November was another good month for Indian equity indices. CNX Nifty and S&P BSE Sensex gained 3.20% and 2.97%, respectively, thanks to positive domestic and international factors. At home, investors cheered the fall in inflation to a five-year low of 1.77% in October and better-than-expected industrial output in September. Fall in inflation (retail and wholesale) has raised hopes of interest rate cut by the Reserve Bank of India (RBI) in the next year. Encouraging comments from Finance Minister Arun Jaitley on reform measures and Road Transport and Highways and Shipping Minister Nitin Gadkari that it was time for the RBI to cut interest rates boosted the sentiments. Persistent buying of equities by FIIs for the tenth consecutive month also augured well for the local indices. Markets also reacted positively to Bank of Japan’s (BoJ’s) surprise decision to expand its stimulus measures, and encouraging US jobs and housing data.
The Indian economic growth slowed down marginally to 5.3% during July to September from the previous quarter’s growth of 5.7%. Major institutions and officials have offered mixed views about the country’s growth prospects. The Organisation for Economic Cooperation and Development (OECD) says the Indian economy is showing signs of a turnaround, but also that a further boost would depend on the government’s reform plans. It expects the Indian economy to grow at 5.4% this fiscal, 6.6% next fiscal, and 6.8% in 2016-17. It is expected that India will cross 6% GDP growth in 2015-16.
Developments in the Parliament’s winter session, FII inflows, domestic macroeconomic data and global cues are expected to steer the equity market in December.
Indian government bond prices (gilts) advanced in the month with the yield on the 10-year benchmark paper 8.40% 2024 ending at 8.09% on November 28 as against 8.28% on October 31. Gilts were buoyed primarily on expectations of a softer policy stance from the RBI amid plunging global crude oil prices and moderating domestic inflation. Appetite for bonds improved following Finance Minister Arun Jaitley’s comments that lower interest rates will boost the economy. Further, he expressed hope that the Centre could achieve its divestment target set for this fiscal. These remarks were viewed positively as they indicated that the government might meet its fiscal deficit target. Sporadic buying support from foreign investors and public sector banks also supported gilts. Strong appetite for gilts witnessed at the RBI’s Rs 10,000 cr OMO bond sale further added to the gains during the month.
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Dinesh Kumar Khara