Indian Economy (Economic Releases in May-2013)

Indian equity markets rose for the second consecutive month on hopes of further monetary easing amid positive global cues, significant rise in foreign fund inflows and better-than-expected macro-economic data. The benchmark indices, S&P BSE Sensex surpassed its crucial 20,000 mark and CNX Nifty breached 6,000 levels during the month under review. 

 Initially during the month, bourses witnessed robust performance on the back of hefty buying across the board ahead of the Central Bank’s monetary policy meet amid expectations that the Central Bank may cut rates. Sentiments also remained positive after the Supreme Court upheld the constitutional validity of the Government’s decision of allowing 51% Foreign Direct Investment in the multi-brand retail sector. Improving macro-economic conditions, better quarterly earnings reports from corporates and robust capital inflows from foreign investors also added to the gains.

 As the month progressed, strong selling pressure was witnessed after India’s Current Account Deficit widened in April compared to last year mainly due to surge in gold imports. However, bourses recovered after data showed Wholesale Price Index-based inflation slowed to a 41-month low of 4.89% in April , raising hopes of extended monetary easing measures by the Central Bank. The rally continued as strong buying interest was seen in rate-sensitive stocks after the Central Bank Governor said that it will take note of easing headline inflation numbers while formulating the monetary policy.

 Later, the possibility that the U.S. Federal Reserve might scale back its stimulus program dampened sentiments. Market participants became concerned that foreign investors might end their recent buying spree. Lower-than-anticipated fourth quarter results of India’s largest public sector bank also added to the fall.

 Towards the end of the month, bourses recovered as the May series Futures and Options contract settlement encouraged market participants. Investors showed buying interests in majority of the blue chip stocks. However, sentiments turned bearish after India’s fourth quarter Gross Domestic Product (GDP) numbers grew at the slowest pace in a decade. Selling pressure intensified further after the Central Bank Governor said that retail inflation still remained high, thereby reducing the possibility of a rate cut in the upcoming monetary policy review.

· On the sectoral front, the top p erformers were S&P BSE IT, TECk and Consumer Durables while the top laggards were S&P BSE Realty, Capital Goods and PSU. IT companies benefited on the back of a strong dollar.

 As per the data released by Securities and Exchange Board of India, Foreign Institutional Investors (FIIs) remained net buyers of equity in May to the tune of Rs. 21,119.3 crore. However, mutual fund houses remained net sellers of equity to the tune of Rs. 3,474.3 crore.

 Inflows from FIIs witnessed a declining trend from February 2013 to April 2013 due to monetary easing in developed economies. Though inflows improved significantly in May, it remains to be seen whether FIIs extend their buying momentum going forward.

 With the headline inflation numbers starting to come down within the Central Bank’s comfort zone for the first time in more than three years, any further rate cut will provide the much-needed impetus to the economy. The Central Bank is scheduled to announce its mid-quarter policy review for 2013- 14 on June 17.