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October 2012

Domestic equity benchmarks, S&P CNX Nifty and BSE Sensex surged around 8% in September, tracking upbeat domestic cues and positive developments in the international markets. On domestic front, markets rallied after the government announced much-awaited reforms including fuel price hike, allowed foreign direct investment (FDI) in varying levels in retail, airlines, trading exchanges and raised FDI cap in broadcast services. All these measures by the government were aimed at containing widening fiscal deficit, reviving investor sentiment and attract foreign capital in the country. Further, the RBI’s move to cut banks cash reserve ratio (CRR) by 25 bps to 4.5% in its mid-quarter monetary policy review also added to the gains in the market. Additional reforms by the government to financially restructure state-owned power distribution companies and views among investors about higher sales from the auto sector ahead of the festive season also augured well for the Indian equity markets. Buying by the FIIs also aided the gains for the market. FIIs were the net buyers of secondary market equities worth Rs 20,769 cr in September, highest since February, and as compared to net buying of Rs 9,730 cr in August. 

Meanwhile, positive global cues came in the form of measures by global central banks to support their flagging growth and contain the debt crisis in Europe. The measures included US Fed Reserve taking steps to support the economy including spending $40bn a month to buy mortgage bonds for as long as it deems necessary and its resolve to keep interest rates at record lows until mid-2015. And the European Central Bank (ECB) unveiled a new bond buying programme aimed at containing the region's debt crisis. Gains were however capped due to increasing domestic political uncertainty over new reforms announced by the government and on profit booking. 

SBI Mutual Fund - Equity Market Review - October 2012 - Graph 1

Sectoral indices ended positive in the month of September with BSE Realty gaining the most, up 22% on liquidity easing by the RBI and hopes that government decision to allow FDI in multi-brand retail will enhance the demand for commercial property. Shares of DLF and Indiabulls Real estate surged 19.58% and 34.07% respectively. BSE Capital Goods and BSE Bankex followed rising 16% and 14%. Capital goods index rose as index heavyweights L&T and BHEL gained 19% and 16% respectively. L&T rallied on the announcement of restructuring of its IT and L&T Integrated Engineering Services businesses to expedite growth in the technological space. BHEL gained on the back of a growing order book (to be executed over FY13 and beyond). Banking stocks rose due to government’s thrust on restructuring debt of state electricity boards (SEBs) and power distribution companies (discoms). Meanwhile, BSE Healthcare was among the least gainer up just 0.44% as investors avoided defensive bets amidst rise in risk appetite in the market. 

SBI Mutual Fund - Equity Market Review - October 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 should act as a positive trigger for the market. Though threat to the government by immediate pull-out of Trinamool Congress was negated by Samajwadi Party’s outside support in the shorter run, continued support of the latter remains a key monitorable along with implementation of the measures announced. The markets will also be driven by developments in the US and Eurozone. 

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