By Mr. Sanjeev Zarbade, Vice President-Private Client Group Research, Kotak Securities Limited:

Global markets ended largely flattish for the week. Shanghai Composite stood with a 2% decline led by weak trade deficit data which indicated that exports declined at a faster pace compared to the imports. During the week, the ECB reduced its bank lending rate to zero and deposit rate to further in the negative zone. The idea is to encourage banks to speed up lending to consumers and businesses as recent economic data has been signalling at weakening of growth in Eurozone. Going forward the focus would be on the BOJ and the FED meeting. Oil prices traded between USD 35-40 range. Our advice to investors is that they should not look beyond the near-term volatility and invest with a medium term horizon. Return from equity markets have rarely disappointed if the holding period is in excess of five years.

By Mr. Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities:

Markets had one of the best weeks in a long time as Union Budget exceeded expectations mainly on account of fiscal prudence. Expectations of a rate cut by RBI sustained sentiments. Supportive global markets also supported the sharp gains following a sharp fall pre-budget.
Going forward, markets will watch out for the rate cut in the immediate term. Post that, quarterly results, monsoons, implementation of budget proposals and reforms will be the important triggers for the markets.

By Mr. Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities:

Markets ended the week with about 3% gains. Markets were buoyed by the rise in crude prices from their lows on expected freeze in supply by 4 producing countries. There was some bottom-fishing in stocks which had corrected sharply. However, Indian markets underperformed most of the global markets during the week.
Going ahead, we expect sector specific movement based on expectations from the Union Budget. A credible Union Budget, with focus on growth and fiscal rectitude, will help improve sentiments of the markets.

By Mr. Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities:

Markets rose from their lows during the day to end flattish on some bottom-fishing / short covering, after comments from the FM regarding NPAs of banks. However, for the week, markets had one of the largest falls, ending lower by about 7%.
With the quarterly results season nearly over, focus will shift to the budget and we can see sector specific movements over the next few days. However, global factors will continue to have an impact. With the Chinese markets scheduled to open on Monday after a week-long gap, movements in that markets as well as economic data will impact sentiments.

By Mr. Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities:

Markets gained more than 1% on Friday to erase some of the losses for the week. However, markets lost about 1% for the week on continuing concerns about crude prices and weak corporate results.
Going ahead, market focus will shift to the budget. The FM has a tough of job of supporting growth while maintaining fiscal rectitude. The RBI has said it will take into account the budget announcements before deciding on future rate cuts.

By Mr. Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities:

Markets ended the week with solid gains on Friday, buoyed by the rise in crude prices and supportive global markets. FIIs were net buyers in the markets after a long time and provided support to stocks. Gains came despite below- expected numbers from ICICI and Maruti.

The focus, going ahead will be on the remaining quarterly numbers and then the budget. L&T has reported better than expected order bookings and that bodes well for the stock and the markets.

By Mr. Dipen Shah, Senior Vice-President & Head of Private Client Group Research, Kotak Securities

The markets ended the week with sharp gains on Friday, buoyed by the global markets, which traded higher. The weakness in Chinese economy and the falling crude prices have taken a toll on markets across the world, in the past couple of weeks. The resultant outflows of funds from India have impacted domestic markets also. The global scenario remains uncertain.

The falling crude and commodity prices have a beneficial impact on Indian economy in form of a better fiscal deficit number and controlled inflation. Further reforms on the Government side will greatly improve sentiments. We also expect the measures taken by the Government till date, to start having a positive impact at the ground level, in due course.

By Kotak Securities:

Oil-Crude Politics-War:

• In 1944 major countries of world sat in New Hampshire (Bretton wood conference) to declare Dollar as a world currency backed by gold (Gold Standard).


• US had reserve gold to print paper money. US started printing money and was enjoying from 1945 to 1965 everything was fine but in 1965 US had war with Vietnam and in the effect of war the US economy started to tumble.


• Until 1970, US were printing more and more dollar to overcome financial crisis. This made countries to start disbelieving in dollar and ask for gold in return of dollar.US had printed more dollar than gold it had. Redeem of gold would have destroy US economy. Therefore, US president Nixon ended gold back dollar and started printing more and more dollar to strengthen the economy. Dollar value in international market was gradually plunging as it was only paper money not backed by gold.


• Nixon took a very smart move, went to Arabs and asked to take dollar in exchange of oil. US also promised to give protection and weapons (This is called Petro-Dollar system). Other OPEC members (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, United Arab Emirates and Venezuela) also followed Saudi Arabia exchange policy. US economy started to emerge but other countries (China and Japan etc.) had to make export oriented policies to get dollar to purchase oil.US economy is like a vehicle which cannot run without oil.


• In 1999, enemy of Dollar had come into the picture "Euro".


• In 2000, Iraqi president (pro Russia-China) Saddam Hussain decided to sell oil in Euro. This assured his death warrant. US economy (dollar) might derail if Iraq and other OPEC members follow it.


• Therefore, in 2003, Bush invaded Iraq on the pretext of chemical weapons to save the dollar and destroy the entire country. After Saddam, Iraq again started selling oil in dollar.


• Libya's Gaddafi declared using gold Dinar in exchange for oil in 2010. He also tried to form an African union and was planning to launch a satellite which was going to serve African nations. Gaddafi's step was against US and European nations who have been sucking the entire Africa continent for years. So US and EU invaded Libya and killed Gaddafi. Syria moved away from the dollar in 06 and Iran in 08.


• Now US have to keep Russia and China away from natural resources (oil and natural gas) and has to compete Euro/Yuan/Rubel as well.


• Today the US-backed wars in Ukraine and in Syria are but two fronts in the same strategic war to cripple Russia and China and to rupture any Eurasian counter-pole. Natural gas has become the favoured “clean energy” source for the 21st Century and the EU is the world’s largest growth market for gas, a major reason US wants to break the Russia-EU supply dependency to weaken Russia and keep control over the EU via loyal proxies like Qatar. The world’s largest known natural gas reservoir sits in the middle of the Persian Gulf straddling part in the territorial waters of Qatar and part in Iran.


• China signed an agreement with Iran to develop gas pipeline infrastructure to bring the gas to China.


• In July 2011, the governments of Syria, Iran and Iraq signed a historic gas pipeline energy agreement and this triggered US-Saudi-Qatari war to remove Syrian president Assad. This pipeline would run from the Persian Gulf (in Iran), to Damascus in Syria via Iraq territory. The agreement would make Syria the centre of assembly and production in conjunction with the reserves of Lebanon. This is a geopolitically strategic space that geographically opens for the first time, extending from Iran to Iraq, Syria and Lebanon.


• Shortly after signing with Iran and Iraq, on August 16, 2011, Bashar al-Assad’s Syrian Ministry of Oil announced the discovery of a gas well in the Area of Qarah in the Central Region of Syria near Homs. Russia, with Assad in power, would be a major investor or operator of the new gas fields in Syria.


• Iran ultimately plans to extend the pipeline from Damascus (Syria) to Lebanon’s Mediterranean port where it would be delivered to the huge EU market. Syria would buy Iranian gas along with a current Iraqi agreement to buy Iranian gas from Iran’s part of South Pars field.


• Qatar, today the world’s largest exporter of LNG, largely to Asia, wants the same EU market that Iran and Syria eye. For that, they would build pipelines to the Mediterranean. Here is where getting rid of the pro-Russian-Iranian-Chinese Assad is essential.


• In 2009 Qatar approached Bashar al-Assad to propose construction of a gas pipeline from Qatar’s north Field through Syria on to Turkey and to the EU. Assad refused, citing Syria’s long friendly relations with Russia. That refusal combined with the Iran-Iraq-Syria gas pipeline agreement in 2011 ignited the full-scale Saudi and Qatari along with US assault on Syria and cause of rise of ISIS.


• ISIS is now war army of US+Israel+Saudi Arabia+Qatar and many other countries. US announced attack on ISIS but wanted to capture Syria. Now in counter attack Syrian president called his alliance Russia and China. Now world is on the verge of polarisation, Russia+China+Iran+Syria+Iraq... and US+Israel+Saudi Arabia+Qatar+UK...


• US are trying to rapture EU economy to down euro using IMF by weaken its member countries’ economies. Greece is one of the recent victim (Spain, Italy, Portugal are in queue).


• Saudi Arabia is manipulating oil price to weaken Iran indirectly. Russia. China is in currency war with US. China did de-value its currency to compete with dollar(China market crash in Aug-Sept).


• France voted against Israel for Palestine recognition as a State in UN in Sept-Oct 2015, and hurt Israel by looking for 2 states solution theory. France had to pay for this by the attack in Paris


• China is capturing African countries and making lot of investments. Mali has been recently attacked because its President went to China's door to ask help and get rid of US occupied gold mines.

Got to give it a thought.

By Mr Sanjeev Zarbade, Vice President-Private Client Group Research, Kotak Securities Limited:

It was a tough week for the global markets as fears of slowdown (Caixin services PMI indicated a contraction) in China and the subsequent move to fix the midpoint of currency trading at a lower level led to a sharp selloff in Chinese markets. The selling spread on to global markets as well. The selloff on Thursday was swift to the extent that it triggered a shutdown of the Chinese market in the first fifteen minutes itself. With reports that Chinese Yuan is overvalued versus the USD, there is apprehension that further devaluation may not be ruled out. Going into the next week, the US jobs data to be released today would be a key monitorable to gauge the strength of the economy. With the onset of the earnings season, markets would be focused on individual results.

By Kotak Securities:

We all have been speaking about onshore and offshore yuan in the recent times. Quite vital to understand the difference between them.

Onshore and Offshore Yuan:

1. CNY (Onshore) for the actual currency used within the Chinese borders.
2. CNH (Offshore), the deliverable version of the Yuan, which can only be maintained and freely exchanged outside of China. As of this writing, one can only do so in Hong Kong and Singapore.

What is offshore renminbi and how does it work?
As China began to open up its economy, it wanted its currency to be used in the international market to settle trade and financial transactions, but without fully opening up its capital account. Hong Kong, which has served as an international hub for mainland China, naturally happened to be a great place for an offshore renminbi market. Singapore, Taiwan, and London have since developed their own offshore renminbi markets. It began with the development of the personal renminbi banking business in 2004, when renminbi deposits were allowed in Hong Kong. Bank of China (Hong Kong) was designated as the sole offshore renminbi clearing bank sometime in 2004.

Difference between Onshore Yuan (CNY) and Offshore Yuan (CNH):


Export to China, invoice in CNY, settlement in CNH:



Import from China, invoice in CNY, settlement in CNH:


Source: Mizuho Bank reports, Danske Bank reports, Quora.

By Mr. Dipen Shah, Senior VP & Head-PCG Research, Kotak Securities:

Markets ended a volatile week with losses on Friday. The weak US markets likely impacted sentiments and the markets failed to hold on to Thursday’s gains. The US Fed hike has had little impact on the markets globally, with the event largely discounted early on. The cautious outlook for FY17 by the Chief Economic Advisor on Friday likely impacted sentiments.
The probability of the GST Bill getting passed in the current session of Parliament looks low and markets will now look out for reforms on the executive side. Markets will also await management commentaries on whether the reform initiatives of the Government have percolated to the ground level. That will be an important trigger for the markets to sustain and move higher from the current levels.

By Kotak Securities:

What are the Special Drawing Rights (SDR)?
The Special Drawing Rights is a reserve asset created by the International Monetary Fund (IMF) in 1969 as a supplement to member countries’ foreign exchange reserves and a financial instrument to offer help with liquidity to member nations facing a payment crisis. It is not a currency, nor a claim on the IMF, but it can be exchanged for freely usable currencies. It bears an interest rate, which is set each week. The value of the SDR is currently based on a basket of four currencies - the US dollar, the euro, the British pound and the Japanese yen. The IMF reviews the basket’s composition every five years.

Criteria to be included in the SDR:
A nation’s export of goods and services should account for 1 per cent of the world’s total, or stand among the top rank. (China’s export share in global trade ranked first at 12.4 per cent in 2014). The currency must be “widely used” for international transactions and “widely traded” in the foreign exchange transactions. China made its first attempt for the yuan to be included in the currency basket in 2010, but failed as it didn’t meet this second requirement.

What has China done this year to prepare for the yuan’s inclusion in the SDR?
The central bank ended a soft peg to the US dollar on August 11 and revised the pricing mechanism to set yuan/dollar central parity to make the rate reflect closing prices the previous day. It intervened later to narrow the spread of onshore and offshore yuan rate. China announced it would open the domestic foreign exchange market to foreign monetary authorities and sovereign wealth funds and removed quota controls on their investment in bond markets. The China International Payment System started operations in October to provide clearing and payment services in the cross-border yuan and offshore yuan business, a boost for the currency’s global use by cutting transaction costs and processing times. Central bank Governor Zhou Xiaochuan informed the International Monetary Fund in October that China had started to switch to SDDS, a statistical system created by the IMF to compile and release economic data, including GDP, foreign exchange reserves and balance of international payments, to enhance transparency and the credibility of economic statistics. The Ministry of Finance started to issue three-month treasury bonds in October with the coupon rate serving as a reference for the SDR’s interest rate after the yuan’s inclusion in the currency basket. The People’s Bank of China removed the floor on lending rates in 2013 and lifted the ceiling on deposit rates in October this year, a milestone in interest rate liberalisation.

China’s push for increasing the use of the yuan around the world:
Central bank chief Zhou Xiaochuan proposed a super-sovereign reserve currency based on SDRs in 2009 in a bid to reduce reliance on a single hard currency, implying he was referring to the US dollar. He suggest expanding the currency basket to cover major economies using GDP as a reference, hinting that a bigger role was possible for China. China started a trial of cross-border trade settlement in the yuan in Shanghai and three cities in Guandong in 2009 and expanded the programme nationwide in July 2012. It tasked the Shanghai Free Trade Zone to pilot capital account liberalisation in 2013 and announced further plans to deepen the reforms, including the launch of outbound direct investment by individuals. Qianhai, a district in Shenzhen, is also exploring opening up capital account convertibility. China launched the Hong Kong-Shanghai Stock Connect programme in 2014 and will kick off a feasibility study for a similar programme between Shanghai and the London stock exchange. The People’s Bank of China issued its first overseas yuan notes in London on October 20, offering liquidity instruments and pricing benchmarks for offshore yuan products. China started to adopt yuan denomination for domestic crude oil futures from August 1.

Details of the yuan’s inclusion in the SDR and the significance of move:
The yuan was granted a weighting of 10.92% in the SDR basket. Its official inclusion will start from October 1 next year. It marks a rise in the economic clout of China, reducing its heavy reliance on the US dollar and increasing the nation’s influence around the world on economic and financial issues. The US dollar, however, remains as the dominant international currency. Member countries will adjust their foreign exchange reserves following the weighting adjustment in the new SDR basket. Economists estimate that 1 trillion yuan (HK$1.2 trillion) of global reserves will migrate to renminbi assets. It will increase yuan’s use in the International Monetary Fund, such as China having the ability to offer yuan funds to the IMf and take part in financial bailouts. It will be a catalyst for further financial reforms and the development of domestic capital markets in China, such as a more liquid and transparent bond market, opening up markets to foreign agencies investment. It will mark a political victory for Zhou Xiaochuan and other financial reformers in China. It will also form part of President Xi Jinping’s political legacy. It will help strengthen confidence in the yuan and is likely to attract foreign banks to diversify into wider renminbi assets in the long term. There is debate about the short-term impact on the yuan, with additional uncertainty due to the US Federal Reserve’s ongoing discussions over whether to increase interest rates. But in the long run as a reserve currency, it will support a stronger yuan. It will reinforce Beijing’s confidence in a market-decided value for the yuan, which might lead to a free-up of the central bank’s monetary policy in the long run.

Source: SCMP, Global Research

By Mr. Dipen Shah, Senior VP & Head-PCG Research, Kotak Securities:

Markets ended the week on a positive note, rising nearly 1% for the week. With the PM offering to meet Congress leaders, markets turned optimistic on the prospects of the GST Bill. This kept sentiments positive on Friday, despite weak global markets.
Passage of important legislations in Parliament is an important trigger for the market. This will remain the focus for markets next week, apart from the economic data in US and the RBI policy meeting. We expect RBI to hold rates in its December 1 meeting.

By Mr. Dipen Shah, Senior VP & Head-PCG Research, Kotak Securities:

Markets ended a volatile week with gains of about 1%, buoyed by expectations of progress in passage of important reform bills in the winter session of Parliament. Upbeat assessment of the US economy by the Fed officials supported global markets. Large IT stocks lost ground during the week on cautious commentary by Infosys regarding the 3QFY16 growth rates and margins.
Going ahead, all attention will be on the winter session of Parliament and whether the Government is able to reconcile differences with the opposition and pass important legislations. A rate hike in US looks imminent in the next policy meeting of the Fed but that is largely discounted by markets, we believe.

By Kotak Securities:

Highlights of Seventh Pay Commission report:

1. 23.55 per cent increase in pay and allowances recommended
2. Minimum pay fixed at Rs 18,000 per month; maximum pay at Rs 2.25 lakh
3. The rate of annual increment retained at 3per cent
4. 24 per cent hike in pensions
5. One Rank One Pension proposed for civilian government employees on line of OROP for armed forces
6. Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh; ceiling on gratuity to be raised by 25 per cent whenever DA rises by 50 per cent
7. Cabinet Secretary to get Rs 2.5 lakh as against Rs 90,000 per month pay band currently
8. Financial impact of implementing recommendations will be Rs 1.02 lakh crore – Rs 73,650 crore to be borne by Central Budget and Rs 28,450 crore by Railway Budget.
9. Total impact of Commission’s recommendation to raise the ratio of expenditure on salary and wages to GDP by 0.65 percentage points to 0.7 per cent
10. Military Service Pay (MSP), which is a compensation for the various aspects of military service, will be admissible to the defence forces personnel only
11. MSP for service officers more than doubled to Rs 15,500 per month from Rs 6,000 currently; for nursing officers to Rs 10,800 from Rs 4,200; for JCO/ORs to Rs 5,200 from Rs 2,000 and for non-combatants to Rs 3,600 from Rs 1,000
12. Short service commissioned officers will be allowed to exit the armed forces at any point in time between 7 to 10 years of service
13. Commission recommends abolishing 52 allowances; another 36 allowances subsumed in existing allowances or in newly proposed allowances.
14. Recommendations will impact 47 lakh serving government employees, 52 lakh pensioners, including defence personnel.
15. Recommendations to be implemented from January 1, 2016

By Kotak Securities:

What is G20?
The Group of Twenty (G20) Finance Ministers and Central Bank Governors was established in 1999 to bring together industrialised and developing economies to discuss key issues in the global economy. The inaugural G20 summit took place in Berlin, December 1999, hosted by German and Canadian finance ministers. G20 Trade Ministers meeting is held on 5-6 October 2015 in Istanbul, Turkey.

Which countries are members of the G20?
The G20 is made up of the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States of America. The remaining seat is held by the European Union, which is represented by the rotating Council presidency and the European Central Bank.

How often do they meet?
It is normal practice for the G20 finance ministers and central bank governors to meet once a year. However, leaders met twice a year in 2009 and 2010, when the global economy was in crisis.

How does the G20 differ from the G7?
The G7 was established in 1976 as an informal forum of seven major industrial economies: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States of America. It was re-named the G8 after the entry of Russia in 1998. Where the G7 seeks agreement on current economic issues based on the interests of those countries, the G20 reflects the wider interests of both industrial and emerging-market economies.

Who chairs the G20 summit?
The G20 has no permanent staff of its own. The G20 chair rotates between members and is selected from different regional groupings each year. In 2014 the G20 chair was Australia, and in 2015 it will be Turkey. Hosting the summit is an opportunity to set the agenda and lead discussions. In 2009, when the UK hosted a special spring summit, former Prime Minister Gordon Brown orchestrated a deal in which world leaders agreed on a $1.1 trillion injection of financial aid into the global economy. The "historic" deal was widely viewed as a success.

Do all member countries exert equal influence?
There are no formal votes or resolutions on the basis of fixed voting shares or economic criteria. Every G20 member has one voice with which it can take an active part in G20 activity.


The 2015 G20 Agenda
Three key objectives of the 2015 G20 agenda for the global economy will be:

• Strengthening the Global Recovery and Lifting Potential
• Enhancing Resilience
• Buttressing Sustainability

In 2015, Turkey will attach utmost importance to strong cooperation and effective coordination among its members and also strengthening interaction between the G20 and Low-Income Developing Countries (LIDCs). Turkey aims to channel the influence of G20 to reach at concrete and beneficial outcomes for the global community. In this regard, Spain, Azerbaijan, Singapore and the chairs of ASEAN (Malaysia), African Union (Zimbabwe) and NEPAD (Senegal) are invited to the G20 meetings in 2015.

By Mr. Dipen Shah, Senior VP & Head-PCG Research, Kotak Securities:

Markets ended the day almost flat, ahead of the outcome of the Bihar elections results and the US non-farm payrolls data for October. If the data shows a strong increase in employment, it could add further fuel to hints from the Fed's chair earlier this week that the bank could increase interest rates in December if data supported such a move. Various below-expected quarterly numbers also weighed on the markets though SBI numbers were better than expected.
Going ahead, apart from the Bihar state election results, markets will closely track the proceedings of the winter session of the parliament. Both, legislative and executive reforms (like the Discom package) are needed from the Government to sustain and improve market sentiments.

By Mr. Dipen Shah, Head of Private Client Group Research, Kotak Securities:

Markets ended on a weak note, giving up about 3% over the week. This was despite the US Fed not raising rates and China cutting rates / CRR to support the economy. Markets were likely disappointed by the results of a few banks / capital goods / other companies, which failed to meet expectations.
The focal points for the markets will be the remaining quarterly results and the outcome of Bihar elections. A win for the NDA in Bihar elections will be a positive for the markets. Post that, markets will focus on the Parliament proceedings, wherein, important legislations like the GST Bill are expected to be taken up.

By Mr. Dipen Shah, Head of Private Client Group Research, Kotak Securities:

Markets ended the week on a positive note, buoyed by the possibilities of further stimulus from the ECB and supportive global markets. Banks underperformed the benchmarks.
Emerging market funds have seen flows after several weeks and that indicates growing interest of investors in EMs and particularly, towards India.
Government spending has increased and that is currently supporting growth. We believe that, the recent rate cuts and various administrative / executive decisions by the Government should lead to higher investments by the private sector. Improvement in private sector capex will likely result in better earnings growth and valuations for the relevant sectors.