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September 2012

Domestic equity benchmarks, S&P CNX Nifty and BSE Sensex, erased most gains made in the month to close around 1% higher in August. Markets were up in the first half of the month on positive global and domestic cues. Global positive cues came in the form of some strong economic indicators in the US, Germany and France. Some respite from the European debt crisis in the form of action of policymakers in the region, and hopes of further policy action from global central banks to aid flagging global growth also aided the Indian equity markets. Back home, GDP growth at 5.5% in Q1 FY13 as compared with 5.3% in Q4 FY12 and slew of measures announced by the Securities Exchange Board of India (SEBI) for the financial markets added to the gains in the market. Stock specific actions in IT shares and index major Reliance Industries (RIL) on news that it has agreed to give Comptroller and Auditor General (CAG) access to its K-G D6 block-related accounts also brought in some gains into the market. Continuing strong buying by foreign institutional investors (FIIs) aided gains for the Indian equity markets. FIIs were net buyers of secondary market equities worth Rs 9,730 cr in August compared to buying worth Rs 11,201 cr in July. 

SBI Mutual Fund - Equity Market Review

Gains were, however, limited in the latter part of the month following the political deadlock between parties amid the CAG's report on coal block allocation and concerns over a weak monsoon. Investors’ cautiousness ahead of the US Federal Reserve meeting and Greece Prime Minister Antonis Samaras’s discussion with eurozone members on the bailout package for Greece weighed on the markets. Sentiments were also marred following unexpected contraction in June IIP numbers and disappointing earnings numbers reported by index majors including Bharti Airtel, SBI and Ranbaxy.  

Sectoral indices gave mixed returns in August with the defensive sectors as gainers. The benchmark IT index grew by 8.3% after Cognizant Technologies maintained its full year revenue growth forecast of 20% at the time of announcing its second quarter results. These stocks were also driven by expectations of third round of quantitative easing in the US. FMCG index posted 6.1% returns driven by strong results and revival of monsoons. Healthcare index posted 5% returns as index heavyweights gained on the back of good results. Realty index posted negative 7.7% returns as index heavyweights DLF and Unitech declined by 6% and 14% respectively due to poor Q1FY13 earnings on lower booking levels. Overall, the realty companies continued to be impacted by poor investor sentiments due to high interest costs and challenging macroeconomic environment. Metals index declined by 7.5% as a number of metal companies were named in a Comptroller and Auditor General’s (CAG’s) report on coal block allocation. 

SBI Mutual Fund - Equity Market Review

Indian Meteorological Department expects the rainfall to pick up further in September. This should reduce the rainfall deficit for the year and boost the agricultural output. However, erratic rainfall may destroy crops and hence the progress of monsoons in September remains a key monitorable. Swift policy action by 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. The markets will also be driven by developments in the US and Eurozone.