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December 2012

Domestic equity benchmarks, S&P CNX Nifty and BSE Sensex, gained around 5% in November following positive developments in domestic and international markets. On the domestic front, markets cheered up following Moody's Investors Service’s decision to retain its stable outlook on India’s sovereign rating supported by the high household savings rate and a relatively competitive private sector which will push up economic growth. Sentiments got another booster dose after Goldman Sachs upgraded India to 'overweight' from 'market-weight', seeing growth recovery and inflation moderation ahead. The government’s strong confidence in getting parliamentary clearance for foreign direct investment (FDI) in the retail sector supported the markets. 

On the international front, the euro zone finance ministers’ and the International Monetary Fund’s (IMF’s) consent on a plan aimed at reducing Greece’s debt provided relief to the market. Encouraging economic data from the US, China and Germany further improved market sentiments. The market was also supported by continued and strong foreign institutional investor (FII) buying; FIIs were the net buyers of secondary market equities worth Rs 10,967 cr in November 2012 compared to net buying of Rs 10,273 cr in October 2012.

Some gains were, however, capped on worries over the looming US fiscal cliff and after Moody's downgraded France's government bond rating to Aa1 from Aaa. Back home, sentiments were also dented after GDP growth declined to 5.3% in July-September as compared to 5.5% in the previous quarter. Gains were also limited due to an unexpected contraction of the Index of Industrial production (IIP) in September 2012 and a record-high trade deficit in October 2012.

BSE sectoral indices ended mostly higher for the month except the BSE Oil & Gas Index, which fell 1.23% due to rise in crude oil prices during the month and on worries of subsidy clearance by the government for the oil marketing companies. The BSE Consumer Durables Index gained the most, up 15.76%, as investors preferred to take defensive bets amidst volatility in the market. The BSE Realty Index rose 12.80% due to renewed buying in the sector shares due to stock specific action. The BSE Auto Index ended up at 4.92% as auto stocks surged anticipating that Diwali festival sales in November will boost dispatches during the month.

We expect the markets to be driven by policy announcements by the Indian government. The investors will have to watch closely as the policy related to FDI in retail comes up for voting in the parliament in the first week of December and winning of the FDI vote by the UPA government will act as a positive trigger for the market. The markets will also be driven by developments in the US and Eurozone.