The Equity markets in November reflected the greater degree of risk aversion amongst the investors, declining 9% in the month. This was in line with most global indices which also posted negative returns. The trend was reflective of (a) weak IIP number for September on the back of poor performance of mining and manufacturing sector; IIP declined by 420 bps on a y-o-y basis to 1.9% during September, (b) stalemate in the US Congress over budget cuts to enable $1.2 trillion of federal savings (c) Fear of debt crisis engulfing bigger nations in Europe, d) Sustained depreciation of Indian rupee. However, regime change in Greece and Italy followed by major policy decisions on FDI in retail and revamping of Companies Act in India helped restore some faith amongst the investors. Meanwhile, FIIs were net seller to the tune of Rs 4,540 cr in November compared with buying of Rs 2469 cr in October.
All of the BSE sectoral indices analysed ended lower in November, with BSE Realty index falling the most, down 18% as sentiments for the interest rate sensitive sector took a hit after Moody’s downgraded Indian banks. BSE Consumer Durables index also lost heavily in the month by falling around 14.5%. BSE Metal index followed, losing 14% as traders dumped shares of companies in the sector after metal prices slumped on the London Metal Exchange due to weak economic data from China. Meanwhile, BSE Healthcare Index lost the least, down 1% in the month, as investors moved to defensive sectors amid prevalent volatility.
Expectation are that the Indian market to continue to be driven by global cues especially unfolding of crisis in the EU zone over the next month. Coordinated action by major central banks to ease access to dollar funding is a positive move which lead to rally across all global markets. However, same may fizzle out if not supported by fiscal action. On the domestic front, policy action during the current winter session, movement of rupee against the US dollar and inflation remain key monitorables.