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August 2013

Domestic equity indices fell for the second consecutive month in July with key benchmark indices CNX Nifty and S&P BSE Sensex losing 1.72% and 0.26%, respectively. The domestic market was dragged down by the actions taken by the Reserve Bank of India (RBI) to squeeze liquidity in the domestic financial system to curb volatility in the rupee-dollar exchange rates. Other factors affecting the market were the sharp volatility seen in the rupee during the month and disappointing earnings from index majors such as Larsen & Toubro (L&T) and Hindustan Unilever (HUL). Selling by foreign institutional investors (FIIs) also dented market sentiments. FIIs sold equities worth Rs 5909 cr in July 2013, the second consecutive month of net selling and compared to net selling of Rs 10,530 cr in June, 2013.

Losses were capped following positive global cues. US Federal Reserve chief Ben Bernanke commented that the nation’s central bank will continue with a highly accommodative monetary policy for the foreseeable future. The market was also supported by the Government of India’s measures on foreign direct investment (FDI) and some strength in the rupee following regulatory measures. A buoyant monsoon also augured well for the Indian equity market.  


*Note: MF data is available only till July 30

S&P BSE sectoral indices ended mixed in July. The S&P IT index emerged as the topmost gainer among all the indices analysed, rising 19.23%, boosted by encouraging earnings from Infosys and depreciation of the Indian rupee. The S&P BSE FMCG gained 5.17% on defensive buying in index major HUL on the news that HUL has hiked prices of some its products in the soaps segment. The S&P BSE BANKEX index was the top loser, down 13.70%, as RBI’s measures are likely to put pressure on banks’ profitability due to increase in cost of funds and mark-to-market (MTM) losses of the bond portfolio resulting from higher yields. 

The markets in August are expected to be guided by global cues, developments on monsoons, FII flows, remaining corporate earnings, and on the country’s macro-economic situation. While policy reforms to revive the economy will support the markets, further measures taken by the RBI to tighten liquidity could act as a downside trigger. CRISIL Research expect CNX Nifty 50 to be highly volatile in August and end around 5,550-5,750 (S&P BSE Sensex 18,300-18,950).