Equity Market:FEBURARY 2010

Overview:

Almost all the indices saw a negative close in the first month of New Year. The BSE Sensex closed at 16358, down 1107 points (-6.3%), and Nifty was at 4882, down 319 points (-6.1%) on Jan29, 2010. Likely, Mid-cap index closed at 6509, down 208 points (-3.1%), while Small-cap index ended at 8233, down 125 points (-1.5%). BSE Metal (-8.3%), BSE Realty (-9.2%), BSE Auto (-6.5%), BSE CG (-7%) were the biggest losers while BSE Capital Goods was lone gainer among almost all BSE Indices. FIIs turned to be net seller to the tune of Rs 500 cr in Jan 10. Domestic Institutions continued to be net seller to the tune of Rs 1311 cr worth. In the first week market was up following good December quarter results. Better than expected 3 Quarter result of IT companies provided support to the market in the second week, but following negative global cues market was not able to sustain at higher levels. The WPI for the month of December stood at 7.3%. Along with, other pieces of news, China's curb on bank lending capacity, second Barack Obama's announcement putting restrictions on banks, third fear of monetary policy tightening following higher inflation rate and better than expected IIP growth finally led the indices in home and globally to end the month with sharp fall.

Outlook:

As per latest data from global fund tracker EPFR Global, emerging market equity funds posted first net outflow in 12 weeks on concern that China will take further steps to curb inflation and the global economic recovery will slow. Back home, investors will also watch response to the mega follow-on public offer (FPO) of state-run power generation major NTPC. While global liquidity remains quite ample, a concern for secondary market investors is that a glut in share sales will soak liquidity from the secondary markets. Indian firms may raise from $30 billion from share sale in 2010, led by government stake sales and IPOs. Indian firms raised about $20 billion from share sales in 2009. With the Q3 December 2009 results season almost over, there is absence of any major near term trigger for the market. Investors are, therefore likely to take cues from global markets. Shares of auto, cement, fmcg and steel firms will be in focus in coming month.

Debt Market Update

Reserve Bank of India in its third quarter review of monetary policy on 29 January 2010, has maintained status quo on key rates i.e. Bank Rate, Reverse Repo Rate, Repo Rate while it has been decided to increase the Cash Reserve Ratio (CRR) by 75 basis points in two stages: the first stage of increase of 50 basis points will be effective from February 13, 2010 followed by 25 basis points effective from February 27, 2010. Though it is expected move from the RBI but it is mainly done to reinforce the price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to the growth and orderly conditions in financial markets. RBI feels, inflation risk looms larger in the context of global price movement, global commodity prices are showing sign of firming up, driven by both recovery in demand and the asset motive. Growth witnessed during Q2 of 2009-10 at 7.9 reveals a degree of resilience that surprised many. Subsequent data release on industrial production, infrastructure or exports confirm the
assessment that Indian economy is gaining momentum. Therefore, the central bank has aggressively increased it FY10 GDP estimates to 7.5 per cent from its earlier (October 09) projection of 6.0 per cent with an upward bias. However, Headline wholesale price index (WPI) inflation was 1.2 per cent in March 2009, continue to decline till August 2009 due to large statistical base effect, it turned positive in September 09 and touched 4.8 per cent in November 09 and 7.3 per cent in December 09. The persistent increase in inflation was mainly due to deficient monsoon rainfall and drought condition several part of country which has intensified the overall inflation. As a result, Govt. of India's new10-year benchmark (6.35%GS2020) bond touched 7.59% from previous month level of 7.24%. Basically, a sudden jump in the yieldwas mainly due to high inflation and fiscal deficit concern. If it continues, then RBI will probably take further tightening action in order to curtail inflation fears