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December 2013

The benchmark equity indices CNX Nifty and S&P BSE Sensex lost 2.08% % and 1.91%, respectively, in the month of November 2013 after reaching a new high.  The equity market rally is becoming broad based with mid and small caps outperforming the large caps. Global environment was largely supportive through the month as better-than-expected growth indicators in key developed markets and policy tone remaining dovish helped investor sentiments.  

The markets were, however, able to cap losses helped by sustained foreign institutional investor (FII) buying for the third consecutive month in November. FIIs net bought Rs 7,079 cr in November as compared to buying of Rs 18,013 cr in October. Markets were also supported by the positive remarks from Reserve Bank of India (RBI) Governor Dr. Raghuram Rajan which helped the rupee erase some losses against the dollar. Mr Rajan said that the RBI would not rush to roll back the dollar swap window for oil companies. Assurance from the Fed chief nominee Janet Yellen that the central bank has "more work to do" to help an economy and a labour market, which are still underperforming, also helped to cap the losses.

Mr Chidambaram said that the government will not breach the fiscal deficit target for 2013-14 and will contain the current account deficit (CAD) below $60 bn in 2013-14. As per the latest data, India's current account deficit narrowed sharply to 1.2% of GDP in Jul-Sep from 4.9% a quarter ago as gold imports shrank to one fourth of that in the last quarter; in absolute terms, the current account deficit fell to $5.2 bn from $21.8 bn in the first quarter of 2013-14.

India’s gross domestic product (GDP) expanded to 4.8% in the three months ended September 2013 compared with 4.4% in the preceding quarter, helped by improvement in the agriculture sector. However, this is the fourth consecutive quarter in which the Indian economy has grown below 5%. Finance Minister Mr P Chidambaram said that green shoots are visible in some sectors of the economy and exuded confidence that the country will recover in the second half and clock 5-5.5% growth in 2013-14. Other governments too remained positive about India’s growth especially due to improvement in manufacturing and a good monsoon season. However, international agencies were pessimistic. The Organisation for Economic Co-operation and Development (OECD) said that the Indian economy will only grow 3.4% in the current financial year, almost same as 3.3% growth recorded last year.

Inflation continued to rise. Headline inflation measured by the WPI rose to 7% in October from 6.46% in September while inflation rate for August was revised upward to 6.99% from 6.10%. The annual consumer price inflation moved up to 10.09% in October from 9.84% in September. However, Mr Chidambaram hoped that the WPI inflation will fall below 5% on the back of measures taken by the government and the Reserve Bank of India (RBI). Meanwhile, the government hiked minimum export price of onion to $1,150 a tonne from $900 to boost domestic supplies and tame high prices of this most widely-consumed vegetable.

A disciplined approach to investment can help as a hedge against inflation. Mutual Funds offer opportunities for multi asset diversification thus balancing 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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