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January 2014

The year end (2013) saw some optimism for the Indian equity market with key benchmark indices CNX Nifty and S&P BSE Sensex up 2.07% and 1.82%, respectively, in December. The year had been very volatile for the markets as CNX Nifty and S&P BSE Sensex gained around 7% and 9%, respectively, in the year 2013.

 The rise of domestic equities was propelled by a host of encouraging domestic factors. Markets rose following key opposition party’s strong performance in the state assembly elections. Release of slightly better-than-expected second quarter domestic GDP data of 4.8% as compared to 4.4% in the preceding quarter in the beginning of the month also aided the indices. Sentiments got a further boost after the Reserve Bank of India (RBI) unexpectedly kept its key policy rates unchanged in its mid-quarter monetary policy review held mid-month.

 Strong foreign institutional investor (FII) buying helped the domestic market gain during the month. FIIs were net buyers of Rs 15,615 cr in December, the fourth consecutive month of new buying and compared to Rs 7,079 cr of net buying in November. On a year to date basis, buying by FIIs crossed the Rs 1 lakh cr mark with net buying of Rs 1.13 lakh cr; this is the third highest calendar year buying for FIIs after net buying of Rs 1.33 lakh cr in 2010 and Rs 1.29 lakh cr in 2012.

 Absence of credible options in the emerging market peer set makes India a natural beneficiary in the world seeking relative returns. A stronger cyclical recovery is likely to enhance the depth and breadth of FII participation in the market. However, the return of domestic investor into equities is a critical pivot to any further market momentum.

 Gains were, however, limited as market benchmarks fell back from their record highs reached earlier in the month as investors continued to book profits at higher levels. Fears of a rate hike by the RBI due to a sharp rise in wholesale and retail inflation also dragged down the indices. Weak global sentiments in the form of fears of a stimulus pullback by the US Federal Reserve (US Fed) and then its materialisation after the central bank announced that it would reduce its monthly bond purchase of $85 bn by $10 bn to $75 bn from January 2014 also erased some gains for Indian equities. 

 As you might know, we have launched 2 new funds. SBI Tax Advantage Fund - Series III, is a 10-year close-ended Equity Lined Savings scheme for investors to get the tax benefit along with potential to create wealth. The other fund is SBI Dual advantage Fund – Series I, a 36-months close-ended hybrid scheme that helps investor get best of both equity and debt. 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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