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August 2012

After giving some relief to investors in the previous month with positive returns, Indian equity indices, S&P CNX Nifty & SENSEX, recorded a loss of 0.95% & 1.11% respectively in the month of July 2012, in-line with the performance of most global indices, which too posted negative returns.

GDP growth slowdown continued to haunt the Indian economy as growth prospects dampened due to adverse domestic and global economic conditions. The volatile equity markets continued to play havoc on the governments divestment plans for the current fiscal. Growth forecasts for the Indian economy continued to be weighed down by adverse domestic and global economic conditions. The International Monetary Fund (IMF) revised its growth projections for India to 6.1% this year from 6.9% and to 6.5% from 7.3% for 2013. In its quarterly monetary policy review in July RBI kept interest rate unchanged and even raised inflation outlook for fiscal year.  

Prime Minister, Manmohan Singh, set up a committee to prepare fresh norms on General Anti-Avoidance Rules (GAAR) provision to bring greater clarity, and this is good news for FIIs. The newly appointed Finance Minister too has, in his first press briefing, indicated, amongst other issues, the hopes for clarity on tax related issues. Among major economic indicators, India's Index of Industrial Production (IIP) growth rose to a three-month high of 2.4% in May following revised 0.9% drop in April; growth was lower as compared with 6.2% in the corresponding period a year ago.
 
Retail investors can continue to park their short term surplus funds in income / ultra short term schemes and optimize their portfolio to benefit from the high inflation and tight liquidity scenario. Retail investors should also look at FMPs of different maturities as they have the potential to offer better post tax returns. SBI Mutual Fund has launched several FMPs and will continue to do so to fulfill investors requirements.
 
Investors with long investment horizon can look at equity funds with consistent track record. Investors seeking to preserve capital in volatile market like this can consider large-cap stocks - companies with market capitalizations greater than 750 Cr. Doing business globally, they tend to pay dividends, have solid balance sheets and exceptionally large amounts of cash. While perceived to be slow growing, many have the financial might to take advantage of business opportunities that smaller companies can't. SBI Magnum Equity Fund, predominantly a large cap fund and has been a  top quartile performer across almost all time periods.
 
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