Indian equity indices put up a splendid performance in October, surging nearly 5% each owing to positive developments, both at home and globally.
The US Fed showed confidence in the US economic recovery and also decided to end its quantitative easing programme. In addition, the central bank said that it would keep the interest rates low for a “considerable time”. Reports that the ECB would consider buying corporate bonds augured well for the markets. Sentiments rose further after Bank of Japan’s unexpected monetary easing decision.
Closer home, the recent reforms initiated by the government have prompted positive reactions from global institutions such as the IMF, which has forecast 5.6% growth for India this year and 6.4% in 2015. The World Bank said that the Indian economy is set to grow 6.4% in 2015-16 and 7% in 2016-17. The Organisation for Economic Cooperation and Development (OECD) said that India might see a pick-up in growth momentum, while most of the other major economies are anticipated to see stable prospects.
RBI Governor RaghuramRajan said that India’s economic recovery is uneven, but exudes optimism that the country will be in the 5% growth bracket during the course of this fiscal and accelerate further in the next financial year. India’s Consumer Price Index (CPI) inflation eased to an all-time low of 6.46% in September, led by a fall in food prices, compared with 7.73% in August. Wholesale Price Index (WPI) inflation dipped to a five-year low of 2.38% as against 3.74% in August.
Department of Industrial Policy and Promotion (DIPP) observed that India will attract the highest-ever inflow of foreign direct investment (FDI) in the current fiscal on the back of a slew of policy reforms announced by the new government.
Going forward, while the markets will continue to look to corporate earnings and FII inflows, further reforms by the government and domestic macro economic data should lend support to equities and determine direction for equities.
On the debt markets front, bond prices edged higher in the month. Sentiments were primarily boosted as global crude oil prices plummeted. Lower crude oil prices helped reducing upside risks to inflation, given that India is a major importer of crude oil. Gilts strengthened further as easing of both consumer and wholesale inflation numbers in September led to hopes that the RBI may slash interest rates. Intermittent strength in the rupee against the dollar supported gilts. Government bond prices also advanced due to various government initiatives such as decisions to deregulate diesel prices, a move that is expected to improve the Centre’s fiscal condition, and allow FDI in the cash-strapped construction sector. Bonds also gained following the outcome of the state assembly elections in Maharashtra and Haryana, which enhanced the government’s ability to push economic reforms.
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Dinesh Kumar Khara