Indian Equity Market Round Up

In line with the recent correction in global markets, Indian equity markets also corrected sharply in the last one month. Inspite of weakening global markets, Indian markets showed resilience in the initial part of the month as two major IPOs were open for subscription and there was huge retail as well institutional interest in equities at that point in time. From a closing of 20287 on 31st Dec’07, Sensex remained range bound and touched a high of 21207 on 10th Jan’08. As soon as these IPOs closed for subscription Indian equity markets also corrected sharply in line with the other global markets. Sensex corrected by 27.7% in 8 trading sessions to touch a low of 15332 on 22nd Jan’08. In the later part of the month, Sensex recovered sharply by 20% to touch a high of 18406 on 25th Jan’08. Markets in the past have been holding on and touching new highs on back of huge interest shown by global investors in India. India in the recent past emerged as preferred investment destination globally and India as part of asset allocation has gained prominence in global investor’s portfolio. Continued foreign investments in the past led domestic investors to be confident and increase their exposure in equities and this trend led to huge F&O and leveraged positions in the market. Recently sell off by FII investors on back of concerns on slow down in global economies especially US further triggered unwinding of these F&O positions which led to sharp decline in Indian equity markets.

Going forward we expect the markets to remain volatile as the news flow from across the world and especially US will keep the markets jittery. Slow down in economies of US and Japan is a big worry for the markets globally. Further credit problems faced by financial institutes across the globe has created credit crunch which might led to slow down in liquidity flow. On the other side rate cuts by Fed on continuous basis will keep the emerging markets buoyant. Some of the other factors which are negative for markets are, high crude prices, lack of leveraged money for investments globally, elections in both US as well as India. Some of the positives being continued thrust of Indian government on infrastructure and agriculture development. We expect all these factors together will keep the markets in a volatile zone. We will continue to see intermittent corrections in this volatile period and will also see gradual up move in Sensex over the next one year. We recommend to benefit from the expected volatility by booking profits at all highs and by buying into fundamentally sound & beaten down stocks at lower levels (in case of corrections).

Indian Debt Market Round Up

The call money rates eased to the 6-6.1% levels in January’08 as government spending and interest payment on bonds infused liquidity into the system. Forex reserves for the 1 month ending 18th Jan’08 rose to USD 284.89 bn as compared to USD 272.95 bn for the week ended 14th Dec’07. During the month, the Rupee appreciated to Rs. 39.46/USD on 25th Jan’08 as compared to Rs 39.57/USD on 24th Dec’07.

Short term rates continued to remain at elevated levels as RBI reintroduced MSS to suck out excessive liquidity from the system. Yields in the longer bonds witnessed a significant rally as rate cut expectations by RBI built up Strong buying by banks and insurance companies also added to the rally. The inflation rate rose up to 3.83% for the week ending 12th Jan’08 against the previous month’s level of 3.45% mainly on the back of rise in food prices. The crude prices continued to remain range bound in the USD 90 levels in the international markets. The benchmark 10-yr yield closed at 7.42% against the previous month’s level of 7.86%.

The call money rate is expected to remain in the 6% levels as liquidity in the system continues to remain comfortable on the banks of RBI’s intervention in the forex markets. Market sentiments would be impacted by RBI’s outlook and expectations on the debt markets which are likely to be neutral to positive. We expect the yield on the benchmark 10yr G Sec to remain in the 7.3-7.5% levels during the month with an easing bias.

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