EU- framework in place all eyes on implementation.

Las week euro area summit produced an outcome that was, in the end, positive news.The combination of packages looks enough to significantly reduce the tail risk in Europe.Package involves progress in: Greek public finances, recapitalisation and improvement of financing for banks, easing contagion to other sovereigns; and further fiscal integration.

It vindicates the fact that politicians across the world act assertively and take tough decisions only when they are pushed hard. We hope Indian politicians will similarly be pushed hard by middle of next year and then they will bring long awaited reforms in the country.

With this EU debt worry issue looks if not solved at least contained. Or as some people are saying “The Eurozone has shown enough resolve to change any pending implosion into a slow leaking tire.”

Though there are two important issues that need to be closely watched:

1. Europe needs to avoid another long gap between announcement and implementation. The timeframes set out in the document – a leveraged EFSF in November; a Greek debt swap at the start of next year – seem sensible. They need to be achieved.

2. And monetary policy needs to be more supportive of growth. Also for growth – Greece and other troubled countries need to reduce wages to gain market competitiveness.

Meanwhile in US also economic numbers were positive with Q3 GDP growth being 2.5%.Best story is that net debt to EBITDA of US listed corpoates are at a 20-year low and FCF close to record highs.

Coming to Q2 results announced till date in India,

328 companies of EW All Share Index that has announced their results- Sales has grown by 18.2% and Profit has grown by 2.7% y-o-y. Margin erosion has continued for fifth quarter in a row. Now NPM of Indian corporate has fallen below 7%.

This fall in margin and below long term average profit growth has led to major indices like NIFTY to fall by over 17% since diwali. Broader indices had even more fall like S&P 500 -20.7% and EW All Share Index has fallen by 22.3%. Small and Micro Index has fallen by whopping 30% in the same period.

Fundamentally, market may turn positive from here-on, if from next quarter profit margin expands.

In terms of expectation, out of 300 companies for which we track future expectation- 65 companies that has announced their Q2 results- 39 companies reported below expectation numbers, whereas 26 companies have reported better than expectation results.

In terms of stock specific- we have given dewali investment recommendation on- ingvysyabk, heromoto, hcltech, uniphos, prajind, jetairway and arshiya intl.

Technically, on the back of positive developments in EU, Nifty decisively broke important resistance range of 5170-5220. Importantly, on price charts, now there is an island formation that suggests -we are not going to visit back the range of 4700-5200 anytime soon.  Although in rapidly evolving macro environment – traders need to be continuously cautious

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