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July 2012

The Indian equity markets represented by the S&P CNX Nifty and SENSEX broke their three-month losing streak and posted 7.20% & 7.47% returns in the month of June 2012, respectively, in-line with the performance of most global indices.

There was a revival in investor confidence driven by positive global and domestic cues. On the global front, positive cues from the EU summit were supported by victory of the pro-bailout New Democracy Party in Greek elections. On the domestic front, there was increasing hope of policy action as the Prime Minister Dr Manmohan Singh took charge of the finance ministry. The falling commodity prices further boosted investor sentiments.

In its mid-quarter monetary policy review, the Reserve Bank of India kept the repo rate, reverse repo and CRR unchanged citing rising risks to inflation and limited role of interest rates in reviving growth given the policy issues. The domestic macroeconomic indicators continued to disappoint.

The index of industrial production (IIP) remained nearly flat at 0.1% for the month of April. Despite the weak growth, WPI-based inflation rose to 7.55% in May from 7.23% in April 2012 driven by double digit food inflation. The government increased the minimum support price for Kharif crops for 2012-13 which is expected to keep inflation high in the coming months.

All domestic sectoral indices gave positive returns for the month. The capital goods index gave the highest return of 13.7% driven by various events like Government’s announcement of thrust on infrastructure development in the fiscal, news that power ministry may approach the Union Cabinet to levy 21% duty on imported power equipment in a bid to protect domestic manufacturers from Chinese and Korean competition, and Surge in industry heavyweights – L&T and BHEL – on bagging new orders.

Retail investors can continue to park their short term surplus funds in liquid / ultra short term schemes and optimize their portfolio to benefit from the high inflation and tight liquidity scenario. Retail investors should also look at FMPs of different maturities as they offer better post tax returns. SBI Mutual Fund has launched several FMPs and will continue to do so to fulfill investors’ requirements. 

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