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March 2012

Indian equity markets continued their upward momentum for the second consecutive month with the benchmark indices S&P CNX Nifty and BSE Sensex gaining 3.6% and 3.25%, respectively in February. The markets rose over the month on the back of persistent foreign institutional investor (FII) inflows and firm global cues. FIIs bought equities worth Rs 25,217 cr in February, the highest monthly buying since records and compared to buying of Rs 11,089 cr in January. Positive global cues came in the form of strong US economic data including upbeat US job data and expectations that Eurozone debt crisis may ease. On the domestic front, encouraging corporate earnings and increase in India’s Purchasing Managers' Index (PMI) brought in more gains into the markets. Sentiments were also boosted after monthly inflation eased in January. Further gains were witnessed after the Finance Minister allowed cash-strapped domestic airlines to directly import aviation turbine fuel.

Some gains were, however, capped on intermittent profit booking following weak economic growth forecast for the fiscal year and dismal industrial production data. Delays in resolution of Greece’s bailout, weak PMI in Germany and rising global oil prices induced more losses in the market.

All BSE sectoral indices ended higher in February, with BSE Realty emerging as the topmost gainer, up 14.5% on strong buying in realty shares. BSE Consumer durables emerged as the second biggest gainer, up around 11% in the month.

BSE Power index rose around 10% as the government's directive to Coal India eased concerns over coal availability and raised expectations of a hike in power rates. Shares of Reliance Power and India Bulls Power soared 18% and 6.5%, respectively. BSE Auto index posted a positive return of 8.15% after auto stocks gained on higher industry sales in January. Index majors Tata Motors, Maruti Suzuki and M&M rose 11%, 6% and 5%, respectively. BSE Healthcare ended almost flat in the month after pharma companies posted disappointing quarterly earnings and as investors ignored low beta defensive stocks in a rising market.

CRISIL Research expects the Indian markets to be driven by domestic factors in March. FII inflow is expected to remain strong due to global liquidity. The outcome of the assembly elections in UP, Punjab, Uttarakhand, Goa and Manipur and the 2012-13 union budget will predominantly decide the course of the markets in March.

Also, the RBI’s stance on rate cuts during the monetary policy review on 15th March will impact interest rate sensitive sectors like banking and real estate. Greece’s ability to avoid a default remains a key monitorable. Based on the aforementioned factors, CRISIL Research expects the Nifty to correct and end the month in the range of 5,100-5,200 (Sensex 16,800-17,200).

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