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May 2013

Reversing previous month’s trend the benchmark equity indices CNX Nifty and S&P BSE Sensex gained 3.96% and 3.39%, respectively, in the month of April 2013 on positive cues from domestic and global economy.
On the domestic front, wholesale Price Index (WPI) inflation rate fell to a 40-month-low of 5.96% in March from 6.84% in February.  Decline in international commodity prices, particularly gold and crude oil also fuelled the expectations. The central bank reciprocated by cutting the repo rate by 25 bps to 7.25% in its annual policy review held in the first week of May; the third cut by RBI in the current calendar year.
Markets also got some support after sugar shares rose on the news that the Cabinet Committee on Economic Affairs has partially lifted controls on the sector. Although foreign institutional investors (FIIs) did not totally disappoint the market, net buying by FIIs in April declined to Rs 6,407cr in April 2013 compared to net purchases of Rs 10,399 cr in March.

On the international front, positive cues from the US and Europe boosted the market. The US reported strong domestic economic numbers and robust corporate earnings while hope arose of more monetary easing measures in Europe by the European Central Bank (ECB). The ECB met market expectations and cut its key interest rate by 25 bps in the first week of May, its first rate cut in 10 months. 

However, gains for the Indian market were checked by continued political turmoil in the country which incited fears of an early general election. Sentiments were also dented on worries that foreign investors could exit some of their holdings due to domestic and global uncertainties. Concerns over India's high current account deficit (CAD) at 6.7% of GDP in October-December also weighed on investor sentiment. Markets reacted negatively after technology major Infosys' lower-than-expected revenue guidance raised concerns about the outlook for the software services exporting sector.  Profit booking and a fall in the jewellery and gold loan finance stocks due to decline in gold prices also pulled down the market.

 Annual inflation rate based on the new Consumer Price Index (CPI) also fell to a four-month low of 10.39% in March following an all-time high of 10.91% in February 2013. Further, food inflation eased to 8.7% in March from 11.4% in February while primary articles inflation fell to 7.6% in March from 9.7% in the previous month. The central bank in its latest policy review projected WPI inflation at 5.5%; it, however, warned that continued high CPI inflation and upside risks to WPI inflation remain significant, which will reduce the space for further rate cuts in 2013-14.

Among economic indicators in the month, India's industrial production expanded 0.6% in February, following 2.4% growth in January. India’s core sector growth slowed to 2.9% in March 2013 from 3% in the same month last year. India's exports decreased 1.76% to $300.57 bn in FY13 while imports moved up 0.44% to $491.49 bn, resulting in a deficit of $190.92 bn. India HSBC Services PMI fell to a 17-month low of 51.4 in March from 54.8 in February. 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. According to Nielsen survey, Indian Consumer Confidence Index dropped by one point to 120 in the first quarter of 2013 to come second after Indonesia; this comes after the Indian index had topped the global list at 121 in the fourth quarter of 2012. India Inc raised about $32 bn through external commercial borrowings (ECBs) and foreign currency convertible debentures (FCCB) route in 2012-13, a dip of 13% from the previous fiscal; in March, companies raised about $5 bn from abroad. 
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. This disciplined approach hedges the investment against inflation too. Mutual Funds also offer opportunities for multi asset diversification thus balance the overall portfolio. 
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