Monthly market commentary

Monthly market commentary

October carried with it the volatility of the past two months, but with a suggestion that there may be some respite ahead for financial markets on account of Euro zone issues getting resolved before the month-end.

India continued to face its own set of issues. Despite another month of discouraging Index of Industrial Production (IIP) growth data coupled with high inflation, the Reserve Bank of India (RBI) decided to raise the policy rate by 25 basis points while signaling a pause going ahead. More importantly, RBI deregulated the savings bank rate, which is now expected to rise.

Then, there were quarterly results to contend with. The month started on a bad note with most companies across industries reporting a margin contraction.

Towards month-end, better-than-expected numbers from industry stalwarts like Hindustan Unilever Ltd and ICICI Bank Ltd were encouraging. It also reinforced the consumption backbone of the Indian economy.

Volatility remained the common denominator in global financial markets too. In the wait up to an agreement in Euro zone global equity markets were particularly encouraged.

Across developed markets, indices gained 6-8% in the first two weeks. The optimism was not misplaced as the package announced in the last week, was met with relief.

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However, critics are divided on the long-term efficacy of the deal which targeted reducing Greece’s debt-GDP ratio to 120% by 2020, increasing the European bailout fund to €1 trillion and recapitalizing European banks.

Immediate reactions resulted in a rally in emerging market equities and commodity prices. Doubts have been raised on whether the rally is sustainable; there is a while to go before the impact of the announcements can be gauged.

EPFR (Emerging Portfolio Fund Research) reported that fund flows to equities, developed and emerging, remained negative with most investors preferring to pull money out of equity funds.

In the second week of October, data showed, overall equity funds recorded redemptions of more than $11 billion (Rs 54,052 crore) and at the same time bond funds and money market funds recorded outflows.

Compiled by Lisa Pallavi Barbora