Domestic equity benchmarks started the year on a positive note – on the back of encouraging global and domestic cues – with the benchmark equity indices S&P CNX Nifty and BSE Sensex gaining 2.41% and 2.20%, respectively. On the global front, the Indian market benefitted from the optimism over resolution of the US fiscal cliff and some strong economic data from the US, euro zone and China. Back home, markets gained on hopes of an interest rate cut by the Reserve Bank of India (RBI) during its third quarter monetary policy review on January 29, 2013. These rate cut expectations got a boost after the country’s headline Wholesale Price Index (WPI) inflation fell to a three-year-low of 7.18% in December 2012 from 7.24% in the previous month. Later in the month, the RBI cut its key lending rate - the repo rate - under the liquidity adjustment facility (LAF) by 25 basis points (bps) to 7.75%. The central bank also reduced the cash reserve ratio (CRR) by 25 bps from 4.25% to 4% effective from February 9, 2013, which will inject Rs 18,000 cr into the banking system. The policy actions are aimed at supporting growth by encouraging investment and improving the liquidity conditions to support credit flow.
Markets were supported by sector-specific domestic developments during the month. The oil and gas sector benefitted after the government allowed the state-run oil marketing companies to raise diesel prices by 50 paise per month till their under-recoveries on sale of the fuel are eliminated. Mr M Veerappa Moily, Minister of Petroleum and Natural Gas, has given conditional approval to Reliance Industries and Cairn India to continue exploring for oil and gas within their producing fields, which also helped the oil and gas stocks. Strong earnings report from index major Reliance Industries also augured well for the Indian markets. The BSE Oil & Gas Index was the second biggest sectoral gainer for the month with gains of 9.87% on these positive cues.
Strong results from tech majors Infosys, Tata Consultancy Services (TCS) and Wipro further cheered the domestic markets. The BSE IT Index emerged as the topmost gainer, up 12.48% due to these strong quarterly earnings.
More buying was seen in the markets as telecom stocks advanced after the Union Cabinet decided to slash the Code Division Multiple Access (CDMA) spectrum price by 50% and after a few telecom companies decided to hike tariffs. Meanwhile, strong buying by foreign institutional investors (FIIs) also supported the market. FIIs were net buyers of equities worth Rs 22,230 cr in January 2013 compared to buying worth Rs 24,299 cr in December 2012.
Some gains for the domestic markets were capped after India's industrial growth contracted 0.1% in November 2012 compared with 8.3% growth a month ago. Markets also declined despite the RBI reducing its key lending rate, as the central bank lowered the economic growth projection for the current fiscal to 5.5% from 5.8% estimated earlier. Markets were affected after the International Monetary Fund (IMF) lowered its projections for India’s economic growth to 4.5% for 2012 from its earlier estimate of 4.9%; the international body has pegged the domestic growth rate at 5.9% for 2013 and 6.4% for 2014. Some losses were also seen after jewellery stocks fell due to the government’s decision to hike the import duty on gold and platinum to 6% from 4% to curb the rising demand. Among some weak global cues, sentiments dimmed after minutes of the US Federal Reserve's December meeting showed that many members were in favour of slowing down or halting the central bank's bond buyback programme by the end of 2013 and discouraging Chinese manufacturing data. Among sectoral laggards, the BSE Metal was the top loser in the month, down 4.20%. Index heavyweight Tata Steel declined by 5.4% on issues related to forest clearance for its coal mining project in Jharkhand. Also, Jindal Steel and Power Ltd and Hindalco Industries declined by 6% and 11% respectively during the month.
We expect the market to be driven by further policy announcements, global cues and the December quarter results in February. The budget at the end of the month will give better clarity on fiscal consolidation and is a key monitorable.