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September 2013

Domestic equity indices fell for the third consecutive month in August, with benchmark indices CNX Nifty and S&P BSE Sensex declining 4.71% and 3.75%, respectively. Investor sentiments were mainly dented by the sharp decline (down 9% in the month) of the Indian rupee against the dollar. Sentiments dented further as investors feared that the Food Security Bill would exert more pressure on the fiscal deficit. Slowing economic growth exacerbated by worries of rising interest rate added to swift fall in the month. The economy expanded at 4.4% in the April-June 2013 quarter, the third consecutive quarter of below 5% growth. Continuing selling by FIIs on worries of an early rollback of the US monetary stimulus coupled with domestic economic troubles, worsened the fall of the Indian equity market. FIIs sold equities worth Rs 6,200 cr in August 2013 as compared to net selling of Rs 5909 cr in the previous month. Fears that an early rollback of the US monetary stimulus could spark selling by foreign investors also dragged down the markets.

Losses were, however, capped due to recovery in the rupee after the RBI opened a special forex swap window for three public sector oil marketing companies to meet the daily dollar requirements. Positive global cues in the form of hopes that the US Federal Reserve would not pull back its stimulus measures anytime soon aided the market. Minutes from the meeting showed that almost all the members of the Federal Open Market Committee agreed that a change to the stimulus is not yet appropriate. Investors also cheered weak US housing data which renewed hopes that the Fed will maintain its stimulus measures. Positive data from the US, China and Eurozone also supported the indices. Sentiments got a boost after Finance Minister P Chidambaram said that revival and encouragement of growth will continue to be the focus of the government.

Majority of the S&P BSE sectoral indices ended lower in August except for S&P BSE Metal and S&P BSE IT indices. The S&P BSE Metal index was the top gainer, rising 13.11% on hopes of rising demand / metal prices led by strong Chinese manufacturing numbers. The S&P BSE IT index followed, up 7.63% due to expectations of gain from a weaker rupee and positive economic data from the US. Among losing indices, the S&P BSE Capital Goods index plunged 13.88% weighed by sharp falls in index majors such as BHEL and L&T. The S&P BSE Realty index declined 10.88% due to low booking levels and concerns that the Land Acquisition Bill will increase cost of land acquisition.

The markets in September are expected to be guided by currency movements, FII flows, domestic macroeconomic data and global cues. Policy reforms to revive the economic growth and encourage foreign investors will support the markets.