Domestic equity indices rose for the second consecutive month in October following positive domestic and international cues. Key benchmark indices CNX Nifty and S&P BSE Sensex rose 9.83% and 9.21% respectively - the biggest monthly gain since January 2012. At home, the Reserve Bank of India’s (RBI’s) measures to improve liquidity in the banking system was the main booster. Repo rate hike of 25 bps to 7.75% at is policy review by the RBI helped the market as it was in line with expectations. Strong buying by foreign institutional investors (FIIs) also supported. FIIs were net buyers of Indian equities in October for the second consecutive month. FIIs net bought Rs 18,013 cr in October compared to buying of Rs 12,633 cr in September.
On the international front, a last minute deal by the US Senate to raise its debt ceiling and reopen the government until early next year cheered the Indian market. Optimism that the US Federal Reserve (Fed) could maintain its stimulus measures due to weaker-than-expected domestic jobs data in September coupled with upbeat Chinese growth data also supported the indices. Towards the end of the month, the US Fed maintained its $85 bn bond buying stimulus program on worries of slowing growth in the economy.
Gains were, however, limited after India's HSBC Services Purchasing Managers Index fell to a four-and-a-half-year low of 44.6 in September. Rise in domestic WPI inflation to a seven-month high in August also had a bearing on the upside for the domestic market. Consistent profit booking towards the end of the month wiped some gains for the market.
All the S&P BSE Sectoral indices analysed ended higher in October except for the S&P BSE FMCG index. The S&P BSE BANKEX index was the biggest gainer, up 19.36% after the RBI came out with measures during the month to reduce the liquidity squeeze in the banking system. PSU banks benefited on reports that the Ministry of Finance will infuse Rs 14,000 cr of capital in 20 state-owned banks for the current financial year and few PSU banks reported robust earnings. The S&P BSE Capital Goods index advanced 18.76% helped by encouraging quarterly earnings numbers of index major L&T. The S&P BSE FMCG index was the only laggard among the indices analysed, falling 0.35% mainly due to fall in shares of HUL after parent company Unilever warned that emerging markets’ slowdown has accelerated.
The domestic equity market in November is expected to be guided by the FII flows and the pending quarterly results announcements from various companies. It is widely believed that the upcoming state elections may provide some clarity about the Lok Sabha elections due next year, and are also likely to influence the market’s performance. Domestic macro-economic data and global cues are expected to impact the market too.