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August 2013

The benchmark equity indices CNX Nifty and S&P BSE Sensex lost 2.66% and 1.18%, respectively, in the month of July 2013. 

In its policy review RBI kept the key rates unchanged and continued to maintain that it would roll back the recent liquidity tightening measures as and when stability returns to the currency market. To reduce the foreign exchange rate volatility and promote growth in the country, the government initiated some new measures. These included an in-principle approval to remove foreign direct investment (FDI) cap on the telecom sector, while raising the limit (with caveats) in defence production to 49% from the existing 26%. It also eased norms for FDI in multi-brand retail in a renewed attempt to attract foreign supermarket operators; approved amendments to dilute many conditions in the sector, including 50% investment in back-end infrastructure, 30% sourcing from small firms and access only to cities with over one million population. It plans to enhance steel production capacity to 300 mn tonnes and raise textile exports by 30% this year. It exempted specified services extended to special economic zones from the service tax. 

Further, Mr. Chidambaram announced measures to defend the weak rupee, including raising long-term NRI funds, a proposal for liberalising longer term external commercial borrowings (ECBs), and talks with long-term investors like sovereign wealth funds to invest more in India. He said that public sector undertakings (PSUs) and state-run banks may be asked to raise money overseas and some non-essential imports may be curbed to contain and finance CAD. Meanwhile, the RBI ordered state- owned oil companies to purchase their dollar requirement from a single public sector bank so as to curb volatility in the currency. It also clarified that the period of availing trade credit for imports should be linked to the operating cycle and trade transaction period. Further, it extended all-in-cost ceiling period for ECBs and trade credits until September 30.

The government also continued with its resolve to meet its disinvestment program for the current fiscal. It raised Rs 260 cr from the sale of its 4.01% stake in Hindustan Copper. The Cabinet Committee on Economic Affairs approved proposals for divestment of government stake in Indian Oil Corporation, State Trading Corp of India Ltd and India Tourism Development Corp Ltd, while the Petroleum ministry approved the divestment of 10% stake in Engineers India Ltd through offer-for-sale. 

On the price front, India's headline inflation rate, based on the Wholesale Price Index, rose to 4.86% in June from a 43-month-low of 4.70% in May, mainly on account of a sharp rise in vegetable prices. Inflation rate based on the new Consumer Price Index (Combined) also increased to a three-month high of 9.87% in June from 9.31% in May.

Among economic indicators in the month, India’s industrial production growth slumped to 11-month low of negative 1.6% on an annual basis in May following 2.1% growth in April. Growth in India’s eight infrastructure industries plunged to 0.1% in June compared with 7.9% growth a year ago. India's trade deficit narrowed to $12.2 bn in June from a seven-month high of $20.1 bn a month ago, as bullion imports fell sharply on government curbs. India’s fiscal deficit rose 38.0% year-on-year to Rs 2.628 lakh cr during April-June, as the government’s plan expenditure soared and net tax collections contracted. Government’s gross direct tax collections surged 11.5% in April-June to Rs 1.24 lakh cr as against Rs 1.11 lakh cr in the same period last year, while the indirect tax collections grew 4.8% on year to Rs 1.06 lakh cr.

A disciplined approach to investment would help hedges against inflation. Mutual Funds offer opportunities for multi asset diversification thus balance the overall portfolio. Irrespective of the market and economic scenario, we recommend investors to maintain the discipline of asset allocation and invest in equity funds through systematic planning as long term fundamentals remain intact. Systematic Investment Plan (SIP) is the ideal way to go about in any market, as it is a smart financial planning tool that helps you build wealth, step by step, over a period of time. 

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