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September 2013

The benchmark equity indices CNX Nifty and S&P BSE Sensex lost 4.47% and 3.61%, respectively, in the month of August 2013 mainly due FIIs outflows and economic uncertainty in the country. 

At domestic front, the government initiated measures to reduce deficit, attract inflows and curb exchange rate volatility. To attract inflows, the government relaxed the norms for foreign direct investment (FDI) in the telecom sector by removing certain security-related provisions that were mandatory for 100% FDI proposals.  It also eased norms for FDI in multi-brand retail in a renewed attempt to attract foreign supermarket operators; approved amendments to dilute many conditions in the sector, including 50% investment in back-end infrastructure, 30% sourcing from small firms and access only to cities with over 1mn population. To arrest the rupee fall, Finance Minister Mr. P. Chidambaram said that the government will issue quasi-sovereign bonds soon; said that India will allow sovereign wealth funds to invest up to 30% in tax-free bonds to be sold by state-run infrastructure companies. To curb the current account deficit, the government hiked the import duty on gold and platinum to 10% from 8% and for silver to 10% from 6% earlier. 

Though the govt. Expect the GDP to be around 5% in the current fiscal, India’s gross domestic product (GDP) growth moderated to a four-year low of 4.4% in April-June 2013 compared with 4.8% in the previous quarter and 5.4% a year ago.  Chief Economic Adviser and RBI Governor-designate Raghuram Rajan said the current environment is challenging, but the Indian economy can overcome these hurdles. Prime Minister's Economic Advisory Council Chairman, C. Rangarajan, also said that the full impact of the recent steps taken by the government is likely to be seen in October-March, adding that a pick-up in the country's growth rate is expected going ahead.

The rupee depreciated 9% in the month, the financial markets saw outflows of nearly Rs 16,000 cr (equity and debt) and the Food Bill is expected to cost Rs 1.25 lakh cr to the exchequer – all these led to major rating agencies take a negative view on India. Fitch Ratings said that India's fiscal numbers look weak, and any further slippage could trigger a ratings downgrade for the country.  S&P said that the way forward for Asian and South Asian economies, particularly for large deficit ones like India, is "rocky" in the near term but the current upheaval does not appear to be a repeat of the 1997 Asian financial crisis. 

On the issue of current account deficit (CAD), Finance Minister Mr. P. Chidambaram pegged India's CAD at a three-year low of 3.7% of the GDP in 2013-14. Meanwhile, Mr Singh asked the Petroleum Ministry to save US$25bn on oil imports in the current fiscal to help reduce the current account deficit.

India’s wholesale price index (WPI) based inflation rose to a four-month high of 5.79% in July against 4.86% in the previous month as food items, particularly vegetables, turned costlier. However, consumer price index (CPI) for July fell slightly to 9.64% as against 9.87% in June; rural CPI inflation fell to 9.14% in July from 9.63% in June while urban CPI inflation accelerated to 10.26% in July from 10.13% in June. The Reserve Bank of India (RBI) warned that the falling rupee will put upward pressure on inflation as the full impact of the rupee depreciation is yet to be passed on.

A disciplined approach to investment would help hedges against inflation. Mutual Funds offer opportunities for multi asset diversification thus balance 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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