Central bank actions again occupied centre stage with the Bank of Japan (BoJ) expanding monetary easing and the US Fed ending QE3. However the US central bank maintained its view that interest rate will remain low for “considerable time”. IMF cut its outlook for global growth in 2015 from 4% to 3.8%. Downward revisions to growth in the Eurozone, Brazil, Russia and Japan led to this change. On its outlook for India, the IMF increased it to 5.6% from 5.4% for 2014. Domestic equity markets were positive in October, driven by announcements of reforms in the energy sector – diesel de-regulation and coal mine ordinance to facilitate coal mine allocation through the auction route.
Nifty closed positive 4.49% over the month. Banking & infrastructure sectors outperformed whereas FMCG & real estate underperformed the market during the month. Investor sentiment was positive as we witnessed many positives announcements during the month including deregulation of diesel prices, hike in natural gas prices, easing of FDI norms in the construction and an ordinance changing laws related to coal mining so as to facilitate auctioning. Politically too the Government appeared on strong grounds with it winning two state elections. Foreign institutional investors (FIIs) were buyers of US$120 mn over the month. DIIs turned buyers over the month led by mutual funds.
Fall in global commodity prices especially crude is positive for Indian economy. India has been dealing with twin deficit and high inflation. The fall in prices of crude to help bring down inflation. For the month of Sept consumer price index (CPI) declined to 6.5% vs 7.8% in August. With fall in crude, food prices and favorable base effect to help CPI number to be lower (below 6%) for October.
India continues to witness higher flows for Sept both in Fixed income and Equities with close to $ 3 bn in Oct vs $ 3.8 bn in Sept. Fixed income markets witnessed higher FII flows vs equities. Despite US dollar appreciation against other currency, INR has been able to outperformed other emerging markets.
Markets: Govt. bond prices ended higher in the month, with the yield of the 10-year benchmark bond ending at 8.28% on Oct 31 compared with 8.52% on Sept 30. The spread between 10 year Corporate bond and Govt bonds fell to 53 bps from 65 bps as on 30 Sep 2014 because of continuos FII buying.