Equity Markets Are Crazy; Sensex At 6 Month High

The equity markets moved up in March. The BSE Sensex registered a gain of 9.2% in March 09. However, over the last one year the equity market has closed lower. The BSE Sensex for FY09 declined by 38% a sharp fall in comparison to the 20% gain over FY08.

Domestically, the month began with the much awaited, though ‘limited’ key interest rate cuts by RBI to support the economic slowdown being witnessed; reflected in the declining export numbers and weak IIP numbers. At the same time, sector specific numbers – cement dispatches, auto sales, telecom subscribers gave markets reason enough for support. Advance tax payout’s flowing in seemed to be a mixed bag – Banking companies paid higher taxes in the 4th advance tax installment. Amongst others, Reliance Industries (RIL) and TCS paid lower taxes. Company specific news flows added to overall positive sentiment: RIL being ready to begin gas supplies from the KG basin, launch of the Nano by Tata Motors. The global optimism has seen FII’s turn net buyers over the month. Short covering besides a temporary weakening of dollar took the index over the 10000 mark before profit booking pulled the indices down.

Globally, the markets continued to remain cautious on account of the increasing woes on the health of the global financial system, triggered by AIG’s quarterly loss, the largest in US corporate history. Optimism gradually had emerged, post the ‘Geithner Plan’ being initiated in the US, intending to mop off up to USD 1 tn of toxic assets on the books of banks. This, supported by indications of some profitability by financial giants Citi and JP Morgan for the CY09 this far, aided by a surge in US housing and durable goods data added to the buoyancy. These factors acting together have seen a rally stemming in equity markets, indicating some revival in the global risk appetite.

Going ahead, we continue to expect the market to remain choppy over the three months with Elections being the biggest event holding back the markets participants. We continue to recommend investments into equities on a staggered basis over the next 6 months.