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November 2012

Domestic equity benchmarks, S&P CNX Nifty and BSE Sensex, failed to sustain the sharp growth witnessed in September; they ended around 1.5% lower in October dragged down by weak domestic cues. The month begun on a positive note after the government approved reforms related to the insurance and pension sectors. This was in continuation to the various reforms initiated by the government in the previous month. 

The markets, however, remained in the doldrums for the rest of the month following weak indicators on the domestic front. Sentiments turned dim after the government said that it expects growth to be weak this financial year, and its total subsidy burden might exceed Budget provisions. Markets were also affected after (1) the IMF cut its growth forecast for India and (2) S&P warned about the possibility of further downgrade in India’s credit rating over the next 24 months. 

Sentiments were also marred after IT major Infosys posted disappointing results and cut its FY13 revenue growth guidance in dollar terms to 5.7% from its earlier guidance of 6%. FMCG major HUL reported lower-than-expected volume growth. 

Markets were disappointed due to RBI’s decision not to cut the repo rates though it reduced the CRR by 25 bps to 4.25%. Lower growth and higher inflation forecasts for the country by the central bank at its policy review also damped market sentiments. In addition, RBI raised the provisions for restructured standard accounts from 2% to 2.75%, which is likely to pull down the profitability of banks.

Some losses were, however, capped by some intermittent positive global cues including encouraging GDP data from China and stock specific buying amid some third quarter earnings reports. The market was also supported by continued strong foreign institutional investor (FII) buying. FIIs were the net buyers of secondary market equities worth Rs 10,273 cr in October 2012 compared to net buying of Rs 20,769 cr in September 2012. 

SBI Mutual Fund - Equity Outlook - Nov 2012 - Graph 1 

BSE sectoral indices ended mostly lower in October with BSE FMGC and BSE Healthcare index emerging as the only gainers, up 3.27% and 1.22%, respectively as investors preferred to take defensive bets amidst volatility in the markets. Strong Q2 FY12 results from index major ITC also brought in good news for the sector. Rate sensitive sectors such as realty, banks and auto declined by 5%, 2% and 1%, respectively as the RBI maintained the key rates in its monetary policy. The IT index declined 4%, primarily due to companies reporting a mixed set of results. The metal index posted negative 4% returns due to a cool off in global commodity prices.

SBI Mutual Fund - Equity Outlook - Nov 2012 - Graph 2
Swift policy announcements by the Indian government to solve issues related to mining, land acquisition and speedy clearance of projects, as well as to boost foreign investments in India will continue to be the key monitorables for the market. The markets will also be driven by developments in the US and Eurozone.