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March 2014

Domestic equity indices recovered in February after a fall in the previous month, with key benchmark indices, CNX Nifty and S&P BSE Sensex gaining 3.08% and 2.96%, respectively.  The indices rose due to encouraging domestic cues such as decline in wholesale and retail inflation in January. The Wholesale Price Index (WPI) fell sharply to an eight-month low of 5.05% in January 2014 from 6.16% in December. The combined Consumer Price index (CPI) declined to 8.80% in January from 9.87% in December owing to a drop in food prices, especially of vegetables. 

Other local developments that boosted the equity market were: 1) Positive sentiment following the vote-on-account budget, in which Finance Minister P. Chidambaram proposed excise duty cuts to increase sales. 2) Sector-specific news – for instance, IT stocks gained after the industry body NASSCOM stated that it expects IT exports to grow by 13-15% in FY15 as against 13% in FY14. Sugar stocks attracted buyers after the Cabinet Committee on Economic Affairs approved a subsidy of Rs 3,333 per tonne for export of 4 mn tonnes of raw sugar during February and March. 3) Renewed buying by foreign institutional investors (FIIs) in February. 

Positive global cues including US Federal Reserve Chief Janet Yellen’s statement that the central bank will continue to keep its interest rates at record lows until the unemployment rate reaches a threshold level of 6.5% and the US House of Representatives approving a one-year extension of the federal borrowing authority also augured well for the Indian equities. 

Gains were, however, capped by fears of an economic slowdown in the world’s second largest economy – China. In addition, the US Fed’s decision to continue with its tapering measures affected investor sentiment.

The S&P BSE sectoral indices ended mixed in February. The S&P Capital Goods index and the S&P Auto index were the top performers, rising 9.37% and 8.90% respectively, as the sectors got a boost from the excise duty cuts announced in the vote-on-account budget. The S&P BSE Metal index was the top loser, falling 5.36%, fearing demand from China may decrease as the country posted poor economic data. 

The markets in March are expected to be guided by domestic macro-economic data and FII investments, as well as global cues; further tapering of the bond-buying program by the US Fed and volatility in global equity markets will be key monitorables. With the Indian general elections due in April-May 2014, developments in the domestic political scenario would also impact the markets.