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July 2013

The benchmark equity indices CNX Nifty and S&P BSE Sensex lost 2.40% and 1.84%, respectively, in the month of June 2013, mainly due to withdrawal of foreign investments. In the medium term we expect India to get a higher allocation at least within the emerging market space, as India’s growth potential is relatively higher.

On the positive, India's headline inflation  rate, based on the Wholesale Price Index, fell to a 43-month-low of 4.70% in May from 4.89% in the previous month, while inflation rate based on the new Consumer Price Index (Combined) fell to a 15-month low of 9.31% in May from 9.39% in the previous month. 

On the ratings front, Fitch Ratings raised India's rating outlook to stable from negative, primarily driven by the steps taken by the government to contain fiscal deficit; the agency affirmed India's sovereign rating at 'BBB-'. Moody's said that issuance of inflation-indexed bonds is a credit-positive step by the Indian government to correct macro-economic imbalances caused by domestic investors' widespread use of gold as an inflation hedge.

Not so favourable  global economic scenario continues to affect the Indian economic outlook, with the World Bank lowering the country’s growth outlook for the current fiscal to 5.7% from 6.1% estimated earlier, though it expects it to grow at 6.5% and 6.7% in FY14 and FY15, respectively. Meanwhile, the Finance Minister, Mr. P Chidambaram, said that development of infrastructure and expansion of financial products such as Infrastructure Debt Funds (IDFs) and takeout finance are crucial to the country achieving 8% growth. The World Bank has said that India's share in global savings and investment is likely to double from its current contribution to 7% by 2030.

Among major developments in the month, the government raised Rs 568 cr by divesting a 9.3% stake in MMTC Ltd through an offer-for-sale on June 13. The government invited bids to appoint merchant bankers to manage a 10% share sale in Indian Oil Corporation through a share offer. The government has decided to sell 7.64% stake in National Fertilizers to meet SEBI norms on public shareholding. The government has approved doubling the price of natural gas to $8.4 a million British thermal unit (mBtu), from the next fiscal year. It also approved setting up a regulator for the coal sector.

Among economic indicators in the month, India's industrial growth moderated to 2.3% in April from 3.4% in the previous month and a contraction of 1.3% in April last year. Key core industries grew 2.3% in May, compared with 2.4% in the previous month and 7.2% growth a year ago. India's exports slid 1.1% year on year to $24.51 bn in May while import rose 8.8% year on year to $86.60 bn, resulting in trade deficit of $20.14 bn; in April-May, trade deficit rose to $37.93 bn from $30.97 bn a year ago. The government's tax mop-up in April-May declined 7.9% year on year to Rs 77,767 cr, mainly on account of huge refunds in April. India’s fiscal deficit rose 27.6% year on year to Rs 1.81 lakh cr during April-May; for May, fiscal gap was Rs 87,100 cr compared with Rs 74,400 cr a year ago.  India's external debt rose by nearly 13% to $390 bn in 2012-13. FDI in India declined by 6% to $5.47 bn during January-March 2013.

A disciplined approach to investment would help hedges against inflation. Mutual Funds offer opportunities for multi asset diversification thus balance 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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