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June 2013

The benchmark equity indices CNX Nifty and S&P BSE Sensex posted marginal growth 0.94% and 1.31%, respectively, in the month of May 2013. 
On the domestic front, The RBI cut its benchmark interest rate by 25 basis points this month, the third time since January, as expected, as growth slows and inflation recedes, but stressed that there is little room to ease monetary policy further. India’s headline inflation rate based on the Wholesale Price Index (WPI) declined to a 41-month low of 4.89% in April from 5.96% a month ago. Non-food manufactured products inflation, considered a proxy for core inflation, slipped to a 39-month-low of 2.8% in April from 3.5% in March. Further, inflation rate based on the new Consumer Price Index (Combined) fell to a one-year low of 9.39% in April from 10.39% a month ago. However, RBI Governor Dr. D Subbarao said that there are upside risks to inflation; the central bank also expected the WPI inflation at around 5.5% in FY-2014.
The Indian economy grew by  4.8% between January and March 2013, compared with 5.1% posted in the same period last year; the latest quarter growth was, however, slightly higher compared to the upwardly revised 4.7% growth seen in October-December 2012 . In 2012-13, the country grew at the rate of 5%, the slowest annual rate in a decade.   Economic growth forecasts continue to be dim, with the Organization for Economic Co-operation and Development (OECD) lowering India’s growth forecast for 2013 to 5.3% from 5.9% forecast previously and the Asian Development Bank (ADB) projecting it at 6% for the current fiscal. On the domestic front, Prime Minister Dr. Manmohan Singh expects the Indian economy to grow by 6-6.5% in the current financial year and further to 8% in the next two to three years. The finance ministry exuded confidence that economic growth will be 6% and above in the current fiscal. However, the Reserve Bank of India (RBI) projects the country to grow at 5.7% in 2013-14. Meanwhile, in a first, the OECD said that India has probably surpassed Japan to become the world's third largest economy after the US and China.

India's industrial growth rose to a five-month high of 2.5% in March, compared with negative2.8% in March last year. Output of eight key infrastructure sectors grew 2.3% year-on-year in April following 3.2% contraction in March and 5.7% growth a year ago. The country’s fiscal deficit narrowed to Rs 4.899 lakh cr or 4.9% of GDP in the year ended March, lower than the revised Budget estimate of Rs 5.209 lakh cr or 5.2% of GDP. India’s exports grew 1.7% year-on-year to $24.164 bn in April, while imports grew 11.0% to $41.952 bn resulting in a 26.7% year-on-year rise in the trade deficit to a three-month high of $17.787 bn in April. India HSBC Manufacturing Purchasing Managers' Index (PMI) dropped to 51.0 in April, the lowest since November 2011 and compared with 52.0 in March, while PMI for services fell to 50.7 points in April, the bottom of the index since October, 2011 when it stood at 49.1.India’s indirect tax collections in April grew by 3.3% to Rs 33,684 cr.

The Indian government plans to complete its divestment target of Rs 40,000 cr for the current fiscal by December. In line with meeting the target, the Cabinet Committee on Economic Affairs approved the setting up of a Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF); the move will help the government in its disinvestment programme. The finance ministry asked cash rich public sector undertakings such as Coal India, ONGC and Oil India to consider buying government equity in other state-run firms to help achieve the disinvestment target in the current fiscal.

In other developments, India and China agreed to take steps for addressing the issue of trade imbalance through greater cooperation in areas such as pharmaceutical and IT; also set a $100bn trade target by 2015.The government agreed to a 10-15% band for state goods and service tax (GST); hoped for a consensus in finalising the new tax regime after the latest move. It failed to get the amended Food Security Bill passed in the Lok Sabha. It decided to pay a commission of 1% to banks on the total amount transferred under the Direct Benefits Transfer (DBT) scheme. The government decided to initiate transfer of direct subsidy amount in the account of beneficiary for LPG cylinders from June 1. It also changed the Income Tax Rules, making it mandatory for certain classes of assessees, including those covered under bilateral tax treaties, to file their returns in India. Government set up an inter-ministerial group (IMG) to suggest ways to tackle fraudulent money-pooling activities and protect the interest of investors. It also cleared eight foreign direct investment (FDI) proposals worth Rs 700 cr. Meanwhile, the finance ministry agreed to give out Rs1 lakh cr towards diesel and LPG subsidy in 2012-13, but wants the pricing formula to be changed from the current year; also agreed to pay Rs40,000-45,000cr more to cover for unmet revenue losses on fuel sale in FY2013. 

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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