books and more. By the time we start trading, all of these influences tend to fix trading patterns that are often dysfunctional or suboptimal. Trying to change these patterns is somewhere between difficult and frightening.

• In order to understand Welz's approach, it is necessary to understand the pervasive role

of psychology and the brain. While the notion that psychology is vital to the stock market is nothing new, Welz believes that trading is literally 100% psychology. Without a psyche, we could never evaluate financial risk or recognize trends. "No brain, no stock market trading," says Welz. Mental strength is thus absolutely fundamental to trading success. Furthermore, about 95% of our actions are subconscious, and we tend to replicate our behaviors over and over again. All too often, this replication means repeating the wrong or even disastrous courses of action.

• To support this contention, Welz refers to a study in which 120 traders were given a system that had proved its intrinsic value statistically in 19 of the last 20 years. After a test year, it was evident that 119 of these traders failed with the system because their mental tendencies led them astray. All but one trader had the wrong mental processes. "Success comes from the head," Welz says. The system was good, but the attitudes and psychology with which the traders applied that system were not..

• Most traders are men, who tend to think that psychology is not what really matters. They

think that what matters, rather, are simplistic notions of being coldly rational, well informed and experienced. According to Welz, however, rationality, information and

Why Do Traders NeglectPsychology?

It Is Truly All in the Mind

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experience don't help if the brain is not appropriately programmed and tuned. So what can we do to get our minds and subconscious to act appropriately?

• Norman Welz works on the brains of traders through the subconscious and hypnosis.

Trainees are put into a trusting mood and the necessary competences are anchored in subconscious regions of the brain. If this process sounds a bit weird, consider this: For many years, Welz has helped people overcome their fears and blockages, enabling them to win sporting championships and even to secure an Olympic victory. Furthermore, he has helped traders to earn money through activating the right mental energy, motivation and, thus, behavior. He stresses that each person has unique mental bridges and barriers that need to be crossed or overcome in order to ensure success.

• "Trading discipline" comes from modifying one's behavior in a desired direction and overcoming the mental resistance and fear that generally get in the way. Particularly in the context of trading, Welz believes that "there are armies of resistance." The trading brain in fact entails an integration of the right investment and market knowledge with the right mental capabilities. It is not that the usual skills are unimportant, it is just that they usually get overridden by the wrong mental and behavioral patterns.

• Effective trading thus involves personality modification. According to Welz, "people who are not willing to attempt this should not even bother with trading." Those who concentrate only on the so-called logical aspects of charts and trends, including all those patterns like "flags, triangles and channels or stops and trading ranges," will ultimately flounder on the myriad of emotions that inevitably come into play and even dominate the markets.

• The above, explains Welz, is "the ultra-short version" of his theory, but indeed the essence of the matter. Furthermore, he believes that anyone can become a trader and overcome his or her fears. Provided that people are not clinically ill, they can resolve those fundamental anxieties if they are truly willing to work on themselves. In addition, they need a good sense of and grip on reality if success is to result. Of course, financial knowledge and skills, information and research all still play key roles.

• However, it is hard work getting there. Welz believes that people shouldn't think they can "start with a mini-account and live from their earnings as a professional trader within six months." It takes time and dedication. Welz believes that if this weren't the case, the roads would be full of Ferraris and Porsches.

Welz's Approach

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• The fundamental role of trader psychology tends to be underestimated and too much emphasis placed on the technical side. While both are essential, it is arguably the right mindset that differentiates successful from unsuccessful traders. However, learning the technical aspects of trading is more straightforward than acquiring a top-notch trading brain. The latter generally entails working intensely on one's own personality traits and eradicating entrenched behavioral patterns. This process is not easy and requires dedication, time, and often, the aid of a skilled coach. Nevertheless, the results are very likely to reap dividends.

Derivatives Commentary:

• The month of Feb 2013 saw the markets sliding lower. The downside acceleration

increased once the 5823 lows were broken on 26th Feb and further increased on 28th Feb, which was the Budget day. M-o-M, the Nifty lost 5.66%.

• FIIs were reported as net buyers of Rs. 13,032 cr in Feb 2013 (In Jan, they were net buyers of Rs. 21,618 cr). In the F&O space, the FIIs were net sellers in the Index Futures segment. Along with the increase in the open interest, it indicates short 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 buyers, while open interest decreased over Jan. The Stock options segment reported low participation during the month of Feb.

The Bottom Line

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• The March 2013 series has started on a lighter note compared to the previous series. In terms of value, the March 2013 series has begun with market wide OI at Rs.90,348crs. Vs. Rs.92,594crs. at the beginning of the Feb 2013 series. It was Rs.93,733crs. at the beginning of the Jan 2013 series. The lower participation levels in the March series (compared to the previous series) indicate that traders are probably being more cautious.

• Rollovers to the March series too were lower compared to the previous series. While Nifty rollovers were at 54% Vs. 64% during the same time in the previous series, Market wide rollovers were at 80% Vs. 84% the same time in the previous series. The lower rollover figures again indicate that traders were being cautious probably due to the weakness seen in the markets in February.

• Coming to stock specific rollovers, highest rollovers were seen in McDowell, Bata India, McLeod Russell and Bharat Forge. The lowest rollovers were seen in Shriram transport, ITC, HDFC Bank and Bharti Airtel.

• Reflecting the downtrend in the markets in Feb, the Nifty OI PCR slid to 0.97 from 1.08 levels at the beginning of the Feb series. Reflecting the lack of volatility in the markets, the Nifty IV climbed marginally to 13.49% (at the beginning of the March series) from 13.0% the same time in the previous series.

• Technically, the Nifty remains in a downtrend after breaking the 5823 lows in late Feb 2013. Immediate downside targets for the Nifty are at 5649, which coincides with the 200-day EMA. Further downside targets are seen at 5600-5550, once 5649 levels are broken. Any rallies could find resistance at 5766-5775.

• Index option activity too is suggesting this as the maximum Call OI is currently being seen in the 5900-6000 strikes indicating this is the maximum upside for the Nifty in the near term.

• In the put segment, maximum OI is currently being seen in the 5700-5600 puts, suggesting this is the maximum risk on the downside for the near term. So, it seems that market participants expect the Nifty to trade within the 5600-6000 levels.

• Participants in a futures contract are required to post performance bond margins in order

to open and maintain a futures position. • Futures margin rates are set by the futures exchanges and some brokerages will add an

extra premium to the exchange minimum rate in order to lower their risk exposure.

Learning Derivatives Analysis

Margins

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Margin is set based on risk. The larger rupee value moves that a futures market makes, you can expect higher margin rates.

• Futures margin requirements are set by the exchanges and are typically 6 to 20 percent of the full value of the futures contract in a normal scenario.

• Margins are financial guarantees required of both buyers and sellers of futures contracts to ensure that they fulfill their futures contract obligations.

• Initial Futures Margin is the amount of money that is required to open a buy or sell

position on a futures contract. • Before a futures position can be opened, there must be enough available balance in the

futures trader's margin account to meet the initial margin requirement. Upon opening the futures position, an amount equal to the initial margin requirement will be deducted from the trader's margin account and transferred to the exchange's clearing firm. This money is held by the exchange-clearing house as long as the futures position remains open.

• Margin Maintenance is the amount of money where a loss on your futures position

requires you to allocate more funds to bring the margin back to the initial margin level. • The mark to market margin (MTM) is collected from the member before the start of the

trading of the next day. • The MTM margin is collected/adjusted from/against the cash/cash equivalent component

of the liquid net worth deposited with the Exchange. • The MTM margin is collected on the gross open position of the member. The gross open

position for this purpose means the gross of all net positions across all the clients of a member including its proprietary position. For this purpose, the position of a client is netted across its various securities and the positions of all the clients of a member are grossed.

• There is no netting off of the positions and setoff against MTM profits across two rolling settlements i.e. T day and T+1 day. However, for computation of MTM profits/losses for the day, netting or setoff against MTM profits is permitted.

• A margin call on futures contracts is triggered when the value of your account drops

below the maintenance level.

Initial Margin

Mark to Market margin

Margin Calls

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• You hold five futures contracts that have an initial margin of Rs. 10,00,000 and a maintenance margin of Rs. 7,00,000. The value of your account falls to Rs.6,50,000. You will get a margin call requiring you to add Rs.3,50,000 to your account to bring it back to the initial margin. You also have the option of closing your positions to eliminate the margin call.

• Futures margin rates are typically calculated using a program called SPAN. This program

measures many variables to come up with a final figure for initial and maintenance margin in each futures market. The main variable is based on the volatility of each futures market. The exchanges do adjust their margin requirements occasionally based on market conditions.

• Trader buys 1 Nifty futures contract at 6000. Nifty Lot size = 50. The next day Nifty

Futures go down and closes at 5970. Thus, Traders gets a margin call and thus has to pay 30*50 =Rs.1500 as a mark-to-market margin. On the other hand, if the Nifty futures rises the next day and closes at 6050 then the client gets the excess amount credited to his account. In this case the amount credited would be 50*50 =Rs.2500

Extract of Calls during February 2013 Index Futures Calls

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

Gain/Loss

27-Feb-13 S Bank Nifty Feb Fut 11909-11970 11980 11790 11855.1 41332.0 2.0 Premature Profit Booked 3-5 days 12097.5 242.4

25-Feb-13 B Bank Nifty Fut 12035-12095 12030 12205 11988.0 41330.0 -0.6 Premature Exit 2-3 days 12058.5 -70.5

19-Feb-13 S Nifty Fut 5891-5900 5920 5830 5920.0 41324.0 -0.4 Stop Loss Triggered 1-3 days 5895.5 -24.5

8-Feb-13 S Nifty Fut 5937-5945 5966 5870 5918.0 41317.0 0.3 Premature Profit Booked 1-3 days 5937.4 19.4

5-Feb-13 S Bank Nifty Feb Fut 12535-12595 12605 12400 12485.0 41310.0 0.5 Premature Profit Booked 3-5 days 12542.5 57.5

1-Feb-13 S Bank Nifty Fut 12705-12760 12770 12570 12655.0 41306.0 0.5 Premature Profit Booked 3-5 days 12717 62 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. EntryAbs.

Gain/Loss

28-Feb-13 B Nifty 5700 Put Option 45.5-30 27 85 67.4 41333.0 53.5 Premature Profit Booked 3-5 days 43.9 23.5

27-Feb-13 B ONGC Feb 300 Put Option 1.25-0.85 0.75 2.5 2.5 41332.0 92.3 Target Achieved 3-5 days 1.3 1.2

How to Calculate Futures Margin

Example

Example

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27-Feb-13 B RCOM 70 Call Option 0.4-0.9 0.3 2 1.6 41332.0 146.2 Premature Profit Booked 1-2 days 0.65 0.95

26-Feb-13 B HUL 460 Call Option 3.1-2.5 1 7 5.1 41331.0 68.3 Premature Profit Booked 2 days 3 2.05

22-Feb-13 B Tata Power 95 Put Option 0.7-0.5 0.4 1.5 1.3 41327.0 78.6 Premature Profit Booked 3-5 days 0.7 0.55

19-Feb-13 B Reliance Capital 400 Put Option 11.65-8.5 7.25 22 7.3 41324.0 -35.1 Stop Loss Triggered 3-5 days 11.17 -3.92

15-Feb-13 B Nifty 5800 Put Option 33.7-25 23 60 23.0 41320.0 -31.3 Stop Loss Triggered 3 days 33.5 -10.5

11-Feb-13 B IDFC 160 Put Option 4.7-4 6 9 6.4 41316.0 36.2 Premature Profit Booked 3-5 days 4.7 1.7

7-Feb-13 B TCS 1400 Call Option 15.85-12 10 30 24.0 41313.0 52.8 Premature Profit Booked 3-5 days 15.67 8.28

6-Feb-13 B Opto Circuit 70 Call Option 3.4-2 1 10 6.8 41311.0 100.0 Premature Profit Booked 10 days 3.4 3.4

4-Feb-13 B Nifty Feb 6000 Put Option 67.2-55 50 90 82.3 41309.0 26.5 Premature Profit Booked 3 days 65 17.25

4-Feb-13 B Maruti 1550 Put Option 15-24 14 50 14.0 41311.0 -36.9 Stop Loss Triggered 2-3 days 22.1 -8.15

1-Feb-13 B Tata Motors 280 Put Option 5.45-4 3.2 11 9.6 41306.0 78.8 Premature Profit Booked 3-5 days 5.37 4.23

Trading/BTST/Futures Calls

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

Gain/Loss

28-Feb-13 S JP Associates March Fut 71.70-73.50 74.5 66 69.4 41333.0 3.3 Premature Profit Booked 3-5 days 71.7 2.3

22-Feb-13 B Shiv Vani Oil 73.2-71 70.25 79 75.4 41330.0 3.9 Premature Profit Booked 3-5 days 72.6 2.8

22-Feb-13 B STC India 215-209 206 235 206.0 41330.0 -2.8 Stop Loss Triggered 3-5 days 212 -6

21-Feb-13 S JSW Steel Fut 793-805 815 743 777.0 41326.0 2.2 Premature Profit Booked 2-5 days 794.15 17.15

20-Feb-13 B Mercator 16.8-18.2 16.5 20.5 17.4 41330.0 -3.6 Premature Exit 2-3 days 18.05 -0.65

18-Feb-13 B HDIL 69.6-68 67 75 72.5 41325.0 4.6 Premature Profit Booked 3-5 days 69.3 3.2

15-Feb-13 S Shriram Transport Finance Fut 715-735 736 685 736.0 41320.0 -1.4 Stop Loss Triggered 2-3 days 725.5 -10.5

14-Feb-13 S Adani Ports Feb Fut 153.8-156 159.5 143 151.5 41319.0 1.9 Premature Profit Booked 3-5 days 154.37 2.87

13-Feb-13 B Indiabulls Finance 282-275 270 300 270.0 41319.0 -4.6 Stop Loss Triggered 3 days 283 -13

12-Feb-13 S IB Real Estate Fut 72.8-74 75.5 67 70.0 41317.0 4.0 Premature Profit Booked 2-5 days 72.8 2.8

12-Feb-13 B Kolte Patil 95-100 101.2 110 107.2 41318.0 8.6 Premature Profit Booked 2-3 days 98.75 8.45

7-Feb-13 B ARSS Infra 44.2-43 42.3 48.5 44.7 41313.0 1.9 Premature Profit Booked 3-5 days 43.85 0.85

6-Feb-13 B Hexaware 77.35-75.5 79.55 84 80.0 41312.0 3.4 Premature Profit Booked 3-5 days 77.35 2.65

4-Feb-13 B FKonco 108-106 104 115 104.0 41310.0 -3.7 Stop Loss Triggered 3 days 108 -4

1-Feb-13 B Essar Oil 89.2-87 92.25 98 92.7 41306.0 4.3 Premature Profit Booked 3-5 days 88.85 3.8 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

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13-Feb-13 B Tata Coffee 1477-1511 1476.0 1610.0 1548.0 21-Feb-13 3.4 Premature Profit Booked 2-3 days 1497.0 51.0

4-Feb-13 S IVRCL Infra Feb Fut 33.95-35 35.4 31.5 32.7 7-Feb-13 3.8 Premature Profit Booked 5-7 days 34.0 1.3 Gainers & Losers – February 2013

Price Price

31-Jan-13 28-Feb-13 % Chg

TCS 1344.15 1517.00 12.86

SUNPHARMA 718.00 802.15 11.72

HEXAWARE 78.90 86.35 9.44

TECHM 998.95 1051.05 5.22

HCLTECH 688.00 723.40 5.15

INFY 2789.50 2907.00 4.21

IDEA 112.95 117.60 4.12

BHUSANSTL 449.10 461.10 2.67

MCDOWELL-N 1804.40 1840.10 1.98

EXIDEIND 122.80 125.10 1.87

Price Price

31-Jan-13 28-Feb-13 % Chg

WELCORP 100.50 58.35 -41.94

OPTOCIRCUI 79.40 50.05 -36.96

SUZLON 24.55 16.00 -34.83

PANTALOONR 248.20 176.20 -29.01

ADANIPOWER 61.00 44.45 -27.13

UNITECH 36.85 27.20 -26.19

RCOM 82.70 61.05 -26.18

IVRCLINFRA 34.40 25.60 -25.58

FINANTECH 1120.90 843.95 -24.71

UCOBANK 75.85 57.15 -24.65

Price Price

31-Jan-13 28-Feb-13 % Chg

VENKEYS 416.65 484.75 16.34

BLUEDART 2011.30 2288.85 13.80

TCS 1344.15 1517.00 12.86

SUNPHARMA 718.00 802.15 11.72

CONCOR 934.70 1038.00 11.05

FINPIPE 78.80 86.95 10.34

HEXAWARE 78.90 86.35 9.44

BERGEPAINT 173.90 189.80 9.14

MINDTREE 788.70 860.20 9.07

CHOLAFIN 283.85 306.10 7.84

Price Price

31-Jan-13 28-Feb-13 % Chg

COREEDUTEC 300.55 55.15 -81.65

DBREALTY 136.65 70.80 -48.19

TULIP 19.00 9.90 -47.89

HINDOILEXP 102.75 58.00 -43.55

WELCORP 100.50 58.35 -41.94

UBHOLDINGS 82.95 49.45 -40.39

UTTAMSTL 115.70 70.30 -39.24

OPTOCIRCUI 79.40 50.05 -36.96

DISHMAN 108.85 69.05 -36.56

EDUCOMP 128.05 83.10 -35.10

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: hdfcsecretailresearch@hdfcsec.com 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.