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March 2013

Reversing previous month’s trend the benchmark equity indices S&P CNX Nifty and BSE SENSEX recorded a loss of 5.10% and 5.20%, respectively in the month of February 2013. Despite the past 12 months’ out performance, India finished last amongst emerging markets in the month of February.

On the Domestic front, everybody was looking forward to the Union budget. The budget was an exercise of fiscal consolidation without major policy announcements. It focused on capping the fiscal deficit at 4.8% in FY14 compared to 5.2% in FY13. The budget however had a few positives for the equity market, such as reduction in Securities Transaction Tax (STT) and a few foreign institutional investor-friendly proposals such as deferment of implementation of modified General Anti Avoidance Rule (GAAR) to April 2016 and allowing FIIs to participate in the exchange-traded currency derivative segment. The proposed freight hike announced in the Railway Budget that would add to the costs of manufacturing companies also dragged down markets. We are hopeful that policy reforms would continue outside the budget exercise as well.

On the global front, the US Federal Reserve meeting signaled that the central bank may slow or stop its bond buying program; political gridlock in Italy, which renewed fears about instability in the euro zone; and discouraging Chinese manufacturing data led to a decline in the markets. Back home, the Union Budget tabled on the last working day of the month was largely seen as a non event. Lack of clarity over tax residency certificate required to get benefits under the Double Taxation Avoidance Agreement (DTAA) also impacted the markets. This was sought to be clarified later. Continuation of government thought on disinvestments and incremental fuel price hikes continued to send the right messages.

India’s wholesale price index (WPI)-based inflation rate declined to a 38-month low of 6.62% in January from 7.18% in December.  The Economic Survey for 2012-13 also showed that the WPI inflation could decline to 6.2-6.6% in March. However, India's annual inflation rate based on the new Consumer Price Index (combined) continued to rise, coming in at a record 10.79% in January from 10.56% a month ago. 

Among economic indicators in the month, India's index of industrial production (IIP) contracted 0.6% in December following contraction of 0.1% in November. India's key eight core sector growth expanded by 3.9% in January following 2.5% growth seen in December. India's fiscal deficit during the April-January period was Rs 4.66 lakh crore, or 90.7% of the budgeted full fiscal year 2012-13 target. India’s exports rose by an annual 0.8% to $25.59 bn in January, while imports rose 6% to $45.58 bn, to post the country’s second highest-ever monthly trade deficit of $20 bn in January, worsening from a $17.7 bn deficit in December. The government's gross direct tax collections during April-January rose 7% to Rs 4.55 lakh cr, while net collections rose 12.5% year on year to Rs 3.90 lakh cr. Department of Industrial Policy and Promotion says that foreign direct investment (FDI) inflows into India fell 18.7% year on year to $1.10 bn. India’s Services Purchasing Managers Index for January stood at 57.5, compared with 55.6 in the previous month. 

On the infrastructure front, to mobilise funds for investment in infrastructure, the govt. has announced various measure such as encouraging of Infrastructure Debt Fund (IDF), allowing some institutions to raise tax-free bonds up to 50,000 cr (100% more than the current year). The India Infrastructure Finance Corporation (IIFC), in partnership with ADB, is to help infrastructure companies to access the bond market to tap long-term funds. States which have completed Pradhan Mantri Gramin Sadak Yojana will be eligible for PMGSY-II; others will continue with PMGSY-I. Rs 14,873 cr allocated to Jawaharlal Nehru Urban Renewal Mission (JNNURM) in budget estimate 2013-14 as against revised estimate of Rs 7,383 cr.  Above all the govt. has proposed constitution of a regulatory authority for the roads sector. 

To incentivize savings the govt. in the budget has proposed to liberalize Rajiv Gandhi Equity Savings Scheme. Also proposed was launch of inflation indexed bonds or inflation indexed national security certificates to protect savings from inflation and it is expected to moderate the demand for gold driven by inflation hedging requirements.

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 This disciplined approach hedges the investment against inflation too. 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.

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