Monthly market commentary

Monthly market commentary

Domestic economic shortfalls aside, the financial markets were in a state of chaos in August. After Standard & Poor’s downgraded US sovereign debt, doubts of global growth slowing faster than expected translated into risk aversion by global investors; India bore this pain too. Indian markets were already under pressure due to slowing gross domestic product growth on account of monetary tightening, aimed at controlling inflation. Its effect on inflation is yet to be seen. Headline inflation stood at 9.22% in July; its been nearly 9% or above for the last 13 months, barring two months. The pressure of higher interest rates is visible in the Index of Industrial Production data, which has begun to show slower activity. Even commodity prices suered; gold was the only asset that continued to move higher.

Also See | Monthly Market Commentary (PDF)

On the global front, things are reportedly worse. While motives behind the downgrade of US sovereign debt are being questioned, it’s clear that the world’s largest economy has grave issues to deal with—be it sovereign debt, unemployment or recessionary indications. Fund ow data published by EPFR (Emerging Portfolio Fund Research) shows investors moved out of risky assets such as equities. Surprisingly money market funds saw sharp outows in rst few days of August, mainly due to fears that the US and European debt issues could spur another global liquidity crisis. Funds returned to this category once the situation was better assessed. Also, export driven markets were under stress. As a result, emerging market funds struggled to attract fresh funds. EPFR data says that redemptions from emerging markets’ equity funds, global equity funds and bond and balanced funds hit levels last seen in 2008. Other than money market funds, the major groups to attract fresh money were commodities sector funds specializing in gold and precious metals, emerging markets local currency bond funds and Japan equity funds.

Among the asset price and growth turmoil, crude oil prices fell with Brent crude price registering a 2.6% decline in August.

Graphics by Sandeep Bhatnagar/Mint

Compiled by Lisa Pallavi Barbora