| Dated : 01st May, 2008
From Fund Manager's Desk:
Market Commentary for April, 2008
EQUITY
The BSE Sensex was at 15771.7 at the opening of the month and Nifty was at 4735.6. At the end of the month Sensex was at 17287.3, and Nifty was at 5165.9. Market Previous: During the period the market turned bullish though inflation was very some time at 40 month high, due to FIIS are back in the market, and positive movement of global market. Market Ahead: Market is expected to remail volatile in the forcoming month, but it has more chances of being bullish due to a) FIIs are back, b) Retail investor have gain confidence, c) prediction of good Monsoon, and d) global market recovery. Inflation: In the beging of the month inflation dip to 7.14 from previous 7.41, but later by the end it raised to 7.33%. The govt has taken steps to curb it, like a) Hike in CRR 75basis point twice with a month, b) Ban on Cement Exports, c)ban on the export of non-basmati rice d)Reduction on the excise and custom duty on imported steel, edible oils and pulses. But, as being supply pull type inflation, it is expected that in the coming month it'll be very tough for government to manage it to low level. Sectoral Overview: The sectors expected to perform well in the coming month are Banking, Power, Infrasturture, Financial Services and IT.
DEBT
In its annual policy statement 2008-09, Reserve Bank of India has hiked the Cash Reserve Ratio (CRR) by 25 basis points to 8.25% on 24th May, followed by two hikes of 25 basis points each effective from April 26 and May 10. Thus total of 75 basis points hike will drain approx. Rs. 27000 crore from the system. The surprising announcement of second CRR hike in just one month is part of the broader game plan. The idea is to moderate money supply growth to 16.5% in 2008-09, compared to 20.7% last year, in consonance with the outlook on growth and inflation so as to ensure macroeconomic and financial stability in the period ahead. Credit growth is expected to drop to around 20% compared to a shade below 22% in 2007-08, deposit are estimated to go up 17%. RBI in its policy has kept other rates unchanged. RBI Governor made it clear that "the primary objective of policy is to ensure monetary and interest rate movement that accords high priority to price stability, well anchored inflation expectation and orderly condition in the financial market.
In addition to monetary measure taken by RBI, Govt. of India has taken fiscal measure to combat price pressure, export duty on selected steel items and basmati rice which seek to make export costly and augment domestic supplies. At the same time, custom duties have been cut on steel, ferro alloys, cooking coal, zinc, skimmed milk and butter oil to ease supply crunch and softer prices. RBI expects inflation, currently at 7.33% to slow to 5.5% by Mar.31, economic growth may ease to between 8.0-8.5%. Above measures taken by Govt. and RBI eased out some pressure on yields as 10-year GOI benchmark paper yield come down to 7.90% after touching 8.24%. Federal Reserve bank cut its key interest rate by a quarter of a percentage points to 2% widening interest rate differential between two countries. What is more disturbing, the world oil demand rose by just 1% p.a. over the past two years, crude oil prices shot up by over 90% in US $ terms and 40% in euro terms. It has touched $120/ barrel mark a record high during the month putting pressure on trade deficit. We expect inflation and yields to head downwards.
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