Our country’s hopes of a stable government coming into power became a reality on May 16 with the Bharatiya Janata Party (BJP) winning 282 seats independently and the BJP-led National Democratic Alliance (NDA) securing 336 out of 543 seats. Sentiments got a further boost on hopes that the new government would bring in more reforms, stimulate the domestic growth rate, enhance the overall business environment and lift investor confidence.
Domestic equity indices rode high in May on the back of encouraging domestic and global cues. Key benchmarks CNX Nifty and S&P BSE Sensex soared 7.97% and 8.03% respectively. FIIs continued to support the markets, evident from the strong inflows during the month. FIIs net bought equities worth Rs 16,512 cr in May compared with buying of Rs 10,182 cr in the previous month. On the international front, optimism about the US economy following the release of the positive economic data and the US Federal Reserve’s confidence in the US economic prospects by further reducing its monthly bond buying program to $45 bn from $55 bn gave sentiments a shot in the arm.
India’s gross domestic product (GDP) for the fourth quarter of the financial year 2013-14 (FY14) grew at 4.6%, same as in the previous quarter. For the entire fiscal, the economy grew at 4.7%, higher than the decade low growth of 4.5% in the previous fiscal. In FY14, fiscal deficit reduced to 4.5% of the country's GDP at Rs 5.08 lakh cr, down from 4.9% in the previous fiscal. The current account deficit (CAD) narrowed to 1.7% of GDP, or $32.4 bn, in the latest fiscal, from 4.7% in FY13. CAD narrowed to $1.2 bn or 0.2% of GDP for the March quarter.
Wholesale price index (WPI) inflation eased to 5.20% in April from 5.70% in March; the fall was led by decline in inflation in the overall food segment - slipped to 8.64% in April from a high of 9.9% in March. However, retail inflation measured by the consumer price index (CPI) rose to 8.59% in April following 8.31% growth in March.
All S&P BSE sectoral indices ended higher in May except for S&P BSE Healthcare and S&P BSE IT. The S&P BSE Realty (top performer) and S&P BSE Power indices soared nearly 36% and 28%, respectively, on anticipation that the new government might fast-track hindered projects, introduce reforms and revive the economy. The S&P BSE Healthcare index was the top loser, down 4.11%, as investors shunned the defensive bets. The S&P BSE IT index fell 3.39% following strengthening of the rupee against the dollar and sell-off in IT major Infosys.
In June, the equity market is expected to be guided by the news flow on the policy front by the new government. Retail participation in the equity market is expected to increase, which would influence the market. Domestic macro-economic data and normal onset of monsoons would also have a bearing on investor sentiments.
I guess every investor is a slave to his or her own psychology, but the nervous types' behaviour is specially self-destructive. At every fluctuation in the market they'll feel happy that they've saved their profits. However, eventually, when the market is much higher, they'll invest again. At that point, they'll be at real risk and would have missed out the most profitable part of the coming bull run. There are those who stay invested at all times, even when they shouldn't. There are those who never invest in equities. And there are these nervous ones who manage to combine the worst of all worlds. Regardless of what the future brings, make no mistake--fixed income returns in India will barely be able to cover the inflation rate. To get real returns from one's investments, there is no alternative to equities or equity-backed investments like mutual funds. However, the cure for the nervousness this induces in some people is to invest regularly, so that your gains and losses get smoothed out. And be prepared to take a little rough with the smooth. The flavour for equity by the retail investors is also encouraged by gold having lost its sheen.
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