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November 2013

The benchmark equity indices CNX Nifty and S&P BSE Sensex gained 9.83% % and 9.21%, respectively, in the month of October 2013. There we fresh flows into emerging markets and particularly to India. The surge in the equity markets were mainly because of buying by foreign investors. 

On the domestic front, the Reserve Bank of India’s (RBI’s) measures to improve liquidity in the banking system was the main booster. Repo rate hike of 25 bps to 7.75% at is policy review by the RBI helped the market as it was in line with expectations and also normalises the wide gap that was persisting between rep and MSF rate. Strong buying by foreign institutional investors (FIIs) also supported the market. FIIs were net buyers of Indian equities in October for the second consecutive month. 

On the international front, a last minute deal by the US Senate to raise its debt ceiling and reopen the government until early next year cheered the Indian market. Optimism that the US Federal Reserve (Fed) could maintain its stimulus measures due to weaker-than-expected domestic jobs data in September coupled with upbeat Chinese growth data also supported the indices. Towards the end of the month, the US Fed maintained its $85 bn bond buying stimulus program on worries of slowing growth in the economy.

Confidence about the future prospects of the Indian economy rose with the Finance Ministry expecting the economy to improve in the second quarter of the current fiscal, and the announcement that steps will be taken to incentivise growth. Finance Minister P. Chidambaram said that the economy is likely to grow over 5.0% in the current fiscal year on the back of measures taken by the government. Trade Minister Anand Sharma said that the Indian economy is seeing a turnaround both in terms of growth in manufacturing and domestic demand, and buoyancy in exports. Reserve Bank of India Governor Raghuram Rajan also said that India is not facing any economic crisis and won't approach the IMF for funds in the next five years as the country has enough forex reserves.

India's headline inflation rate, based on the Wholesale Price Index, rose to a seven-month high of 6.46% in September from 6.10% in the previous month mainly on account of an increase in prices of fuels, minerals, and vegetables, especially onions. The Consumer Price Index (Combined)-based inflation rate also rose to 9.84% in September against 9.52% in August.

Among economic indicators in the month, India's industrial growth moderated to 0.6% in August as compared with revised 2.8% growth in July mainly because of a contraction in the capital goods and consumer durables sectors. However, the growth in India's key core infrastructure industries rose sharply to one-year high of 8.0% in September from 3.7% a month ago. India's exports surged 11.2% in September to $27.68 bn, while imports fell 18.1% to $34.44 bn, resulting in trade deficit falling to a 30-month low of $6.76 bn against $17.15 bn a year ago.

A disciplined approach to investment can help as a hedge against inflation. Mutual Funds offer opportunities for multi asset diversification thus balancing 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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