Monthly Strategy Report - January 2014

Monthly Strategy Report January 2014
Monthly Equity Commentary

1-1.S&P BSESENSX.BSE - 01/01/14
Trend7
21500
21450
21400
21350
21300
21250
21200
21150
21100
21050
21 T
20950
20900
20850
20800
20750
20700
20650
20600
20550
03
04
Month Gone By
06
09
10
Frontline Indices:
Week
No
05
% Chg
Sensex Nifty
11
12
13
16
17
18
19
20
23
24
26
27
30
31
J14
Daily
The Benchmark indices ended positive for the month of December 2013. BSE Sensex rose
by 1.82%. Nifty rose by 2.07% for the month.
Key Positives
Key Negatives
The HSBC Manufacturing PMI, compiled by Markit, rose to Indias economy expanded 4.8 per cent in July-September, the
51.3 in November from October's 49.6.

Peak power deficit in the country shrunk to 3% in October,
+0.98
+1.36
-1.34
-1.46
Retail Research
fourth straight quarter of sub-5 per cent growth. Slower expansion

of government-supported services and continued contraction in the
mining sector were major drags while 4.6 per cent growth in
agriculture after just 2.7 per cent in the previous quarter provided
comfort. Gross domestic product (GDP) had grown 5.2 per cent in
the same quarter of the previous financial year.
as against 9.4% in the same month last year, helped by

higher hydel generation due to heavy rains and lower
industrial growth. Less agricultural load and more hydel
generation due to heavy monsoon are the prime reasons
for reduced peak power deficit. Also the industrial sector
did not grow as expected leading to reduction in demand.
Week began on a positive note with investors giving Key benchmark indices edged lower as gains triggered by strong
thumbs up to a strong performance of Bharatiya Janata
performance of Bharatiya Janata Party (BJP) in assembly elections
Party (BJP) in assembly elections.
were washed away by heightened speculation that the Federal
Reserve may be about to start cutting back on its stimulus program.
Hawkish comments on inflation from Reserve Bank of India (RBI)
Governor Raghuram Rajan triggered speculation that the central
1
+1.76
+1.72
+0.54
+0.63
-0.11
-0.16
Retail Research
bank will raise its main lending rate viz. the repo rate at the
scheduled monetary policy review, this also impacted the market
sentiment.
Speculation that the Federal Reserve may be about to start cutting
back on its stimulus program also played its part in the week.
Indian stocks surged after the Reserve Bank of India (RBI) The US Federal Reserve's move to cut its bond-buying program
surprised markets by keeping its main lending rate viz.
rekindled concerns of slowing foreign inflows.
the repo rate unchanged at 7.75% after mid-quarter
monetary policy review.
Investor sentiment was also boosted by stock market
regulator Securities and Exchange Board of India's (Sebi)
decision to rationalize the rules on trading of thinlytraded stocks.
Market sentiment was boosted by data showing that The wholesale price inflation continued to show an uptick in
foreign funds remained net buyers of Indian stocks.
November as it casts a shadow over possibility of a rate cut by the
The BSE Mid-Cap and the BSE Small-Cap indices
Reserve Bank of India in its upcoming monetary policy review.
The WPI rose to 7.52% in November from 7% a month ago mainly due
outperformed the Sensex during the week.
RBI Governor Raghuram Rajan said he would stick with the
to continued rise in vegetable prices. This takes the wholesale price
earlier 5% growth projection for the full year, with minor
inflation to a 14 month high.
Ratings agency Crisil said government will overshoot its 4.8% fiscal
fluctuations in the number.
deficit target by 0.40% this fiscal and suggested state-run companies
should dip into their cash reserves to narrow the gap by paying
extra dividends.
Indian refiners processed 5 per cent less oil in November than a year
earlier, the second fall in as many months mainly due to
maintenance shutdowns at some plants and soft demand.
The country may end 2013-14 with a current account Reserve Bank of India (RBI) Governor Raghuram Rajan said that the
deficit as low as 2 per cent of GDP thanks mainly to the
commencement of tapering by the US Federal Reserve will mean a
significant drop in gold imports. According to a senior
repricing of certain assets with consequent volatility in the global
government official, encouraging signs on various fronts
financial markets and that a potential additional source of
suggest a significantly reduced CAD - at around $40
uncertainty for India is the coming general election.
billion. This assessment is much lower than the initial Investor sentiment was hit adversely after the RBI's latest financial
stability report (FSR) said that the risks to the Indian banking sector
estimate of $70 billion or 3.7 per cent of GDP.
have further increased since the publication of the previous FSR in
June this year.
Increase in Brent crude oil prices also hit sentiment adversely.
Higher crude oil prices stoked worries of increase in current account
deficit and the government's fiscal deficit.
Global markets:
Indices
Nov-13
US - Dow Jones
US - Nasdaq
UK - FTSE
Japan - Nikkei
Dec-13
% Change
16086.4
16576.7
3.05
4059.9
4176.6
2.87
6650.6
6749.1
1.48
15661.9
16291.3
4.02
Germany - DAX
9405.3
9552.2
1.56
Brazil - Bovespa
52482.0
51507.2
-1.86
Singapore - Strait Times
3176.4
3167.4
-0.28
Hong Kong Hang Seng
23881.3
23306.4
-2.41
India - Sensex
20791.9
21170.7
1.82
India - Nifty
6176.1
6304.0
2.07
Indonesia - Jakarta Composite
4256.4
4274.2
0.42
Chinese - Shanghai composite
2220.5
2116.0
-4.71
Average daily volumes on BSE during the month of December 2013

rose 1.8% M-o-M (NSE daily average volumes rose by 0.9% M-o-M).
The average daily derivatives volumes on NSE fell 11.6% to Rs.
132,835 cr in December.
Sectoral Indices for the month of December broadly ended on a

positive note except Autos. The top four gainers for the month
were IT, Teck, Metals and Realty, which rose by 7.93%, 6.60%,
5.88% and 5.72% respectively while the loser was Autos, which fell
by 0.51%. Smallcap and Midcap indices too rose smartly by 7.4%
and 6.0% respectively.
Sectoral performance:
BSE Indices
Sensex
Smallcap
Midcap
BSE 500
BSE 200
BSE 100
The world markets ended the month of December 2013 on a mixed

note. Shanghai Composite, Hangseng, Bovespa and Strait Times
were the losers, falling 4.71%, 2.41%, 1.86% & 0.28% respectively
while the gainers were Nikkei, Dow Jones, Nasdaq, Nifty, Sensex,
Dax and FTSE each gaining 4.02%, 3.05%, 2.87%, 2.07%, 1.82%,
1.56% and 1.48% respectively.
% chg
29-Nov-13
31-Dec-13
20791.9
21170.7
1.82
6099.5
6551.1
7.40
6325.6
6705.6
6.01
7598.2
7828.3
3.03
2463.9
2530.6
2.71
6177.8
6326.7
2.41
Remarks
Tata Motors' British luxury car unit Jaguar Land Rover (JLR) said that it has decided to set
Auto
12321.8
12258.8
-0.51
Bankex
12730.3
13001.9
2.13
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up a manufacturing facility in Brazil following a landmark agreement between the company

and state authorities to build a plant in the State of Rio de Janeiro.
Maruti Suzuki India hit record high as the Japanese yen touched its lowest level in more
than five years against the dollar.
Bank shares were in demand after a foreign brokerage upgraded target prices of select bank
shares. The brokerage increased SBI's target price to Rs 2,200 from Rs 1,933. ICICI Bank's
3
target price was raised to Rs 1,290 from Rs 1,250.

HDFC Bank said that it has filed an application with the Foreign Investment Promotion Board
Capital Goods
9816.8
10264.3
4.56
Consumer Durables
5745.2
5821.3
1.32
FMCG
6562.0
6567.0
0.08
(FIPB) seeking approval for increasing foreign shareholding limit in the bank in accordance
with the now prevailing guidelines as the total foreign shareholding in the bank (FII and FDI)
has crossed 49%.
The Cabinet Committee on Economic Affairs (CCEA) approved the proposal of AXIS Bank for
increase in foreign investment ceiling in the bank to 62% from 49%, subject to the aggregate
foreign institutional investors holding not exceeding 49% of the paid up equity share capital
of the bank.
Capital goods stocks rose on renewed buying. GDP numbers, which were better than
estimates, and improvement in manufacturing data for November.
BHEL rose as Prime Minister asked administrative ministries to work out viable plan for
disinvestment of BHEL, including dividend payment, so as to achieve Rs. 40,000 crore
targets in the current fiscal (till date only roughly Rs. 4000 crore was done).
FMCG stocks were under pressure on the back of persistent selling by funds on fears of a
slowdown in offtake and valuations that had run-up ahead of time.

Biocon rose triggered by the company's announcement that it has entered into a licensing
Healthcare
9500.9
9966.3
4.90
IT
8414.3
9081.8
7.93
Metal
9410.9
9964.3
5.88
Oil & Gas
8650.7
8834.4
2.12
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and collaboration agreement with Quark Pharmaceuticals, Inc. for the development of a
range of small interfering RNA based novel therapeutics.
Aurobindo Pharma hit record high, extending recent gains triggered by the company
receiving the final approval from USFDA to manufacture and market a generic medicine in
the United States.
GlaxoSmithkline Pharmaceuticals hit record high, after GlaxoSmithKline Pte along with
GlaxoSmithkline plc announced a voluntary open offer to the public shareholders of
GlaxoSmithkline Pharmaceuticals to acquire 2.06 crore equity shares, representing 24.33%
stake of the total voting share capital of the company, at Rs 3,100 per share.
IT stocks rose as the Federal Reserve's decision to slow the pace of its bond purchases
boosted investor confidence in the US economic recovery. The US is the biggest outsourcing
market for Indian IT firms.
Indias largest software services exporter TCS said the next financial year would be a better
one compared with the current year on account of an uptick in client spending in the US and
Europe.
Wipro said it will discontinue manufacturing of Wipro branded desktops, laptops and servers
in its endeavor to strengthen its position as a system integrator and increase its focus on IT
solutions and services.
Select metal stocks edged higher as manufacturing in China continued to grow last month.
China is the world's largest consumer of copper and aluminum.
Oil & Natural Gas Corporation (ONGC) was under pressure after the Gujarat High Court
insisted that royalty on crude oil is to be paid on pre-discount price. The court has directed
ONGC to make payment towards shortfall royalty for the period from April 2008 till this
4
date, within a period of two months.

Refining stocks were back in favour on expectations that they would bear lower amount of
subsidy even as the Govt is thinking of removing diesel subsidy faster than earlier expected.
Central Electricity Regulatory Commission (CERC) tightened certain rules for tariffs and
Power
1631.7
1700.7
4.23
PSU
5809.3
5909.7
1.73
Realty
1355.9
1433.4
5.72
TECk
4738.5
5051.3
6.60
operations for the sector in its draft 2014-19 guidelines. CERC's draft regulations have
tightened some operational parameters, reducing the use of financial incentives for
achieving transmission and generation targets. The guidelines also propose that some of the
savings from fuel costs be partially passed on to consumers. The rules need to be finalised
by March.
Select power stocks were in demand on hopes that the current and the next Govt due after
the elections would take steps to remove bottlenecks in the sector.
Real estate companies, seen as oversold in recent months, rose on value-buying, after the
Reserve Bank of India surprised investors by holding interest rates.
Fund Activity
Particulars
Equities (Cash)
Index Futures
Index Options
Stock Futures
Stock Options
Equities (Cash)
* = data till 26th Dec 2013,
Bond Yields
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Net Buy / Sell Net Buy / Sell Open Interest Open Interest
Nov 13
Dec 13
Nov 13
Dec 13
Remarks
FII Activity (Rs. in Cr)
FII Activity (Rs. in Cr)
+7201
+13823
FIIs were reported large net buyers in December.
FIIs were net buyers along with increase in open interest suggesting
-2421
+3219
12754
13785
building up of long positions.
10123
3966.6
42634
30112
FIIs were net buyers along with decrease in open interest.
FIIs were net sellers along with increase in open interest suggesting
-2851
-4210.1
29107
30713
cash-futures arbitrage possibilities thrown up during the month.
FIIs were net sellers along with increase in open interest suggesting
-142
-183
360
603
creation of fresh shorts.
*MF Activity (Rs. In Cr)
MF Activity (Rs. In Cr)
-482.6
-572.1
MFs continued to be net sellers in the month of December.
Indian G-Sec bond yields ended lower by 27 bps at 8.82% at the end of December 2013
over November 2013. Bond yields declined, which means it became less expensive for the
RBI to borrow money from investors.
Commodities
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In December 2013, the Reuters/Jefferies CRB Index of 19 raw materials ended higher by
1.89% to close at 280.17. The rise in the Reuters/Jeffries CRB Index was on account of a
rise witnessed in commodities like Natural Gas (up by 14.12%), Silver (up by 4.42%),
Nickel (up 3.82%), Aluminum (up by 3.28%), Gold (up by 0.30%), Coffee (up by 3.88%),
Crude Oil (up by 6.12%), Copper (up by 4.85%), Heating Oil (up by 1.23%), Cocoa (up by
0.10%), Cotton (up by 7.89%) and Live Cattle (up by 1.03%) offset partly by lean Hogs
(down by 2.09%), Sugar (down by 4.31%), Orange Juice (down by 2.33%), Soybeans (down
by 0.69%), Wheat (down by 6.43%) and Corn (down by 1.36%). Gold futures dropped fell
on expectations that an improvement in the U.S. economy would lower demand for the
yellow metal.
Behaviour of commodity prices (including LME 3 month buyer prices for base metals)
during the month ended December 2013 is given below. Base metals on the London Metal
Exchange (LME) have closed out the month considerably higher after most metals gained
strongly in thin trade on the back of a weaker US dollar, and optimism toward economic
activity in key metal-consuming nations. London copper jumped to its highest in four
months with signs of economic revival in Asia and the United States burnishing the
demand outlook for metals. Zinc prices rose to their highest level in nearly 10 months,
the biggest gainer in the base metals complex, lifted by tightening supplies and robust
imports from China.
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Behaviour of commodity prices (including LME 3 month buyer prices for base metals) during the month ended December 2013:
Commodity
31-Dec-13
29-Nov-13
% Chg
Reasons
US Federal Reserve announced the start of tapering or winding down of the quantitative easing pushing
Gold
1202
1251
-3.89%
Crude Oil
WTI
98
93
5.83%
Aluminum
1811
1753
3.28%
Copper
7370
7029
4.85%
Zinc
2070
1877
10.28%
Nickel
13990
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13475
3.82%
gold lower. The Feds decision would reduce availability of disposable fund at the hands of investors,
resulting in decreasing demand for precious metals. Investors pulled $38.8 billion from gold funds this
year, the most in data going back through 2000, according to EPFR Global, a research company.
Gold prices have fallen amid a shift in investor money to equities, and improving U.S. economy. For
gold, the price risks are skewed to the downside. The saving grace, albeit temporary, is the Chinese
demand for the New Year which falls towards the end of January. Indian consumption even during the
current seasonally strong months (wedding season) has been tepid.
West Texas Intermediate traded near the highest price in almost six weeks as Chinas net crude imports
rebounded in November and the U.S. jobless rate fell, signaling a recovery in the worlds biggest oil
consumers. Also U.S. manufacturing unexpectedly advanced and Chinese growth surpassed projections,
signaling greater fuel demand in the worlds biggest oil-consuming countries.
West Texas Intermediate crude rose after the Federal Reserve said it will reduce stimulus amid an
improving economic outlook and as U.S. fuel consumption increased. The Fed is trimming its monthly
bond purchases, reflecting cumulative progress and an improved outlook for the job market. The Fed
signaled that the economy is in a better shape than people had thought, and thats bullish for crude oil.
WTI crude prices rose as the economy of worlds largest oil consumer is showing signs of stability and
growth. Oil prices rose slightly as traders winding down for the festive season kept an eye on supply
concerns triggered by violence in crude producer South Sudan. Additionally, US GDP was reported to
grow at a 4.1% annualized rate in 3Q13, revised upward from a previous estimate of 3.6%. This was a
positive sign for the US economy, and signaled the potential for higher oil demand.
Following the Fed announcement to cut the bond-buying program, LME markets were in quiet retreat to
lower levels as the US dollar strengthened, buoyed by the news since it may signal interest rate rises in
the medium/longer term. However, Aluminum managed to stabilise, helped by Commerce Department
data that showed US new-home construction climbed last month to the highest level in almost six years.
Copper rose higher on the London Metal Exchange (LME), propped up by signs of strengthening demand
for the metal in China. Chinese trade data over the weekend showed copper imports to the country rose
to 435,600 metric tons in November, up seven per cent from the previous month and 19 per cent higher
than a year earlier. China also posted its biggest trade surplus in almost five years last month,
suggesting good demand for the products it manufactures. China is the world's top consumer of metals
such as copper, which is used in everything from smart phones to household plumbing.
London copper jumped to its highest in four months with signs of economic revival in Asia and the United
States burnishing the demand outlook for metals.
Zinc prices rose to their highest level in nearly 10 months, the biggest gainer in the base metals
complex, lifted by tightening supplies and robust imports from China.
Nickel prices began to tick higher after the Indonesian government said that it would stick to its plan to
ban exports of mineral ores from the country, starting January. Indonesia is the world's No 2 exporter of
nickel ore, which feeds China's nickel pig-iron industry. Nickel pig iron is a lower-quality, cheaper
alternative to pure nickel that can be used in stainless-steel production.
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Indonesia's tin exports picked up in November to around two thirds of typical levels, Reuters analysis of
Tin
22500
22575
-0.33%
Lead
2232
2075
7.57%
exchange data showed, recovering from a two-month slump triggered by a change in the country's
export rules.
Lead rose to higher on the back of US tapering news.
Source:www.lme.com and www.barcharts.com
Currencies
The Baltic Dry Index (BDI) rose 25.04% in the month to close at 2277. The Baltic Dry
Index, which tracks global freight rates for ships carrying dry-bulk commodities such as
coal and iron ore, gained on signs of recovery in global trade and increase in imports
from China.
The USD strengthened vs other currencies in December 2013 except Pakistani rupee,
Indian rupee and Euro. The dollar rose against most currencies, supported by a rise in
U.S. Treasury yields a day after the Federal Reserve announced it would begin to
gradually wind down its massive bond-buying program from January.
The dollar had rallied broadly after the Fed said it would reduce its monthly asset
purchases by $10 billion, bringing them down to $75 billion. A reduction in Fed stimulus
would help lift U.S. bond yields and buoy the currency. But in a move to prevent any
sharp market reaction, the Fed also said it would likely "be appropriate" to keep
overnight rates near zero "well past the time" that the U.S. jobless rate falls below 6.5
percent - effectively extending the timeline for beginning to raise base interest rates.
Given below is a table that shows the depreciation (-)/appreciation (+) of the dollar against various currencies for the month of
December 2013:
USD to:
Pakistani rupee
Hong Kong dollar
Chinese yuan
31-Dec-13
29-Nov-13
% Chg
106.82
108.45
-1.5%
7.75
7.75
0.1%
6.11
6.09
0.4%
Reasons
The dollar has taken a lot of strengthening from the tapering news. US dollar rose after the Federal
Indian rupee
61.92
62.39
-0.7%
Taiwan dollar
Singapore dollar
Argentine peso
30.02
29.59
1.5%
1.27
1.25
1.5%
6.52
6.14
6.1%
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Open Market Committee said it would slow monetary stimulus to $75 billion a month from $85
billion.
The rupee recovered most of its losses and closed up against the Greenback following rally in local
equities amid fresh dollar selling by exporters.
The euro fell as ECB President Mario Draghi refrained from introducing further monetary stimulus.
Euro
0.73
0.74
-1.8%
Thai baht
Malaysian ringgit
Indonesian rupiah
32.92
32.05
2.7%
3.30
3.22
2.3%
12210.00
11962.00
2.1%
The ECB kept its interest-rate targets unchanged and gave no indication that policy makers will
introduce a negative deposit rate that would drive investors into riskier assets.
Data releases have been mixed with German Industrial Production figures for October showing a
1.2% decline; Italian manufacturing figures showing increased growth; and both the French Final
Non-farm Payrolls and German Final Consumer Price Index figures coming out unchanged from the
preliminary estimate.
The US dollar touched a five-year high against the yen on account of stronger-than-expected US
Japanese yen
105.24
102.40
2.8%
Brazilian real
2.36
2.34
1.0%
1063.26
1058.21
0.5%
Korean won
data and a budget deal in Washington has brightened the outlook for the US economy. The
greenback strengthened to almost the highest level since May versus Japans currency after Bullard,
who votes on policy this year, commented on a report last week that showed the jobless rate
dropped to a five-year low of 7 percent in November as employers added more workers than
forecast.
The yen declined for an eighth week against the greenback after the Bank of Japan retained its plan
to add 60 trillion yen ($574 billion) to 70 trillion yen a year to the monetary base. The Fed also said
it would likely "be appropriate" to keep overnight rates near zero "well past the time" that the U.S.
jobless rate falls below 6.5 percent - effectively extending the timeline for beginning to raise base
interest rates.
Brazil's currency closed weaker against the U.S. dollar amid a gloomy domestic outlook for 2014
fueling inflation fears and causing interest-rate futures to change course and rise as investors bet
the central bank will be forced to keep tightening monetary policy despite a weak economy.
(Source:www.oanda.com)
Comparison of Equity Returns in various markets - MSCI Indices in US$ terms

MSCI Index
BRIC
EM (EMERGING MARKETS)
Last
MTD
3MTD
YTD
1 Yr
278.4
-2.2%
1.4%
-6.3%
-6.3%
MSCI Index
EUROPE
Last
MTD
3MTD
YTD
1 Yr
1,759.2
2.2%
7.5%
21.7%
21.7%
1,002.7
-1.5%
1.5%
-5.0%
-5.0%
G7 INDEX
1,460.0
2.2%
8.2%
25.7%
25.7%
EM ASIA
446.4
-1.3%
3.6%
-0.2%
-0.2%
WORLD
1,661.1
2.0%
7.6%
24.1%
24.1%
EM EUROPE
437.7
-2.6%
-1.8%
-7.6%
-7.6%
EM EUROPE & MIDDLE EAST
372.1
-2.6%
-1.8%
-7.6%
-7.6%
SWEDEN
8,161.0
3.9%
5.2%
21.4%
21.4%
3,200.8
-2.8%
-3.1%
-15.7%
-15.7%
BELGIUM
1,557.4
3.7%
7.6%
24.6%
24.6%
DENMARK
7,310.2
3.5%
10.2%
23.4%
23.4%
EM LATIN AMERICA
CHINA
63.1
-3.4%
3.8%
0.4%
0.4%
INDIA
407.3
3.3%
10.1%
-5.3%
-5.3%
INDONESIA
665.5
-0.9%
-5.0%
-25.0%
-25.0%
KOREA
442.5
-1.7%
4.0%
3.1%
3.1%
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GERMANY
2,230.2
2.8%
13.3%
28.2%
28.2%
UNITED KINGDOM
1,375.4
2.6%
6.7%
16.2%
16.2%
USA
1,768.4
2.5%
9.7%
29.9%
29.9%
NETHERLANDS
2,576.3
2.2%
8.4%
28.5%
28.5%
MALAYSIA
507.3
1.1%
4.7%
4.2%
4.2%
PHILIPPINES
467.3
-6.6%
-5.1%
-4.3%
-4.3%
TAIWAN
289.9
1.4%
4.3%
6.6%
6.6%
THAILAND
349.6
-7.8%
-10.5%
-16.9%
BRAZIL
2,218.1
-4.8%
-6.2%
CHILE
1,842.8
-1.8%
COLOMBIA
1,038.3
-2.4%
SPAIN
514.9
2.2%
10.8%
27.7%
27.7%
1,747.5
1.5%
5.7%
23.3%
23.3%
AUSTRALIA
873.9
-1.9%
-1.8%
-0.3%
-0.3%
-16.9%
PORTUGAL
99.4
-2.6%
1.3%
7.5%
7.5%
-18.7%
-18.7%
AUSTRIA
1,276.6
-2.8%
2.8%
10.9%
10.9%
-7.3%
-23.1%
-23.1%
-11.5%
-23.7%
-23.7%
594.5
2.1%
6.4%
21.4%
21.4%
FRANCE
Frontier Markets
MEXICO
6,976.5
0.7%
7.0%
-2.0%
-2.0%
PERU
1,101.7
5.2%
2.9%
-31.1%
-31.1%
FM (FRONTIER MARKETS)
CZECH REPUBLIC
368.7
-4.0%
-0.8%
-14.9%
-14.9%
UNITED ARAB EMIRATES
402.3
17.0%
18.9%
84.7%
84.7%
GREECE
118.5
-2.3%
10.1%
46.3%
46.3%
BULGARIA
176.4
10.9%
19.6%
94.7%
94.7%
HUNGARY
467.2
-0.9%
-6.3%
-9.1%
-9.1%
SRI LANKA
228.7
7.5%
7.4%
8.3%
8.3%
POLAND
888.5
-4.6%
3.3%
-1.7%
-1.7%
UKRAINE
75.9
7.5%
6.5%
-15.8%
-15.8%
RUSSIA
786.9
1.6%
0.2%
-2.6%
-2.6%
TURKEY
456.1
-15.1%
-14.2%
-28.1%
-28.1%
126.9
4.6%
11.7%
26.5%
26.5%
KENYA
PAKISTAN
1,237.5
-5.3%
1.1%
43.4%
43.4%
EGYPT
675.6
9.0%
19.4%
6.2%
6.2%
ZIMBABWE
1,840.7
-5.9%
7.8%
37.5%
37.5%
SOUTH AFRICA
529.3
1.1%
1.7%
-8.9%
-8.9%
ARGENTINA
2,050.9
-9.0%
18.0%
63.7%
63.7%
Developed & Frontier markets

did well; Emerging Markets
underperformed
Equity markets across the globe ended the month of December 2013 on a mixed note. Among
the developed markets, Europe & G7 were the top performers, which increased by 2.2%
each. Even World index did well, gaining 2%. Frontier markets reported decent gains of 2.1%.
However, emerging markets underperformed during the month, declining by 1.5%. The fall
was led by Latin America, which fell by 2.8%. Europe and Europe & Middle East fell by 2.6%,
while BRIC index fell by 2.2%. EM Asia fell the least by 1.3%.
Sweden, Denmark & Belgium -

top
gainers
in
developed
markets; Austria, Portugal &
Australia underperform
Amongst the Developed markets, Sweden, Denmark & Belgium were the top three gainers,
up 3.9%, 3.7% & 3.5% respectively. Other markets like Germany, UK, USA, Netherlands, Spain
and France also did well, gaining in the range of 1.5-2.8%. However, the index gains were
restricted due to underperformance from countries like Austria, Portugal & Australia, which
fell by 2.8%, 2.6% & 1.9% respectively during the month.
Swedish markets outperformed on better than expected economic data released during the
month. Retail Sales rose to a seasonally adjusted 0.9% in November, from 0.2% in the
preceding month. This was better than the analyst expectations. Swedens economy has
been showing recent signs of strength. Swedens GDP is expected to grow at 1% this year,
and will accelerate to 2.4% next year. At that pace, Sweden will overtake the growth rate of
fellow Nordic country Norway, and it will grow faster than any other economy in the
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10
All EMs fell except Asia;

Indonesia, Thailand fell 12.2% &
8.9% while China up 4.9%
European Union outside of the Baltic States. In addition, consumer confidence numbers
released in November exceeded analysts expectations.
Portugals market underperformed, as the economys budget deficit in the 12 months to the
end of September edged up to 6.3% of GDP from 6.1% at the end of June as spending rose
more than revenues. Portugal needs to reduce the gap to 4% next year, when it hopes to
follow Ireland in making a smooth exit from the bailout it took in 2011 from the European
Union and International Monetary Fund.
Among the frontier markets, UAE & Bulgaria reported strong double digit gains of 17% &
10.9% respectively in the month of December 2013. Sri Lanka, Ukraine & Pakistan also
performed well, gaining 7.5%, 7.5% & 4.6% respectively. However, index gains were
restricted due to underperformance from Argentina, Zimbabwe & Kenya, which fell by 9%,
5.9% & 5.3% respectively.
UAE reported robust gains in December on the back of improvement in the economic
fortunes of the country. Dubais stock market has more than doubled in 2013. Emaar prices
rose significantly (more than 100%) as housing prices in the emirates rebounded. The index
has gained 14% since winning the right to host World Expo on November 27. The economy of
Dubai, which was hit hard by a housing crash and debt crisis five years ago, is expected to
receive a US$23 billion boost through to 2021 on the back of clinching the exhibition,
according to official estimates.
Stocks in Argentina had a negative performance during the last month. The economic data
was below expectations. Consumer Confidence decreased to 46.15 in December of 2013 from
49.89 in November of 2013. Argentina's economic activity grew 3.2% in October compared
with the same month last year, a result that came in a bit below market expectations. The
economys GDP contracted 0.20% in the third quarter of 2013 over the previous quarter.
Latin America, a top loser

amongst the EM index; EM Asia
fell the least
The emerging markets underperformed during the month, declining 1.5%, led by Latin
America, Europe and Europe & Middle East and BRIC index, which fell by 2.8%, 2.6% & 2.2%
respectively. EM-Asia fell the least by 1.3%.
Thailand & Philippines top

losers; India, Taiwan & Malaysia
restrict the EM Asia losses.
The fall in the EM Asia index was mainly led by Thailand, Philippines & China, which fell by
7.8%, 6.6% & 3.4% respectively. However, India, Taiwan & Malaysia outperformed, gaining
3.3%, 1.4% & 1.1% respectively, thus restricting the index losses.
Thailand fell sharply during the month on concerns that the capital outflows will quicken
amid prolonged political unrest in the country. The currency touched the weakest level since
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11
China & Brazil pull down the

BRIC index; however, Russia &
India outperform
Brazil top loser in Latin

America; Peru outperforms
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March 2010, adding to the worst annual loss in 13 years, and the benchmark stock index
dropped to a 15-month low. Global funds pulled $1.3 bn from Thai stocks in December 2013.
The central bank would review policy on Jan. 22 after official figures showed exports
contracted for a third month in November.
The Philippines benchmark stock index sank to a three-month low and bonds fell on concern
that inflation will accelerate after regulators allowed the nations biggest power supplier to
increase prices by a record. Inflation accelerated to a nine-month high in November as a
powerful typhoon damaged crops, crippled infrastructure and downed power lines.
Taiwan stocks rose, as investor sentiment was encouraged by a Wall Street rally paced by
gains in tech heavyweights such as TSMC. US is Taiwans second-biggest export market.
Taiwans export orders rose for the fifth month in November.
Among the BRIC countries, Brazil & China fell by 4.8% & 3.4% respectively. However, India &
Russia outperformed, gaining 3.3% & 1.6% respectively.
Brazilian markets underperformed as investor caution over a potential reduction in monetary
stimulus from the U.S. Federal Reserve led to a fall in the most heavily-weighted shares. The
extremely poor performance of Brazil's stock market -- one of the world's worst for this year
is partly attributed to the collapse of EBX group, owned by Eike Batista, Brazil's once-richest
man and the seventh richest in the world.
China reported decline during the month, as the property shares fell after Bank of China
predicted in a report Thursday that liquidity would remain tight in 2014 and more Chinese
cities would see a decrease in housing price. Further, investors worried about rising funding
costs hurting corporate profits after China's money rates spiked.
Russian stock markets gained during the month on news that President Vladimir Putin would
pardon jailed oil tycoon Mikhail Khodorkovsky, a boost for investors increasingly worried
about political freedoms and Russia's ability to reform the economy.
Fall in Latin American markets was led by Brazil, Colombia and Chile which fell by 4.8%,
2.4% & 1.8% respectively. However, index fall was restricted due to outperformance by Peru
and Mexico, which gained 5.2% & 0.7% respectively.
Chilean stocks fell and the peso strengthened after Michelle Bachelet won a second term as
president of the South American country on a platform to raise corporate taxes to fund
education and health reforms.
12
Turkey, Poland & Czech

Republic pull the EM Europe
and Europe & Middle East lower;
However, Russia outperforms
Peru outperformed as the economys GDP rose more-than-expected in Nov 2013. In a report,
INEI Peru said that Peruvian GDP rose to a seasonally adjusted annual rate of 5.42%, from
4.37% in the preceding month.
Among the Europe and Europe & Middle East, Turkey was a top loser, down 15.1%. Other
underperformers were Poland, Czech Republic & Greece, which fell by 4.6%, 4% & 2.3%
respectively. However, index losses were restricted due to outperformance from Russia,
which rose 1.6% and Hungary, which fell marginally by 0.9%.
Turkeys stock index slid to the lowest in four months and the lira fell after a third minister
implicated in a corruption probe resigned, saying Prime Minister Recep Tayyip Erdogan was
responsible and should quit.
Polish stocks underperformed during the month on the back of disappointing economic data.
Construction output in Poland decreased 4.30 percent in October of 2013 over the same
month in the previous year. Polish PPI unexpectedly fell in November to a seasonally
adjusted -1.5%, from -1.3% in the preceding month.
Egypt outperforms in Africa
Among the African markets, Egypt outperformed with sharp gains of 9%. The stock index
reached 35 month high after the finance minister announced plans for a second economic
stimulus package worth around 30 bn Egyptian pounds ($4.4 bn).
Global bond issues fell by more than 4% in 2013, to reach $3.66tn. The concerns of US Fed
tapering impacted bond raising plans in 2013 on account of significant volatility in interest
rates.
The US 10-year bond yields crossed 3% in December 2013, on account of positive indicators
in the US economy and the announcement of tapering by the US Fed. January marks the
beginning of the Fed's tapering, though it has not translated into a major trend change for
the dollar. Unwinding the tapering is not only going to be challenging for markets but also
for the US Fed. The communication strategy of the US Fed will be critical.
If the recovery of the US economy is faster in the 1st half of 2014, it can surprise the US Fed
as well. The fiscal challenges of the US economy may also have an impact on the US Fed
action.
Outlook going forward

Global Market Outlook
Fed Tapering Limited Impact
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13
China on the verge of a debt

crisis?
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The Fed has decided to reduce the quantum of bond buying per month from the next year.
So, it would reduce its monthly asset purchases by $10 billion to total $75 billion. Chairman
Ben Bernanke said the Fed will take "similar moderate steps" throughout next year to reduce
the purchases further if the economy shows continued improvement.
Though the Fed will cut back on bond purchases, it plans to hold its key short-term rate near
zero at least until unemployment falls below 6.5 per cent. Fed's outlook on rates was
interpreted as more dovish than expected leading to a rally in stock markets globally.
There will definitely be an impact on the countries which benefited from the QE programme
as funds did flow into both equities and debt. The news of tapering prompted them to move
away from the debt segments and thus put pressure on the balance of payments of the
concerned countries and hence their exchange rates. If the funds were being directed to
debt, then interest rates will matter for potential investors. Further, exchange rate stability
would be assessed when funds are taking a decision on in which country to invest.
We therefore expect the US economy to continue picking up pace in the course of 2014 and
to grow by 3%+ for the full year compared with ~1.8% in 2013.
Chinas economy had a roller-coaster ride in 2013, with a rosy start giving way to a
slowdown and widespread gloom, before a rebound in the third quarter brought things full
circle.
The extensive reforms passed in November are likely to curb state influence on companies
and the financial system and thus boost the efficiency of the economy considerably.
China has been making big plans towards economic stabilization and improvement in recent
times, and the latest efforts from the central bank and policy makers have them making
promises for the future.
Those within the Chinese government are looking to reduce local government debt while the
central bank is working to keep fiscal policy predictable during 2014 reforms. The reform
plan, announced earlier this year, marks the beginning of major changes meant to improve
Chinas economy by transitioning the countrys economy from one based on investment to
one based on consumption. Included in the plan are governmental urgings to improve
departmental delegations and streamline administrative actions.
The biggest question mark hanging over Chinas economy is the real-estate market. A
massive building boom and years of double-digit prices rises have pushed the dream of home
ownership out of reach for many Chinese and led to fears of a bubble.
14
After the global financial crisis broke in late 2008, China relied heavily on new construction
financed by local bodies to cushion the adverse effects on employment and economic
growth. Now dependence on this investment spending poses a dilemma for China. If
construction and the accompanying debt are cut too rapidly, the economy will suffer. But if
the spending isnt curbed, the financial risks may multiply as the projects become less
viable.
The total debt of local governments in China has soared to nearly $3 trillion as the countrys
addiction to credit-fuelled growth has deepened in recent years. Although the debt load
shows China's government to be far less indebted than fiscally-troubled Japan and Greece, it
raised eyebrows among analysts for its 67 percent jump since the last state audit was
published in 2011.
Indian Market Outlook

Indian Politics Early General
Elections
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A gale of change has started sweeping across India. It has brought palpable hope. Millions,
pushed beyond the periphery and treated with indifference by the larger established parties
and smaller look-alike parties, are rejoicing. That slight-looking man, Arvind Kejriwal, the
like of which has not appeared on the Indian political scene for a long time, has set on a
path where ordinary Indians feel they would have a say in creating their own future. No
more business as usual in politics.
Riding on its anti-corruption campaigns political newbie Aam Aadmi Party assumed power in
Delhi, the BJP wrested Rajasthan from the Congress in the 'mini' general elections and the
country braced itself for the general elections in 2014 as the year drew to a close.
The rise of Kejriwal, a social activist who until a year ago was a relative unknown, has sent
shockwaves through Indian politics. The Delhi elections were the AAPs first electoral test,
and the partys spectacular performance at the ballot box has been heralded as a new phase
in the countrys politics.
The AAP rode on the promise of combating corruption to oust Sheila Dixit, who had held the
Delhi Assembly for the Congress for 15 years. The AAP were 8 seats short of a majority and,
after an offer of outside support from Congress, took the Delhi Assembly with a minority
government.
In the forthcoming general elections (due in May 2014) a stable new government would be
positive for the economy. Although a stable new government may be a blessing for an
economy battered by slowest growth in nearly a decade, developments point to a coalition
which may be unstable. While coalition governments have become the norm since 1989,
15
Impact of Fed Tapering on India
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their composition matter. The elections to New Delhi Assembly show that emergence of new
parties such as the Aam Aadmi Party could make the forecast unpredictable.
A rag-tag coalition post the elections without policy focus, could adversely affect the
nation's standing among rating companies which have said that early steps of the new
government will decide the fate of sovereign rating which is at the risk of getting
downgraded to junk.
The 2014 elections verdict could be decisive, as indicated by the voting pattern in the
recent state elections, which could set the ball rolling in terms of reforms. This could shift
the sentiment in a meaningful way, though the macro indicators could improve with a lag.
Traditionally, the markets move up 8-10% in six months before a general election. The same
is expected to happen this time as well. However, the possibility of a hung parliament and
sustained trend in inflation could rein in excessive optimism.
The tapering announcement came as a surprise but the good thing is that the Indian market
did not respond too negatively. This is because foreign institutional investor (FII) inflows are
unlikely to be affected immediately.
The entire process of tapering is based on the premise that the US economy is on the
recovery path and does not require any unconventional means of support from the Fed. This
has been calibrated with the unemployment rate being brought down to 7%.
The tapering programme actually should not affect other countries because the QE
programme was meant to stimulate the US economy really. But quite to the contrary, it
ended up being used to invest in emerging markets where returns were better.
The Reserve Bank of India said the effects of the withdrawal of the US Federal Reserve
stimulus programme will be limited and short-lived, thanks to the breathing space provided
by a decision on this having only been taken in December.
India utilised the delay in tapering to bring about adjustment in the current account deficit
and built buffers by replenishing its foreign exchange reserves.
The tapering, from January, of the USD 85-billion monthly bond buying programme by US
Fed to prop the American economy, has given India time to replenish forex reserves and rein
in high CAD, which was at 3.05 percent in first half of this fiscal (2013-14) as against 4.8
percent last fiscal.
At the same time it will be too nave to assume that tapering will not have any impact on
Indian debt, equity and currency markets. If some local negative issue plays out in the
interim (due to political or other issues) the pending tapering could exacerbate the
16
downward impact by preponing the outflows. Though later on long term FII inflows could
come in, in the interim a lot of volatility could hurt our markets.
Possible Rate Hike ?
Quarterly Preview - Q3FY14/Q4CY13
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WPI inflation accelerated to 7.5% in Nov from 7% in the previous month, led by still elevated
food prices (veg prices) as non food inflation remained steady. Inflation as measured by the
CPI index, which we believe is more important to track, also accelerated to a new high of
11.2% in Nov vs. 10.1% in Oct. Food inflation accelerated while non-food non-fuel CPI
inflation remained steady at 8%. Old CPI (IW) inflation also remained high, at 11.1%, in
October.
Interest rates in Asias third largest economy could remain stable in 2014 on the back of an
expected decline in the inflation numbers, but rates are unlikely to fall from the current
levels, as inflationthe main worry for the Reserve Bank of India (RBI) since mid-2009is
likely to hover above the apex banks comfort zone, leaving little room for any significant
monetary easing. Bank lending rates, too, will remain stable in the new year, but will not
come down unless RBI cuts its key lending rate.
The Indian central bank unexpectedly chose to keep its key lending rate unchanged in its
mid-quarter policy review on Dec 18, saying inflation is showing a declining trend due to a
fall in vegetable prices and aided by a stable rupee.
However, the apex bank may raise interest rates one more time if inflation (especially core)
doesnt slow as expected, but that could be the last increase in the current policy cycle.
In Q3FY13, India Inc flattered only to deceive. After the early birds posted sterling numbers
in Q3FY13, it had been a story of continued deceleration in corporate earnings. In
September 2014, Indian companies have reported encouraging earnings and sales in the
fiscal second quarter as the weakening of the local currency against the dollar boosted
exports.
IIP for October 2013 disappointed by contracting 1.8 percent, and at the same time the CPI
inflation data came as a major negative surprise at 11.2 percent for November 2013. Crucial
eight infrastructure industries saw a rise in production in November after a contraction in
the previous month. However, the growth stood muted at just 1.7 per cent. Production of
these industries declined 0.6 per cent in October this year and rose 5.8 per cent in
November, 2012.
Forex impact in Q3FY14 has been minimal after 2 quarters of turmoil. In fact there has been
marginal appreciation of INR in December quarter to 61.897 vis--vis 62.777 at the end of
September quarter. Rupee appreciation could benefit companies having ECB exposure while
17
Markets likely to remain range

bound between 20,300-21,700 in
the month of January
Retail Research
companies in IT and Pharma sectors could witness small impact due to this appreciation
(depending upon the quantum of hedging done). Net importers could be a beneficiary of this
rise in INR to USD.
In Q3FY14, sequential growth in numbers is expected to be lower than the y-o-y growth on
account of the festive season activity getting preponed to Q2FY14.
Overall in Q3FY14 we expect a very small y-o-y sales growth but a slightly better PAT
growth. No fireworks are expected out of these results (unless the results disappoint
majorly) and the markets will perform based on expectations of the scenario improving post
Q4FY14.
The year 2014 is likely to be no better or worse than 2013. That is a dramatic statement. But
in markets like India only large global events can bring deep corrections in its equity markets
(say 2008 - lehman crisis and 2000 tech bubble). Local events and developments - all said
and done - are not so important given the fact that Indias demographic situation does not
lead itself to sharp and sudden falls in growth rates.
While the markets in 2013 fell from February to August only to rise again, in 2014 we feel
such a period of correction could get postponed by a couple of months (in view of the
forthcoming general elections). But before that we may witness our markets making new
highs.
We however feel that 2014 may witness the return of Indian investor into equity markets
even as the other asset classes (gold, real estate etc) do not show similar promise and the
broader markets begin to perform. Interest rates in the system could remain high till atleast
April (given the seasonally high liquidity requirements and tight Govt spending looking at the
fiscal situation) and then start softening. This expectation could lead to build up in stocks
that could benefit out of easing interest rate cycle.
After underperforming severely in the past few years, midcaps and smallcaps (even as the
BSE Sensex reached an all-time high in 2013, the broader market represented by the midand small-cap indices are traded 20% and 50%, respectively, below their historical highs) may
make a comeback in 2014 and narrow the difference with the largecap in terms of
valuations. Hence the broader markets may perform better than the frontline indices. Even
as farm sector growth slows down (owing to a high base effect), a pick-up in industrial sector
growth is likely to propel GDP growth in FY15.
We could see some volatility in January, thanks to QE tapering coming in. Also, investors will
be watchful of the inflation data and corporate results. The pre election buildup may
18
continue after a small correction. Small and Midcap stocks could continue to outperform. We
expect the Sensex could be in the 20,300 to 21,700 band during January 2014.
Technical Commentary:
The Month ahead:
Currently there are 2 possibilities as far as the future move of the Sensex is concerned,
according to the Neo wave theory.
The current wave is wave F and it is getting sub divided into a flat; or
The wave F is over and wave G is unfolding in the upward direction.

Faster retracement of the earlier downmove which is absent on the daily charts is suggesting
that the wave F is unfolding and it is sub divided into a flat and at this juncture sub wave
B of this wave is unfolding for last 9 trading sessions which is given in the chart below.
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19
The wave F began from 21,484 which was a new all time high and from there onwards it
came down for 8 trading sessions which is an important Fibonacci number. It took support at
the b-d line which is marked on the chart above. This is labelled as subwave A on the chart
above which was retraced thereafter by exactly 80% which is an important ratio in Neo wave
analysis. This is labelled as subwave B on the chart above. According to the rules wave B
must consume more time than wave A when flat structure is unfolding. Once subwave B
is over subwave C will open in the downward direction.This could go to a little lower than
20,569. For this to take place here onwards the level of 21,305 must be used as stop loss
level. In such a case, it would be safe to assume that wave F got over at 20,569 and
upward wave G has started from there.
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20
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Corresponding to 21,305 the level in the Nifty is at 6,344 and at that level it had formed
Engulfing Line Bear + Counter Attack Bear pattern on the daily charts.
So till 6,350 is breached on the higher side we will assume that the Nifty is in wave F
and which is subdivided into a flat. In this situation the level of 6,130 will be breached
minorly.
21
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Channelling technique is considered as a very important tool in Neo wave analysis.

According to it the final target when wave G will unfold once 6,415 will be breached
will be closer to 6,600.
22
The month gone by:
For the month of December the Sensex opened at 20,771. The Sensex went sideways for
next 2 trading sessions after making an upgap. It once again made an upgap reaching a
high of 21,484 on Dec 09, which was the high for the month. For the next 8 trading
sessions it was continuously coming down, forming Lower Lows and Lower Highs on the
daily charts.
The Sensex formed an intermediate bottom at 20,569 and formed a Large Bull Candle
on the daily charts and which was followed by a bearish Dark Cloud Cover pattern on
the daily charts. But this pattern was not confirmed on the next trading sessions which
resulted into an upward rally. For the next 7 trading session the Sensex moved in a
sideways manner and finally closed the month at 21,171.
Goals are an excellent way to become a better trader. Goal-setting and working to
improve your trading through goals are an efficient way to develop a trading edge.
Having a goal is a key practice of trading psychology.
Learning Technical Analysis

Trading Psychology 5 Ways
Trading Goals Make You A
Better Trader
Traders: Do you have goals?
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23
5 Ways Goals Help

Become A Better Trader
Ego and Anxiety and the

Effects on Trading
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You
Are you one of the few traders who have goals? Or, are you like most traders and think
that it is too much effort to set goals so you just don't bother?
If you want to be a better trader, having and working on goals will help to set you apart
from other traders. Here are five key reasons to have trading goals.
Trading goals give you direction. Many traders work hard, but not always on the right
things. Goals are the first important step in giving yourself the right map to follow.
Trading goals focus your attention. Once you are working on things constructive to your
trading, goals help you focus. If you are working on a goal to improve you entries, for
example, your attention will be focused on making better entries. Goals help you to
channel your effort into actions that will improve your trading skills and that help make
you a better trader. Isn't that reason enough to start thinking about your goals?
Well-constructed trading goals tell you how well you are doing. Most traders track how
much money they made or lost, but this has limited utility and it is doesn't say much
about your true abilities as a trader. It is only by having a goal as a reference point that
you can measure yourself. Not only do goals tell you how well you are doing, they also
tell you what you need to work on. It is only by first knowing where we fall short that we
can actually take the needed steps to improve.
Working on your trading goals puts you in control of the right things. We can never
control how the market will trade, what other traders do, or whether any given trade
will win or lose. But we can control our actions and goals help us in this regard. Let's
again use the example of improving our entries. When working on our entries, we
naturally put ourselves in a position of controlling our actions with respect to what type
of entry we look for, when we pull the trigger, and letting it pass if it doesn't set up
properly. Goals help us control what can be controlled and let go of the things we can't
control.
Trading goals help you develop confidence. More than anything else in this game, working
on and making progress toward our goals gives us that elusive confidence every trader
desires and needs. If you really think about it, nothing else in trading brings us the
confidence we seek as quickly or as effectively.
24
Goals are a vital part of trading. Start working on your goals and you may be surprised at
how quickly results begin to follow.
An important part of setting up your trading goals is reviewing your trading day. The daily
review gives important information on what we do well, where we fall short, and where
goal setting can be particularly helpful.
From - Dr. Gary Dayton - TradingPsychologyEdge.com Acknowledgement: http://EzineArticles.com/5064651
Derivatives Commentary:
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The month of Dec 2013 saw the Nifty surging higher in the early part of the month. The
correction that followed saw the Nifty finding support around the 6130 levels before
resuming to move higher once again. The Nifty ended the month with gains of 2.07%.
FIIs were reported as net buyers of Rs.13823 cr in Dec 2013(In Nov, they were net buyers
of Rs. 7201 cr). In the F&O space, the FIIs were net buyers in the Index Futures segment.
Along with the increase in the open interest, it indicates long positions were undertaken
by FIIs in index futures segment. In the index Options segment, the FIIs were net buyers,
which was accompanied with a fall in the open interest. In the Stock Futures segment,
FIIs were net sellers, while open interest rose suggesting cash-futures arbitrage
25
Learning Derivatives Analysis
possibilities thrown up during the month. Stock Options segment witnessed very low
participation during the month of Dec.
The Jan 2014 series has started on a lighter note compared to the previous series. In
terms of value, the Jan 2014 series has begun with market wide OI at Rs.89,522 crs. Vs.
Rs.99,472 crs. at the beginning of the Dec 2013 series. It was Rs.102,732 crs. at the
beginning of the Nov 2013 series.
Along with the lower participation levels in the Jan series (compared to the previous
series), market wide rollovers too were lower at 80% Vs. 82% the same time seen in the
last series. Nifty rollovers to the Jan series were lower at 68% Vs. 73% the same time in
the previous series.
Coming to stock specific action, the highest rollovers were seen in UPL, McDowell, Jain
Irrigation and Glenmark. The lowest rollovers were seen in Powergrid, IOB, HDIL and
Havells.
Reflecting the strength seen in the month of Dec, the Nifty OI PCR slid to 0.92 at the
beginning of the Jan series from 1.13 levels (at the beginning of the Dec series). This
indicates that puts were wound up and calls were built. Reflecting the range bound price
action in Dec, the Nifty IV dipped to 14.46% (at the beginning of the Jan series) from
21.12% the same time in the previous series.
Technically, the Nifty is now in a short term downtrend after breaking the 6259 supports,
which was the lower end support of the narrow range in which the Nifty was trading
recently. The Nifty could now target the 6130 lows in the coming sessions. A larger
correction towards the 5972-5700 intermediate supports is likely once the 6130 supports
are broken.
Index option activity is suggesting a trading range of 6000-6500 in the near term as the
maximum Call OI is currently being seen in the 6500 strikes indicating this is the
maximum expected upside for the Nifty in the near term. In the put segment, maximum
OI is currently being seen in the 6200-6000 puts, suggesting this is the maximum risk on
the downside for the near term.
VOLATILITY STRATEGIES
In this issue we discuss various kinds of volatility strategies that can be adopted by traders
Long straddle
Retail Research
Short straddle
26
Anticipations and characteristics
Straddle: volatility trading

strategy
Strategy
Strangle: volatility trading

strategy
2 ways of creating a Strangle:
Call ratio & back spread:

volatility trading strategy
Retail Research
Market direction neutral (delta=0)

and implied volatility up (vega>0).
Limited loss - Unlimited profit Important cost - Needs a large
market move in either direction
(gamma>0).
Buy call and put with same strike
price.

and implied volatility down
(vega<0).
Unlimited loss - Limited profit Cash credit - Needs market
direction stability (gamma < 0).
Sell call and put with same strike
price.
Long strangle
and implied volatility up (vega>0)
Limited loss - Unlimited profit Important cost - Needs a large
market move in either direction
(gamma>0).
Short strangle
(vega<0)
Unlimited loss - Limited profit Cash credit - Needs market
direction stability (gamma < 0).
Short strangle: Sell call and Sell
Long strangle: Buy call and Buy put
put with lower strike. Example :
with lower strike. Example : buy
sell 1*put(100) / sell 1*call(105)
1*put(100) / buy 1*call(105)
Short gut strangle: Sell call and
Long gut strangle: Buy call and Buy
Sell put with a higher strike.
put with a higher strike. Example
Example :sell 1*call(100) / sell
:buy 1*call(100) / buy 1*put(105)
1*put(105)
Call back spread

and implied volatility up (vega>0).
Limited loss - Unlimited profit if
market direction up - Cash credit Needs a large market move in
either direction (gamma>0).
Strategy
Sell call and buy more call with

higher strike price.
Example: sell 1*call (100) / buy
2*call (105).
Call ratio spread

(vega<0).
Unlimited loss if market direction
up - Limited profit - Low cost Needs market direction stability
(gamma<0).
Buy call and sell more call with
higher strike.
Example: buy 1*call (100) / sell
2*call (105).
27
Put back spread
Put ratio & back spread:

volatility trading strategy
Butterfly: volatility
trading strategy

Limited loss - Profit limited Market
direction down - Cash credit Needs a large market move in
either direction (gamma>0)
Strategy
Sell put and Buy more put with a

lower strike price.
Example: sell 1*put (105) / buy
2*put (100)
4 ways of creating a butterfly
Retail Research
Put ratio spread

(vega<0)
Unlimited loss if market direction
down - Limited profit - Low cost Needs market direction stability
(gamma<0)
Buy put and sell more put with a
lower strike price.
Example: buy 1*put (105) / sell
2*put (100)
Short butterfly
Limited loss - Limited profit - Low
cost - Needs a large market move in
either direction (gamma>0).
Long butterfly
(vega<0)
cost - Needs market direction
stability (gamma<0).
Short call butterfly. Example: sell

1*call (100) / buy 2*call (105) / sell
1*call (110).
Short gut iron butterfly. Example:
sell 1*call (100) / buy 1*call (105) /
buy 1*put (105) / sell 1*put (110).
Short iron butterfly. Example: sell
1*put (100) / buy 1*put (105) / buy
1*call (105) / sell 1*call (110)
Short put butterfly. Example: sell
1*put (100) / buy 2*put (105) / sell
1*put (110)
Long call butterfly. Example: buy

1*call (100) / sell 2*call (105) / buy
1*call (110).
Long gut iron butterfly . Example:
buy 1*call (100) / sell 1*call (105) /
sell 1*put (105) / buy 1*put (110).
Long iron butterfly. Example: buy
1*put (100) / sell 1*put (105) / sell
1*call (105) / buy 1*call (110)
Long put butterfly. Example: buy
1*put (100) / sell 2*put (105) / buy
1*put (110).
28
Short condor
cost - Needs a large market move
in either direction (gamma>0).
Long condor
(vega<0)
cost - Needs market direction
stability (gamma<0).
Short call condor. Example : sell
Long call condor. Example : buy
1*call (100) / buy 1*call (105) / buy 1*call (100) / sell 1*call (105) / sell
1*call (110) / sell 1*call (115)
1*call (110) / buy 1*call (115)
Short gut iron condor. Example:
Long gut iron condor. Example:
sell 1*call (100) / buy 1*call (105) / buy 1*call (100) / sell 1*call (105) /
buy 1*put (110) / sell 1*put (115)
sell 1*put (110) / buy 1*put (115)
Short iron condor. Example : sell
Long iron condor. Example : buy
1*put (100) / buy 1*put (105) / buy 1*put (100) / sell 1*put (105) / sell
1*call (110) / sell 1*call (115)
1*call (110) / buy 1*call (115)
Short put condor. Example : sell
Long condor put. Example : buy
1*put (100) / buy 1*put (105) / buy 1*put (100) / sell 1*put (105) / sell
1*put (110) / sell 1*put (115)
1*put (110) / buy 1*put (115)
Condor: volatility trading

strategy
4 ways of creating a condor
Extract of Calls during December 2013

Index Futures Calls
Date
Entry at
Sloss
Targets
Exit Price /
CMP
Exit Date
%
G/L
Time
Horizon
Comments
Avg.
Entry
Abs.
Gain/Loss
B/S
Trading Call
24-Dec-13
Nifty Jan Fut
6333
6370
6250
6370.0
27-Dec-13
-0.6
Stop Loss Triggered
1-5 days
6333
-37
16-Dec-13
Bank Nifty Fut
11404.7
11299
11520
11484.9
16-Dec-13
0.7
Premature Profit Booked
2-3 days
11404.7
80.15
13-Dec-13
Bank Nifty Fut
11467
11370
11580
11495.0
13-Dec-13
0.2
2-3 days
11467
28
12-Dec-13
Nifty Dec Fut
6290
6258
6350
6267.5
12-Dec-13
-0.4
Stop Loss Triggered
1-3 days
6290
-22.5
6-Dec-13
Nifty Dec Fut
6302
6260
6500
6437.6
9-Dec-13
2.2
1-4 days
6302
135.6
Stock and Nifty Options Calls

Date
B/S
Trading Call
25-Nov-13
Nifty Dec 6200 Call Option
22-Nov-13
SBI 1750 Put Option
Entry at
Sloss
Targets Exit Price / CMP
Exit Date % G/L Comments
120
85
190
151.0 29-Nov-13
26.55
14
50
35.0 22-Nov-13
Time Horizon Avg. Entry Abs. Gain/Loss
25.8 Premature Profit Booked 1-5 days

31.8 Premature Profit Booked 5 days
120
31
26.55
8.45
21-Nov-13
Tata Steel 370 Put Option
4.4
2.5
3.9 21-Nov-13
-11.4
Premature Exit 1-5 days
4.4
-0.5
20-Nov-13
DLF 160 Call Option
3.3
1.8
1.8 21-Nov-13
-45.5
Stop Loss Triggered 2-3 days
3.3
-1.5
Retail Research
29
12-Nov-13
LIC 220 Call Option
5.55
2.6
7-Nov-13
Lupin 900 Call Option
19.3
13
35
7-Nov-13
ITC 320 Call Option
10.2
20
7-Nov-13
Nifty Nov 6300 Call Option
98.3
70
160
8.9 18-Nov-13
25.1
8-Nov-13
6.0 13-Nov-13
125.8
5.55
3.35
30.1 Premature Profit Booked 5 days
19.3
5.8
-41.2
Stop Loss Triggered 5 days
10.2
-4.2
98.3
27.45
Time
Horizon
Avg.
Entry
Abs.
Gain/Loss
7-Nov-13
Exit Date
%
G/L
BTST / STBT/ Calls

Date
B/S
Trading Call
Entry at
Sloss
Targets
Exit Price /
CMP
30-Dec-13
ACC Fut
1107
1125
1075
1125.0
2-Dec-13
Dishman
86.3
83.5
92
88.2
Sloss
Target
s
Exit Price /
CMP
310
296.9
Comments
31-Dec-13
-1.6
Stop Loss Triggered
1-2 days
1107
-18
3-Dec-13
2.2
1-2 days
86.3
1.9
Trading/Futures Calls
Date
B/S
Trading Call
Entry at
Exit Date
31-Dec-13
%
G/L
31-Dec-13
Lovable
290
281
27-Dec-13
Ruchi Soya
33.2
31.5
37
35.5
26-Dec-13
BPCL
358
345
385
345.0
26-Dec-13
Gitanjali Gems
60.1
57
67
63.7
26-Dec-13
23-Dec-13
Insecticide
246.05
235
267
255.0
23-Dec-13
20-Dec-13
Panacea Bio
106.1
102
117
113.9
20-Dec-13
7.3
18-Dec-13
Tata Global
148
144.4
155
147.6
19-Dec-13
-0.3
Comments
Time
Horizon
Avg.
Entry
Abs.
Gain/Loss
290
6.85
33.2
2.25
2.4
2-3 days
30-Dec-13
6.8
2-3 days
30-Dec-13
-3.6
Stop Loss Triggered
1-5 days
6.0
1-5 days
60.1
3.6
3.6
2-3 days
246.05
8.95
2-3 days
106.1
7.75
Premature Exit
3-7 days
148
-0.4
358
-13
16-Dec-13
Anantraj
50.3
47.85
55
53.1
16-Dec-13
5.6
2-3 days
50.3
2.8
12-Dec-13
Patel Engg
51.75
49.5
56
53.0
13-Dec-13
2.3
2-3 days
51.75
1.2
10-Dec-13
NFL
25.7
24.9
28.5
24.9
10-Dec-13
-3.1
Stop Loss Triggered
2-3 days
25.7
-0.8
6-Dec-13
Escorts
119.5
115
130
123.4
6-Dec-13
3.3
1-5 days
119.5
3.9
4-Dec-13
Den Network
147.4
142.2
158
142.2
4-Dec-13
-3.5
Stop Loss Triggered
2-3 days
147.4
-5.2
3-Dec-13
INOX
107.6
103
115
115.0
3-Dec-13
6.9
Target Achieved
2-3 days
107.6
7.4
2-Dec-13
PFC
160.1
152
175
163.5
2-Dec-13
2.1
3-7 days
160.1
3.4
Trading Call
Entry at
Sloss
Targets
Exit Price
/ CMP
Exit Date
% G/L
Comments
Time
Horizon
Avg.
Entry
Abs.
Gain/Loss
40
37.5
46.0
43.7
30-Dec-13
9.3
5-7 days
40.0
3.7
Positional Calls
Date
B/S
30-Dec-13
Ramco Ind
24-Dec-13
Orchid Chemical
63.55
61.0
70.0
69.4
24-Dec-13
9.2
2-3 days
63.6
5.9
19-Dec-13
REC Fut
205.55
214.0
186.0
214.0
23-Dec-13
-3.9
Stop Loss Triggered
5-10 days
205.6
-8.4
18-Dec-13
Reliance Cap
359.25
350.0
375.0
350.0
19-Dec-13
-2.6
Stop Loss Triggered
5-7 days
359.3
-9.3
Retail Research
30
28-Nov-13
TV18 Broadcast
27-Nov-13
Tata Global
22.3
21.5
24.0
23.7
3-Dec-13
6.1
4-10 days
22.3
1.4
144.5
139.0
170.0
149.9
2-Dec-13
3.7
2 weeks
144.5
5.3
Gainers & Losers December 2013

Top Gainers From F&O
Price
Top Losers From F&O

Price
Price
29-Nov-13 31-Dec-13 % chg
Price
Price
29-Nov-13 31-Dec-13 % chg
AUROPHARMA
293.6
392.8
33.8
UNITECH
APOLLOTYRE
80.5
107.2
33.2
PETRONET
OPTOCIRCUI
21.6
28.2
30.6
ULTRACEMCO
ORIENTBANK
185.4
228.9
23.4
CESC
381.3
465.9
20.5
BIOCON
WIPRO
Top Losers From CNX 500
Top Gainers From CNX 500

Price
Price
29-Nov-13 31-Dec-13 % chg
16.8
15.3
-8.9
AUROPHARMA
293.6
392.8
33.8
UNITECH
132.4
122.1
-7.8
APOLLOTYRE
80.5
107.2
33.2
PETRONET
1907.8
1764.1
-7.5
OPTOCIRCUI
21.6
28.2
30.6
ULTRACEMCO
NTPC
147.3
137.0
-7.0
ORIENTBANK
185.4
228.9
23.4
22.2
TATAMTRDVR
205.6
192.6
-6.3
CESC
381.3
465.9
24.8
21.3
RCOM
138.6
130.0
-6.2
GMRINFRA
20.5
387.2
462.8
19.5
TATAMOTORS
398.7
376.4
-5.6
BIOCON
470.8
559.2
18.8
IDEA
175.5
166.9
-4.9
WIPRO
UNIPHOS
167.1
198.0
18.5
IRB
96.9
92.7
-4.4
HCLTECH
1086.0
1262.6
16.3
HINDUNILVR
594.8
570.7
-4.1
GMRINFRA
Price
29-Nov-13 31-Dec-13 % chg

16.8
15.3
-8.9
132.4
122.1
-7.8
1907.8
1764.1
-7.5
NTPC
147.3
137.0
-7.0
22.2
TATAMTRDVR
205.6
192.6
-6.3
24.8
21.3
RCOM
138.6
130.0
-6.2
387.2
462.8
19.5
TATAMOTORS
398.7
376.4
-5.6
470.8
559.2
18.8
IDEA
175.5
166.9
-4.9
UNIPHOS
167.1
198.0
18.5
IRB
96.9
92.7
-4.4
HCLTECH
1086.0
1262.6
16.3
HINDUNILVR
594.8
570.7
-4.1
RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC 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 made
available 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 represent
that 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 time
solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional Clients only.
Retail Research
31

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Monthly Strategy Report January 2014

Monthly Equity Commentary

51.3 in November from October's 49.6.

fourth straight quarter of sub-5 per cent growth. Slower expansion

as against 9.4% in the same month last year, helped by

Singapore - Strait Times

Hong Kong Hang Seng

Indonesia - Jakarta Composite

Chinese - Shanghai composite

Average daily volumes on BSE during the month of December 2013

Sectoral Indices for the month of December broadly ended on a

The world markets ended the month of December 2013 on a mixed

up a manufacturing facility in Brazil following a landmark agreement between the company

target price was raised to Rs 1,290 from Rs 1,250.

slowdown in offtake and valuations that had run-up ahead of time.

Oil & Gas

date, within a period of two months.

Reserve Bank of India surprised investors by holding interest rates.

* = data till 26th Dec 2013,

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

EM EUROPE & MIDDLE EAST

UNITED ARAB EMIRATES

Developed & Frontier markets

Sweden, Denmark & Belgium -

All EMs fell except Asia;

Latin America, a top loser

Thailand & Philippines top

China & Brazil pull down the

Brazil top loser in Latin

Turkey, Poland & Czech

Egypt outperforms in Africa

Outlook going forward

China on the verge of a debt

Indian Market Outlook

Impact of Fed Tapering on India

Quarterly Preview - Q3FY14/Q4CY13

Markets likely to remain range

The wave F is over and wave G is unfolding in the upward direction.

Channelling technique is considered as a very important tool in Neo wave analysis.

The month gone by:

Learning Technical Analysis

5 Ways Goals Help

Ego and Anxiety and the

Learning Derivatives Analysis

Anticipations and characteristics

Straddle: volatility trading

Strangle: volatility trading

Anticipations and characteristics

2 ways of creating a Strangle:

Call ratio & back spread:

Market direction neutral (delta=0)

Market direction neutral (delta=0)

Call back spread

Anticipations and characteristics

Market direction neutral (delta=0)

Sell call and buy more call with

Call ratio spread

Put back spread

Put ratio & back spread:

Anticipations and characteristics

Market direction neutral (delta=0)

Sell put and Buy more put with a

Anticipations and characteristics