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September 2014

India equity indices remained in the positive terrain for the fourth successive month in August. Benchmarks CNX Nifty and S&P BSE Sensex rose 3.02% and 2.87%, respectively, due to positive domestic and international cues.

In the beginning of the month, the equity market rose on account of the measures undertaken by the Reserve Bank of India (RBI) to enhance liquidity in the banking system. In its monetary policy review on August 5, the central bank lowered the minimum bond holding requirement (SLR) by 50 bps for lenders in order to boost investment. Further positivity was seen in the market after RBI Governor Raghuram Rajan said that there is still room to cut rates in the near future if disinflation continues. Prime Minster Narendra Modi’s maiden Independence Day speech in which he promised to boost infrastructure and manufacturing sectors improved the market sentiments. Hopes that Standard & Poor (S&P) might consider revising the sovereign rating on India upwards after receiving clarification on growth from the government also augured well for the domestic indices. Sustained inflows by FIIs and the release of encouraging earning numbers particularly from the auto companies supported the market. Further positivity was seen as tensions between Ukraine and Russia eased and economic data from the US remained upbeat. Expectations of further monetary stimulus in the Eurozone raised hopes of continued foreign inflows and further buoyed the local indices.

Gains were, however, capped due to few weak domestic cues including disappointing retail inflation numbers, as measured by the CPI, for July, downbeat corporate earnings from index major L&T and intermittent profit booking. Sentiments were dented further after the Supreme Court said that all coal block allocations allotted through the screening panel's recommendations since 1993 were illegal. Caution ahead of the US Fed Chair Janet Yellen’s speech at the Jackson Hole conference also limit the market gains. Later, Chief Yellen said the US economy is improving but the central bank is awaiting more evidence about the health of the labour market before deciding when to start raising interest rates.

S&P BSE sectoral indices ended mixed in August. S&P BSE Auto index was the top gainer, up 11.64%, buoyed by strong earning numbers from M&M and Tata Motors. S&P BSE Healthcare followed, up 8.23%, as investors preferred to take defensive bets. S&P BSE Realty was the top laggard for the second consecutive month, down 8.75% in the latest month compared with 8.86% in the previous month. Fall was led by worries of weak demand and some negative stock specific developments.

A disciplined approach to investment would help hedges against inflation. Mutual Funds offer opportunities for multi asset diversification thus balancing the overall portfolio. Market cycles are inevitable. 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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Dinesh Khara