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February 2013

The equity markets started the year on a positive note – on the back of encouraging global and domestic cues – with the benchmark equity indices S&P CNX Nifty and BSE Sensex gaining 1.41% and 1.60%, respectively in the month of January 2013. Markets were supported by sector-specific domestic developments during the month.

The positive trend of decline in inflation continued in December with the headline inflation rate based on the Wholesale Price Index (WPI) declining to a three-year-low of 7.18% in December from 7.24% in the previous month. The RBI also revised downwards the baseline WPI inflation projection for March 2013 to 6.8% from 7.5% estimated earlier. However, India's annual inflation rate based on the new Consumer Price Index (Combined) rose to a record 10.56% in December from 9.90% in the previous month. In view of the above scenario and recent policy initiatives by the govt., RBI has cut policy rates and CRR by 25 bps each.

Recent government policies remained supportive for Indian equities. Partial de-control of diesel price, hike in railway passenger fare, hike in import duty on Gold and deferment of revised GAAR, and were clearly steps in the right direction and has influenced the markets positively. Finance Minister Mr. P Chidambaram re assured the Foreign Investors with determination, intent and execution roadmap in specific issues such as – fiscal consolidation, stable tax environment and supportive policy initiatives.

India is expected to outperform its peers in GDP growth, even though India’s current year growth projections continued to be on the lower side, with many major agencies cutting their forecasts for the economy. The International Monetary Fund (IMF) lowered its projections for India’s economic growth to 4.5% for 2012 from its earlier estimate of 4.9%, though it pegged the growth rate in 2013 at 5.9% and 6.4% in 2014. The World Bank has pegged the growth rate at 5.4% in the current year and 6.4% in the next year. On the domestic front, the Reserve Bank of India (RBI) revised down India’s gross domestic product (GDP) growth for 2012-13 to 5.5% from 5.8% estimated in the second quarter policy review. Separately, the Central Statistics Office (CSO) cut its estimate on India's GDP growth in 2011-12 to 6.2% from 6.5% on account of a sharp upward correction in the base year; 6.2% is the lowest growth rate in India's GDP since 4% growth in 2002-03.

Rating agencies remained positive on the country’s economic outlook. Moody's, retained its stable outlook on India's sovereign rating, citing potential for growth, strong domestic savings rate and a dynamic private sector. Meanwhile, the Ministry of Finance (MoF) said that it is not worried about the threat of ratings downgrade by global agencies as it is moving on the right track and will restrict fiscal deficit to 5.3% of the GDP in 2012-13. Finance Minister Mr. P. Chidambaram reassured global investors about continuation of the economic reforms and efforts to rein in fiscal deficit, and exuded confidence that the country's sovereign ratings will not be downgraded. Meanwhile, to reduce the fiscal gap, the government has allowed state-run oil marketing companies to raise diesel prices by 50 paise per month till their under-recoveries on sale of the fuel are eliminated. 

Globally, despite their best efforts, central banks have failed to spur the global economy due to a slower-than-expected economic recovery in the developed nations. As a result most financial institutions are maintaining a pessimistic outlook for the global economic growth. The World Bank has lowered its global economic growth forecast for 2013 to 2.4% from an earlier expectation of 3%.  The International Monetary Fund (IMF) has also lowered its forecast for 2013 to 3.5% from 3.6% citing deepening of recession in Europe. 

A momentum has emerged in the Mutual Fund Industry. In this improved scenario, we hope to see more retail investor participation in the near future. SBI Magnum Income Fund and SBI Magnum Balanced Fund can be looked at by investors considering the potential of these funds to benefit from the current interest rate scenario.

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