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April 2013

Domestic equity benchmarks - CNX Nifty and S&P BSE Sensex closed the month of March marginally lower as investor sentiment dampened on weak economic feelers from domestic and global cues.  Prominent weak domestic factors came in the form of concerns over the central government's ability to push through reforms and boost growth due to withdrawal of support by the Dravida Munnetra Kazhagam (DMK) over the government's stand on the issue of Sri Lankan Tamils.  News reports that another supporting ally, the Samajwadi Party might also withdraw its support to the government also affected market sentiments. Interest rate cut by the Reserve Bank of India (RBI) too failed to enthuse investors due to the political uncertainty and as the central bank indicated that the room for further cuts is limited as inflation rates remained above its threshold levels. India‚Äôs current account deficit hitting a record high of 6.7% in October-December quarter also came in as a damp squib for investor sentiment.

On the global front, the Euro zone remained under stress as debt-ridden Cyprus wrestled with the European Union (EU) to get a bailout. The country managed to get a bailout of $13 bn to avoid the collapse of its banking system albeit with stringent conditions attached. Rating downgrades for Cyprus and Italy coupled with some disappointing Chinese economic data also weighed on the markets during the month.

SBI Mutual Fund - Equity Market Update - April 2013

Losses were however capped amid positive sentiments earlier in the month on hopes of monetary easing by the domestic as well as global central banks to aid growth.  Some strong economic data from the US and approval of the bailout plan for Cyprus also aided investor sentiment in the month. Continuing net buying by foreign institutional investors (FIIs) also helped erase losses for the market. FIIs were net buyers of equities worth Rs 10,399 cr in March 2013 compared to net purchases of Rs 22,122 in February 2013. Stock specific buying in consumer durables, IT and metal sectors also supported the markets.

SBI Mutual Fund - Equity Market Update - April 2013

Most BSE sectoral indices ended lower in the month tracking the broad market trend. The S&P BSE Realty index emerged as the topmost loser among all the indices analysed, down 11.45% as market sentiments were impacted by the hawkish monetary policy. Among other major sectoral indices, the S&P BSE Auto index was down 4.44% due to sluggish auto demand, while the S&P BSE Metal index declined 3.41% following weakness in global metal prices. Among rare gainers, the S&P BSE FMCG and S&P BSE Healthcare index rose 4.41% and 2.53%, respectively, as investors preferred to take defensive bets. S&P BSE IT was also up 1.94% as IT stocks gained on optimism over revival of growth in the US - the biggest export market for the sector, and some positive corporate news from the sector.

We expect the market to be driven by policy action by the government to reduce bottlenecks and promote FII investments. Also, global cues will continue to impact the markets. Any further deterioration in the economic data like current account deficit and further concerns over the instability of the UPA government may act as a downside trigger for the market.