Market Outlook
The month saw unexpected rally in equity markets with Nifty posting 12% returns in the month.FII bought Indian equity to the tune of 10,300 crore on the back of improved global economicoutlook. Inflation declined to 7.47% in the month compared to 9.11% in previous month resulting in RBI cutting CRR by 50 bps to 5.50%. Though RBI has cut CRR but it is unlikely that we enter in soft interest rate regime until RBI cuts repo and reverse repo. We believe that any cut in repo and reverse repo by RBI is not likely before first quarter of next financial year. The rupee surprised
everybody by vertical rise in the month gaining 7%. Fiscal deficit remains a worry and increased burden of subsidies and high imports will put further pressure on Govt. balance sheet. European countries are slowly inching towards a resolution but possibility of couple of countries opting out of euro zone cannot be ruled out. Gold appreciated 4.5% in the month while Crude oil ended almost flat to $98.50/barrel. FII bought Indian equities heavily but mutual funds were net sellers in the market.
We believe that current rally in the market is because of sheer liquidity and this may continue for a while but intermittent correction will come in markets providing opportunity to investors to buy equities. We hold our advice to investors to keep buying equity mutual funds through SIP/ STP route to generate wealth over the long term. On debt side we continue recommending FMPs as Bank CDs and other CPs are available at very attractive rates and locking these papers in FMPs will yield good returns. We maintain our view to hold 10% allocation to gold in the overall portfolio.
