• Home
• |
• Careers
• |
• Sitemap
• |
• Contact us
• |
• Kotak group site

Home > Knowledge Centre > India Markets - An Overview

Indian Markets - An Overview

View Archive

October 2009

October 2009 was characterized by huge volatility across asset classes; with the calendar year coming towards a close and lot of asset classes giving stellar returns in 2009, most asset classes corrected globally. Indian markets were no different, and while there was optimism in markets till Diwali, the markets gave up all their early month gains and closed in the red by the end of the month. For the month, Nifty returned -5.07%, even as CNX Midcap continued its streak of outperforming the larger cap indices for the 6th month running, returning 0.39% for the month in USD terms.

Price Movement in USD - Nifty Index v/s CNX Midcap Index

Prices Rebased to 100 on 1st October 2009. Source: Bloomberg

As communicated in the previous few newsletters, a correction in markets was imminent, given the steep rise of markets in such a short time frame post elections. While global cues provided the key catalyst for Indian markets to correct, initial signals of the Reserve Bank of India to exit their accommodative monetary policy (discussed in depth below) provided an additional impetus for markets to correct.

The month of October witnessed Foreign Institutional Investors buying into Indian equities for the 8th consecutive month, as FII were net buyers to the tune of US$ 1.95 bn, domestic investors turned net sellers to the tune of US$ 1.1 bn.

This volatility in Indian equity markets were also mirrored in currency markets. Over the past few newsletters, we have been highlighting that the INR is likely to appreciate (being one of laggard currency movers YTD against the dollar) and in the first 15 days, the INR appreciated significantly though it failed to hold on to the gains as equity markets corrected in the second half. While the INR is, to a large extent, correlated with foreign portfolio flows in the near-term, we continue to believe that the INR can continue to maintain its upward trajectory in the medium term.

Source: Reserve Bank of India

Interim results for the quarter ended September 2009 were declared by Corporate India in the previous month, and while as aggregate earnings released by companies were in-line with expectations, there were major sectoral deviations. Sectors that surprised positively included infrastructure, retail, media, pharmaceuticals and industrials while the laggards comprised of energy, metals, utilities and telecom. Sectors that demonstrated lackluster results vis-a-vis expectations were punished by market participants as market expectations were running high.

Sensex YOY PAT Growth (%) : Actuals Vs Estimates Trend

Source: Motilal Oswal Securities

Sensex YOY EBITDA Growth (%) : Actuals Vs Estimates Trend

Source: Motilal Oswal Securities

Sensex YOY Sales Growth (%) : Actuals Vs Estimates Trend

Source: Motilal Oswal Securities

Credit policy highlights

In the October credit policy of RBI, the governor Dr Subbarao left conventional monetary policy tools – repo/reverse repo rates and Cash Reserve Ratio on hold. However, in an astute move, he began exiting the earlier accommodative stance through a combination of monetary policy and financial stability tools that can suck away some of the excess liquidity and keep a lid on asset price bubbles getting recreated, while at the same time not unduly deflating the rising business confidence that is essential to preserve growth.

Monetary Measures still on hold, but SLR hiked

Source:RBI and Kotak institutional Equities

Outlook

We expect the volatility in the equity markets seen in October to extend into the balance part of 2009 as investors reposition portfolios in response to latest earnings releases, recent monetary policy announcements, global news-flow and domestic and foreign fund flows in the markets. Even as the recent corporate result season ended October has been in line with market expectations, albeit with wide divergences across sectors, it is unlikely to lead to meaningful changes to analyst’s earnings estimates for FY2010 and FY2011. This would also likely keep market valuations capped in the near term. However, the recent announcement by the government whereby the Prime Minister has approved the part sale of shares in public sector enterprises would augur well from the point of view of overall government finances will provide greater visibility to government investment programs and support India’s valuations from a medium to long-term perspective. Moreover, even as foreign institutional activity and funds flow may likely be subdued on year-end considerations, we expect flows from domestic financial institutions, particularly insurance companies to remain strong until 1QCY2010, offering adequate support to the markets. Modest corrections in the market induced on account of market volatility or near-term valuation considerations should be used by investors as entry points from a medium term investment objective.

Contact Us