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May 2011

The foreign institutional investor’s (FII) flows into Indian secondary equity markets reversed direction in the month of March after continuous selling during January and February months.  FII’s pumped in Rs 6,967 cr into the Indian equity markets during the month leading to the S&P CNX Nifty rising by 9.4% in the month, its best monthly gain since September 2010. 

After two months of underperformance, the S&P CNX Nifty has significantly outperformed all the major developed and emerging market indices in March. The out performance was despite the strong headwinds in form of rising interest rates, earthquake in Japan and continued high oil prices. We believe that the significant underperformance to global markets in previous months and attractive valuations led to the strong rally during the month.

Despite the rising interest rate scenario, it was the interest rate sensitive sectors such as auto, banks and real estate that led the market rally. After being consistent underperformer, the real estate index rose 18% during the month, whereas as auto and banks index rose by 13% and 12% respectively. The return on risk appetite was evident as the high beta index such as realty outperformed whereas the defensives such as FMCG (+5%) and Healthcare (+5%) underperformed the broader indices.

We expect the market to take a breather during the month of April after the rally. The Q4 FY11 results season is not expected to provide any major surprises. Oil prices are expected to remain firm as no resolution to the political crisis in Libya is in sight. We expect the S&P CNX Nifty to trade in range of 5700-5800 (BSE Sensex 19000 - 19300).