Indian stock market witnessed somewhat a steep correction in the last 2 trading sessions due to US President Barack Obama’s decision to authorize air strikes against militants fighting in Iraq. Consequently, INR came down to 6 months low at 61.74 to the dollar in the intraday and recovered a bit due to exporters selling dollars and closed at 61.14. Brent crude oil was 1% higher at 106 dollar per barrel in the futures market.
Market is abuzz with speculations of a further correction. I felt it would be appropriate to look at some key data points before arriving at any conclusion. Reserve Bank of India in the third quarter review of monetary policy has indicated a GDP growth in the range of 5 -6 percent in the year 2014 -15. The recent World Bank report also points India’s growth at 5.5 percent for the fiscal 2014 -15, accelerating to 6.3 percent in 2015-16.
On a year-to-date basis (till July end) India received $11.8 billion in equities, which is similar to the $12.2 billion received in the corresponding period last year and remains the highest among key emerging market peers. Country’s foreign exchange kitty zoomed to $320.564 billion from $243 billion in the month of July – august 2013 on a healthy increase in the core currency assets. With this jump, the total reserves are shy of the all-time high of $321 billion achieved in late 2011.
Indian Markets as measured by BSE SENSEX on a YTD basis has generated an absolute return of 22.1% in dollar terms (7th August 2014) compared to most of the emerging market peers even as global markets have faced headwinds from the Ukraine crisis, militant attacks in Iraq and Argentina debt crisis during this period.
During the April-May period of the current fiscal, the IIP recorded a growth of 4 percent, as against contraction of 0.5 percent in the first two months of 2013-14. Manufacturing, which constitutes over 75 percent of the index, grew 4.8 percent in May, compared to decline in output by 3.2 percent a year ago. For April-May, the sector recorded a growth of 3.7 percent, compared to a contraction of 0.7 percent in the year-ago period.
I believe, Indian Markets are driven by bottoming out of growth, improving risk appetite accompanied by a decisive government at the centre. The current fall in the market is a knee jerk reaction and can be used as an opportunity to increase exposure to equities/Equity mutual fund, especially those missed out the recent rally. Risk aversion investors may stagger their investment through systematic investment plan.
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