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January 2014

The year 2013 ended on an optimistic note for the Indian equity market with key benchmark indices CNX Nifty and S&P BSE Sensex up 2.07% and 1.82%, respectively, in December. CNX Nifty and S&P BSE Sensex gained around 7% and 9%, respectively, in 2013. The rise of domestic equities was propelled by a host of encouraging domestic factors. Markets rose following key opposition party’s strong performance in the state assembly elections. Release of slightly better-than-expected second quarter domestic GDP data of 4.8% as compared to 4.4% in the preceding quarter in the beginning of the month also aided the indices. Sentiments got a further boost after the Reserve Bank of India (RBI) unexpectedly kept its key policy rates unchanged in its mid-quarter monetary policy review held mid-month. 

Strong foreign institutional investor (FII) buying helped the domestic market gain during the month. FIIs were net buyers of Rs 15,615 cr in December, the fourth consecutive month of new buying and compared to Rs 7,079 cr of net buying in November. On a year to date basis, buying by FIIs crossed the Rs 1 lakh cr mark with net buying of Rs 1.13 lakh cr; this is the third highest calendar year buying for FIIs after net buying of Rs 1.33 lakh cr in 2010 and Rs 1.29 lakh cr in 2012.

Gains were, however, limited as market benchmarks fell back from their record highs reached earlier in the month as investors continued to book profits at higher levels. Fears of a rate hike by the RBI due to a sharp rise in wholesale and retail inflation also dragged down the indices. Weak global sentiments in the form of fears of a stimulus pullback by the US Federal Reserve (US Fed) and then its materialisation after the central bank announced that it would reduce its monthly bond purchase of $85 bn by $10 bn to $75 bn from January 2014 also erased some gains for Indian equities.  

 The domestic equity market in December is expected to be guided by the domestic macro-economic data and corporate earnings for the quarter ended December 2013 which will be announced starting January. Further, the market would continue to be impacted by the FII flows and global cues.

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