Monday, November 29, 2010 10:56 Hrs IST

In The Near Term, Factors Such As Global Macro Data & Institutional Flows Should Provide Further Direction

DSP BlackRock Mutual Fund - Mid-Monthly Equity Market Review & Outlook

The Sensex and the Nifty indices have moved down marginally MTD in November. As of 24 November 2010, the Nifty index closed at 5,866, down 2.5% and the Sensex Index closed at 19,460, down 2.9%.

The Industrial Production (IP) growth for September decelerated to 4.4% y-o-y compared to 6.9% y-o-y growth in August (revised upwards from 5.6% y-o-y earlier) and 15.0% y-o-y growth in July. The 3 month moving average shows the IP growth to have decelerated to an average of 8.8% y-o-y during the 3 months ended September 2010 from 9.7% y-o-y for the 3 months ended August 2010. As per used based classification, growth in the capital goods segment declined 4.2% y-o-y in September, while that in the consumer goods segment decelerated to 5.2% y-o-y. Within consumer goods, growth picked up in non-durables segment but came off in the durables segment.

The WPI headline inflation remained stable at 8.58% y-o-y in October, compared to 8.62% in the previous month. The seasonally adjusted WPI Index was up 0.5% m-o-m. Food inflation (primary and manufactured) decelerated to 10.5% in October against 11.2% in the previous month while Non-food inflation rose to 7.8% in October from 7.5% in September.

Month to date, the economy has seen FII inflows of approx. USD 3.6bn into equities. On an YTD basis, there have been inflows of approx. USD 29bn.

Outlook

Global macro economic data continues to disappoint, even as the Indian macro economic scenario presents a mixed picture. While on ground macro variables such as tax collections, non-oil imports, passenger car sales remain steady, inflation continues to remain high with a slowdown in Industrial Production (IP) growth partly on account of a high base. IP growth is, however, expected to remain stable. A deluge of foreign flows has ensured continued buoyancy in Indian equities and corporate results for the Jul-Sep quarter show a 25% growth in earnings. In the near term, factors such as global macro data and institutional flows should provide further direction.