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1
Jun 12, 2018
Economy & Strategy
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Economy & Strategy
Economic Insights
India Research - Stock Broking
Inflation Inches Steadily at 4.87% in May 2018
CPI for May 2018 came in at 4.87% in line with consensus (Bloomberg) of 4.83%
and against 4.58% in the previous month which is closer to the upper limit of the
RBI guidance. Core CPI further accelerated to 6.2% vs. 5.9% in the previous month
mainly driven by housing ination at 8.4%. Wage increase for civil servants is
among (but not the only) the drivers behind the rise in the core ination.
The household ination survey points out that the median ination expectations
increased by 30 bps for the next three-month period and the perceived ination
rate reported by the respondents rose by 50 bps between Q4FY18 and Q3FY18.
However, we ag ination risks. We are more worried about rise in core rather than
headline. Core ination remains sticky above 6%. Also with elections due next
year, the government is seeking to pay farmers 50% more than the cost of their
production and we may see an uptick in prices from October. As Indian economy
is expected to accelerate from 6.7% in FY18 to 7.4% GDP growth in FY19, all
these factors coupled with an increase in capacity utilization (74.1% in Q3FY18)
indicates rise in risks to the inationary outlook.
The real policy rate now stands at ~1.32% and the real bond yield stands at 3.1%.
On this note, we believe there is a strong case for one more pre-emptive repo
rate hike in calendar year 2018. We believe that a pre-emptive hike can anchor
India CPI Trend (YoY%)
Source: CSO, Bloomberg, Karvy Research
Real 10 yr Government Bond Yield (%)
Source: Bloomberg, Karvy Research
Analyst Contacts
Vivek Ranjan Misra
Jayasree Ram
040 - 3321 6296/6270
vivekr.misra@karvy.com
jayasree.ram@karvy.com
Data for the day
CPI % 4.87
IIP % 4.90
India at a glance
GDP growth % 6.70
GVA growth % 7.60
IIP Growth % 4.90
WPI % 3.18
CPI % 4.87
Exports growth % 5.17
Imports growth % 4.60
Fiscal decit % (3.30)
Debt / GDP % 50.10
Credit growth % 13.14
Composite PMI 50.40
Manufacturing PMI 51.20
Services PMI 49.60
CRR % 4.00
SLR % 19.50
Repo Rate % 6.25
Reverse Repo % 6.00
Call Money Rate % 6.15
3-M T-bill Yld % 6.11
1-Y T-bill Yld % 6.42
10YR Govt Bond Yld % 7.98
1-Y CP Rate 7.88
Forex Reserve (Bln $) 412.23
Source: Bloomberg, Karvy Research, *As on Jun 12, 2018
0.0
2.5
5.0
7.5
10.0
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
CPI (%)
Core CPI (%)
0%
1%
2%
3%
4%
5%
6%
Apr-15
Jun-15
Aug-15
Oct-15
Dec-
15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Real Bond Yield
2
Jun 12, 2018
Economy & Strategy
India IIP (YoY %)
Source: CSO, Bloomberg, Karvy Research
IIP Capital Goods (YoY %)
Source: CSO, Bloomberg, Karvy Research
inationary expectations and make the economic expansion more sustainable.
Thus we think this is not negative for equity markets. We remain bullish on cyclical
sectors- Auto, Capital goods and Financials.
IIP Records 4.90% Growth in April 2018
India’s industrial production grew at 4.90% in April 2018 as compared to 4.35% in
March 2018 led by positive growth in 16 out of 23 industry groups. This supports
the view of a strong momentum in the economy. Mining grew at 5.1% YoY and
commercial vehicle sales grew signicantly by 75.9% YoY during April 2018. The
commercial vehicle sales growth over the last 6 months has averaged at 41%
which bodes well for manufacturing and the broader economy.
Capital goods bounced to 13.0% YoY growth vs. de-growth of 1.8% YoY in March
2018. This is a volatile series, and however, the 3M moving average is above 10%.
Along with a rise in capacity utilization, we could see a signicant pickup in capex
this year.
Manufacturing posted 5.2% YoY growth driven by manufacture of electronic devices
which grew by 27.5% followed by manufacture of motor vehicles at 21.9% YoY.
On the other hand, other manufacturing items reported highest negative growth of
30.7% followed by manufacture of wearing apparel at 13.4%.
-13
-8
-3
2
7
12
17
22
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
3 M moving average
-2
0
2
4
6
8
10
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
IIP (%)
3M Moving Avg IIP (%)
Inflation fine print:
The rural and urban ination for May 2018 came in at 4.88% and 4.72% respectively.
Food and Beverages ination stood at 3.37% in May 2018 supported by fruits and
vegetable ination which grew at 12.33% and 8.04% respectively. Pan, tobacco and
intoxicants group recorded higher inationary print at 8.0%. Clothing & Footwear
ination came in at 5.47%. Housing group ination recorded at 8.40%. Fuel & Light
group ination came at 5.80% for May 2018. Miscellaneous product group ination
recorded higher print at 5.35% as compared to 4.16% in March 2018. Clearly, the
core ination had to go above 6.0%.
3
Jun 12, 2018
Economy & Strategy
GDP Trillion $ & Growth (%)
Source: Bloomberg, Karvy Research
CPI Inflation (%)
Source: Bloomberg, Karvy Research
Mcap/GDP (%)
Source: Bloomberg, Karvy Research
Fiscal Deficit / GDP (%)
Source: Bloomberg, Karvy Research
Unemployment Rate (%)
Source: Bloomberg, Karvy Research
Yld-CPI Spread
Source: Bloomberg, Karvy Research, Represents 10YR Govt Bond Yld
Globe at a Glance
Trillion $ Economies
18.6
11.2
4.9
3.5
2.7
2.5
2.3
1.9
1.8
1.5
1.4
1.3
1.2
1.2
1.0
0
2
4
6
8
-1
3
7
11
15
19
US
CHINA
JAPAN
GERMANY
UK
FRANCE
INDIA
ITALY
BRAZIL
CANADA
S.KOREA
RUSSIA
SPAIN
AUSTRALIA
MEXICO
GDP (Trillion $)
GDP growth (%)
3.0
1.9
1.3
1.3
0.2
-1.0
-1.9
-2.3
-2.5
-2.6
-3.3
-3.7
-3.7
-5.5
-7.5
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
SPAIN
S.KOREA
GERMANY
RUSSIA
AUSTRALIA
CANADA
UK
ITALY
JAPAN
FRANCE
INDIA
US
CHINA
MEXICO
BRAZIL
16.7
11.2
9.2
8.2
5.8
5.6
5.2
4.9
4.2
3.9
3.8
3.8
3.6
3.4
2.5
0
6
12
18
SPAIN
ITALY
FRANCE
BRAZIL
CANADA
AUSTRALIA
GERMANY
RUSSIA
UK
CHINA
US
S.KOREA
INDIA
MEXICO
JAPAN
140
128
116
108
88
87
80
74
59
56
54
43
39
29
27
0
35
70
105
140
US
CANADA
JAPAN
UK
S.KOREA
AUSTRALIA
FRANCE
INDIA
CHINA
GERMANY
SPAIN
RUSSIA
BRAZIL
ITALY
MEXICO
4.9
4.5
2.9
2.5
2.4
2.4
2.2
2.2
2.0
2.0
1.9
1.8
1.5
1.1
0.6
0.0 1.0 2.0 3.0 4.0 5.0
INDIA
MEXICO
BRAZIL
US
UK
RUSSIA
GERMANY
CANADA
FRANCE
SPAIN
AUSTRALIA
CHINA
S.KOREA
ITALY
JAPAN
5.22
3.38
3.19
3.10
1.89
1.71
1.23
0.90
0.46
0.11
-0.55
-0.55
-0.97
-1.10
-1.69
-2.0
-1.0
0.1
1.2
2.2
3.3
4.3
5.4
RUSSIA
MEXICO
BRAZIL
INDIA
CHINA
ITALY
S.KOREA
AUSTRALIA
US
CANADA
JAPAN
SPAIN
UK
FRANCE
GERMANY
4
Jun 12, 2018
Economy & Strategy
Equities
EQUITY INDEX LTP 1D %Chg 1Y %Chg 52WH 52WL PE (x)
INDIA NSE NIFTY 10843 0.5 12.8 11172 9449 22.3
US S&P 500 2782 0.1 14.5 2873 2406 21.2
US NASDAQ 7660 0.2 24.0 7697 6082 23.4
CHINA SHANGHAI 3080 0.9 (1.9) 3587 3034 14.9
EURO STOXX 50 3479 (0.0) (1.8) 3709 3262 15.8
JAPAN NIKKEI 225 22878 0.3 14.9 24129 19240 17.4
UK FTSE100 7712 (0.3) 2.7 7904 6867 13.8
HONGKONG HANGSENG 31103 0.1 21.0 33484 25200 12.5
CANADA TSX 16263 0.4 5.7 16421 14786 17.9
FRANCE CAC 40 5461 (0.2) 4.2 5657 4995 17.6
AUSTRALIA ASX 200 6054 0.2 6.6 6150 5639 17.8
GERMANY DAX 12839 (0.0) 1.2 13597 11727 14.3
SWISS MARKET INDEX 8617 (0.1) (2.2) 9616 8454 28.7
SOUTH KOREA KOSPI 2469 (0.1) 4.7 2607 2310 11.8
TAIWAN TAIEX 11145 (0.0) 10.2 11270 10033 15.1
SPAIN IBEX35 9940 0.4 (8.3) 10937 9328 14.2
BRAZIL BOVESPA 72308 (0.9) 17.2 88318 60544 18.2
NETHERLANDS AEX 563 (0.3) 7.9 573 506 16.5
SWEDEN OMX 30 1570 (0.1) (4.2) 1682 1482 18.3
ITALY MIB 22203 0.6 6.2 24544 20537 12.3
SINGAPORE STRAITS 3431 (0.3) 5.6 3642 3193 11.0
THAILAND SE THAI 1727 0.2 10.5 1853 1556 17.4
INDONESIA JAKARTA 5994 (1.9) 5.6 6693 5669 21.3
MEXICO BOLSA 46301 0.8 (5.8) 51772 44429 21.8
MALAYSIA BURSA KLCI 1764 (0.7) (1.4) 1896 1708 17.2
NEW ZEALAND 50 8959 (0.0) 20.5 8962 7416 22.6
Source: Bloomberg, Karvy Research
Currencies
Currency pair with $ Unit LTP %1D %1Y 52WH 52WL
INDIAN RUPEE INR / 1 $ 67.458 (0.0) (4.5) 68.5 63.2
EURO $ / 1 EUR 1.179 0.0 5.2 1.3 1.1
JAPANESE YEN JPY / 1 $ 110.21 (0.2) (0.2) 114.7 104.6
BRITISH POUND $ / 1 GBP 1.339 0.1 5.8 1.4 1.3
CANADIAN DOLLAR CAD / 1 $ 1.301 (0.3) 2.4 1.3 1.2
AUSTRALIAN DOLLAR $ / 1 AUD 0.761 (0.0) 0.9 0.8 0.7
NEWZEALAND DOLLAR $ / 1 NZD 0.703 0.0 (2.4) 0.8 0.7
SWISS FRANC CHF / 1 $ 0.984 0.1 (1.6) 1.0 0.9
NORWEGIAN KRONE NOK / 1 $ 8.015 0.4 5.8 8.6 7.6
SWEDISH KRONA SEK / 1 $ 8.631 0.4 1.4 9.0 7.8
CHINA RENMINBI CNY / 1 $ 6.404 (0.0) 6.2 6.8 6.2
HONGKONG DOLLAR HKD / 1 $ 7.847 (0.0) (0.6) 7.9 7.8
INDONESIAN RUPIAH IDR / 1 $ 13966 (0.2) (4.7) 14213 13126
MALAYSIAN RINGGIT MYR / 1 $ 3.990 (0.1) 7.0 4.3 3.9
PHILIPPINES PESO PHP / 1 $ 53.090 (0.1) (6.6) 53.1 49.5
SINGAPORE DOLLAR SGD / 1 $ 1.335 (0.0) 3.7 1.4 1.3
SOUTH KOREAN WON KRW / 1 $ 1077 (0.2) 4.7 1158 1054
TAIWAN DOLLAR TWD / 1 $ 29.849 (0.1) 1.1 30.6 29.0
THAI BAHT THB / 1 $ 32.090 (0.1) 6.1 34.2 31.1
RUSSIAN RUBLE RUB / 1 $ 62.813 0.1 (9.1) 65.0 55.6
S AFRICAN RAND ZAR / 1 $ 13.198 (0.3) (2.8) 14.6 11.5
BRAZILIAN REAL BRL / 1 $ 3.711 (0.1) (10.6) 4.0 3.1
MEXICAN PESO MXN / 1 $ 20.620 (0.1) (12.1) 20.7 17.5
DOLLAR INDEX Spot 93.569 (0.0) (3.7) 97.9 88.3
Source: Bloomberg, Karvy Research
Bonds
10Y Govt Bond Yld% 1D Chg BPS 1Y Chg BPS 52WH 52WL
INDIA 7.982 1.9 146.5 8.0 6.4
US 2.963 1.1 74.8 3.1 2.0
GERMANY 0.511 1.8 26.2 0.8 0.2
FRANCE 0.901 (0.7) 30.2 1.0 0.6
CHINA 3.693 3.2 9.8 4.0 3.5
JAPAN 0.054 0.5 (0.4) 0.1 (0.0)
UK 1.428 2.1 46.1 1.7 0.9
BRAZIL 11.643 (46.1) 77.7 12.4 9.4
ITALY 2.812 (3.9) 77.9 3.4 1.6
RUSSIA 7.621 (1.8) (17.6) 8.0 7.1
CANADA 2.306 (1.4) 88.2 2.5 1.4
AUSTRALIA 2.802 2.7 40.1 2.9 2.3
SPAIN 1.438 1.1 0.7 1.8 1.2
S.KOREA 2.730 2.3 56.0 2.8 2.1
MEXICO 7.885 (0.1) 76.2 7.9 6.7
INDONESIA 7.299 3.8 36.1 7.6 6.1
NETHERLANDS 0.687 1.0 22.0 1.5 0.4
NORWAY 1.902 1.4 43.6 2.0 1.5
SWITZERLAND 0.074 1.9 25.1 0.2 (0.2)
HONG KONG 2.355 (1.3) 105.9 2.4 1.3
SINGAPORE 2.626 3.6 51.6 2.7 1.9
SOUTH AFRICA - 2.0 (25.4) 9.5 8.3
PORTUGAL 1.973 (2.6) (101.1) 3.2 1.6
GREECE 4.468 (4.6) (140.1) 6.0 3.6
Source: Bloomberg, Karvy Research
Commodities
Commodity Unit LTP %1D %1Y 52WH 52WL
BRENT CRUDE OIL $/bbl 76.7 0.4 52.1 80.5 48.7
NYMEX CRUDE OIL $/bbl 66.3 0.3 38.5 72.9 45.2
NATURAL GAS $/mmbtu 3.0 1.0 1.6 3.0 2.6
GOLD $/troy ounce 1297.8 (0.2) 2.5 1366.2 1204.9
SILVER $/troy ounce 16.9 (0.3) (0.6) 18.2 15.2
PLATINUM $/troy ounce 906.7 0.3 (4.0) 1028.7 873.2
ALUMINIUM $/MT 2301.0 0.1 20.7 2718.0 1855.0
COPPER $/MT 7255.0 (0.8) 25.0 7348.0 5630.0
ZINC $/MT 3201.0 (0.0) 26.4 3595.5 2443.5
NICKEL $/MT 15290.0 (0.8) 70.3 16690.0 8680.0
LEAD $/MT 2475.0 0.4 17.9 2685.0 2052.0
IRON ORE $/ MT 65.8 0.5 20.4 79.0 53.8
COAL $/ MT 106.0 0.4 52.2 81.0 73.3
COKING COAL $/ MT 199.5 0.0 34.9 261.9 141.2
CORN Cents / bu 370.5 0.9 (10.8) 434.3 362.0
WHEAT Cents / bu 515.3 0.1 1.2 609.5 437.0
SOYBEAN Cents / bu 961.3 0.8 (0.1) 1090.3 935.0
ROUGH RICE $ / 100 lb 11.6 4.1 (3.2) 13.3 10.6
CRUDE PALMOIL MYR / MT 2326.0 (1.4) - 2525.0 2323.0
SOYBEAN OIL Cents / lb 30.5 (0.2) (7.6) 36.7 30.2
COFFEE Cents / lb 119.5 0.2 (16.7) 157.0 117.6
SUGAR Cents / lb 12.8 1.2 (15.0) 16.1 11.2
COTTON Cents / lb 91.7 0.0 29.6 94.8 65.8
ETHANOL $ / Gal 1.4 (1.5) (5.2) 1.5 1.4
RUBBER Cents / KG 141.1 0.6 (0.9) 172.4 123.0
BALTIC DRY INDEX Index 1387.0 (0.3) 59.4 1743.0 820.0
Source: Bloomberg, Karvy Research
Global Markets at a Glance
5
Jun 12, 2018
Economy & Strategy
Exhibit: Nifty
Exhibit: S&P 500
Exhibit: Euro Stoxx 50
Exhibit: Nikkei
Exhibit: Shanghai
Exhibit: INR
Exhibit: Dollar Index
Exhibit: Eur
Exhibit: JPY
Exhibit: CNY
Exhibit: India 10 Yr Yld %
Exhibit: US 10 Yr Yld %
Exhibit: Germany 10 Yr Yld %
Exhibit: Japan 10 Yr Yld %
Exhibit: China 10 Yr Yld %
Source: Bloomberg, Karvy Research
Global Markets at a Glance
10560
10610
10660
10710
10760
10810
10860
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
66.70
66.90
67.10
67.30
67.50
67.70
5-Jun
6-Jun
7-Jun
8-Jun
11-
Jun
12-Jun
7.75
7.80
7.85
7.90
7.95
8.00
8.05
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
2,740
2,750
2,760
2,770
2,780
2,790
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
93.3
93.6
93.8
94.1
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
2.90
2.92
2.94
2.96
2.98
5
-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
3,440
3,450
3,460
3,470
3,480
3,490
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
1.170
1.172
1.174
1.176
1.178
1.180
1.182
5-Jun
6-Jun
7-Jun
8-Jun
11-
Jun
12-Jun
0.350
0.400
0.450
0.500
0.550
5-Jun
6-Jun
7-Jun
8-
Jun
11-Jun
12-Jun
22,500
22,600
22,700
22,800
22,900
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
109.5
109.7
109.9
110.1
110.3
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
0.046
0.048
0.050
0.052
0.054
0.056
0.058
5-Jun
6-Jun
7-Jun
8-
Jun
11-
Jun
12-Jun
3,020
3,040
3,060
3,080
3,100
3,120
3,140
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
6.38
6.39
6.39
6.40
6.40
6.41
6.41
5-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
3.65
3.66
3.67
3.68
3.69
3.70
5
-Jun
6-Jun
7-Jun
8-Jun
11-Jun
12-Jun
6
Jun 12, 2018
Economy & Strategy
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Disclaimer
y Analyst certication: The following analysts Vivek Ranjan Misra & Economist Jayasree Ram, who is (are) primarily responsible for this report and whose
name(s) is/are mentioned therein, certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies)
and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specic recommendation(s) or views contained
in this research report.
y Disclaimer: Karvy Stock Broking Limited [KSBL]is registered as a research analyst with SEBI (Registration No INH200003265). KSBL is also a SEBI
registered Stock Broker, Depository Participant, Portfolio Manager and also distributes nancial products. The subsidiaries and group companies including
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data analytics, market research, solar power, lm distribution and production, proling and related services. Therefore associates of KSBL are likely to have
business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are
prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources , the
respective corporate under coverage and sources believed to be reliable, but no independent verication has been made nor is its accuracy or completeness
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y Associates of KSBL might have managed or co-managed public oering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
y Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from
the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services
rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory
services, insurance repository services, consultancy and advisory services, realty services, data processing, proling and related services or in any other
capacity.
y KSBL encourages independence in research report preparation and strives to minimize conict in preparation of research report.
y Compensation of KSBLs Research Analyst(s) is not based on any specic merchant banking, investment banking or brokerage service transactions.
y KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a nancial interest in the securities or derivatives of
any companies that the analysts cover.
y KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the
last day of the month preceding the publication of the research report.
y KSBL or its analysts did not receive any compensation or other benets from the companies mentioned in the report or third party in connection with
preparation of the research report and have no nancial interest in the subject company mentioned in this report.
y Accordingly, neither KSBL nor Research Analysts have any material conict of interest at the time of publication of this report.
y It is conrmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not
received any compensation from the subject company mentioned in the report in the preceding twelve months.
y It is conrmed that Vivek Ranjan Misra, Research Analyst & Jayasree Ram, Economist did not serve as an ocer, director or employee of the companies
mentioned in the report.
y KSBL may have issued other reports that are inconsistent with and reach dierent conclusion from the information presented in this report.
y Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report.
y We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst activities.
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