After registering loses in the previous month, the Indian indices S&P CNX Nifty and SENSEX recorded a growth of 4.16% and 4.19 % respectively in the month of November 2012. Considering the hope for further reforms and policy action by the govt. markets are expected to do well in the long run.
However, the Indian economy continued to report lower growth numbers. The latest numbers of the country???s gross domestic product (GDP) growth for the July-September 2012 came in at 5.3% down from 5.5% a quarter ago on account of slowdown in agriculture and industry. Moody's Analytics was optimistic and said that India's flagging economic growth has nearly bottomed out and is likely to improve steadily from the January-March 2013 quarter. It reiterated that India's sovereign rating of Baa3 is stable, supported by high household savings rate and a relatively competitive private sector that will push up economic growth. Finance Minister Mr. P Chidambaram has said that India's economy should expand by 5.5% to 6.0% in 2012 and return to 7% growth in 2013. It is pertinent to note that Sensex has gained 25.14 % until November end since the beginning of this calendar year. It appears that the markets are edging up in anticipation of the future. Indeed FIIs have pumped in more than Rs 1,00,000 Crs. into the equity markets in the same period.
On the inflation front, India???s Wholesale Price Index (WPI) fell to an eight-month low of 7.45% in October following a 7.81% rise in September; August WPI inflation was revised to 8.01% from the provisional 7.55%. The Reserve Bank of India (RBI) Governor Dr. D Subharao, however, said that the headline inflation rate at close to 7.50% is still quite high and remains a cause of worry.
Meanwhile, the Indian government???s efforts to meet its divestment target of Rs 30,000 cr for the current fiscal had little success due to prevalent nervousness in the equity markets. As per the numbers released, the government has raised Rs 932 cr so far in the current fiscal through divestment in public sector undertakings, including the recent stake sale in Hindustan Copper Ltd. Meanwhile, the government deferred the stake sale in Nalco after its poor second quarter performance raised valuation concerns. Among the planned divestments, the Union Cabinet approved the sale of 10% government stake in Hindustan Aeronautics Ltd. It also approved a 9.5% stake sale in NTPC. Further, the government is likely to divest 10% stake in NMDC Ltd by mid-December to raise about Rs 7,500 cr and also plans to sell 10% of its stake in Nuclear Power Corporation of India through an IPO.
Among other developments, the government has notified the Rajiv Gandhi Equity Savings Scheme, which is aimed at encouraging savings of small investors in the domestic capital markets. The government has finalized guidelines for state-owned companies to issue tax-free infrastructure bonds, paving the way for 10 state-owned companies to raise as much as Rs 53,500 cr through the route in the current financial year. The Ministry of Finance (MoF) has agreed to pay an interim subsidy of Rs 30,000 cr to state-owned oil marketing companies for subsidized sale of petroleum products during April-September. The government has permitted Life Insurance Corporation to invest up to 30% in a company as against the earlier ceiling of 10%. The government told the Supreme Court that it has made amendments to the Foreign Exchange Management Act to allow 51% foreign direct investment in multi-brand retail trade. On the banking front, the MoF has asked public sector banks to improve their investor relation skills as their stocks are often rated notches below the shares of private sector banks. It has also asked public sector banks to initiate penal actions against willful defaulters. The MoF has made it compulsory for banks to meet bad loan recovery target for fresh capital investment.
Among telecom related developments, the government has received bids worth Rs 9,407 cr from 2G spectrum auctions against the proposed plan to garner a minimum of Rs 28,000 cr. To ease payment terms for the bidders at the telecom auction, the government allowed prospective successful winners of the 2G auction to refinance their rupee debt raised for making upfront payment of the spectrum through long-term external commercial borrowings (ECBs).
On the global front forecasts for the global economy remain tepid. Fiscal cliff worries continued to mire economic sentiments in the US. Euro zone entered into a double-dip recession; meanwhile policy makers and IMF approved a bailout package for Greece. Though UK growth increased, the forecasts continue to decline. Japan???s growth trajectory deteriorates due to weakening global demand and the territorial dispute with China affecting exports. Economic slowdown continued to be a major worry for China with the euro zone debt crisis posing a threat to the country???s export sector
Retail investors with long term investment horizon would do well to continue to invest in equity funds with good track record as hopes on revival of the economy, and those with short term horizon can continue to park their short term surplus funds in income / ultra short term schemes and optimize their portfolio to benefit from the prevailing high interest rate scenario, SBI Magnum Income Fund and SBI Dynamic Bond Fund are well positioned to gain from above mentioned scenario. These schemes are typically suited for parking unutilized lazy money, and the investments can be for as low as three days, without any exit load, or for as long as one wants. Retail investors should also look at FMPs of different maturities as they are most tax efficient. SBI Mutual Fund has launched several FMPs and will continue to do so to fulfill investors??? requirements.
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