Economic growth indicators out of the US surprised positively. Resultant USD appreciation influenced the underperformance of emerging market assets. The broad decline in Emerging Markets equities was driven by country-specific issues and continued decline in global commodity prices. In domestic markets, inflation prints surprised positively but growth indicators were mixed.
Nifty closed negative 3.6% over the month of December. Consumer Staples was the sector with index gains over the month. Energy and IT Services underperformed.
The Reserve Bank of India indicated a change in monetary policy stance ahead, conditional upon continued softening in inflation and inflation expectations, complemented by a supportive fiscal outlook. Important legislations could not be taken up in the winter session of Parliament owing to differences between the Government and the Opposition. Subsequently, the Government sought to boost sentiment by announcing ordinances pertaining to coal reforms, the insurance bill and the land acquisition bill. Foreign institutional investors (FIIs) were seller of US$161mn billion over the month. DII turned buyers over the month led by mutual funds.
During the month RBI announced its monetary policy and left its repo rate and the cash reserve ratio unchanged at 8.00% and 4.00% respectively. RBI acknowledged the recent fall in both CPI and WPI by lowering its CPI forecast to 6% by Mar 2015 and expected to change policy stance early next year.
The Wholesale Price Index sharply dipped to 0%, i.e. 5 Years low, in November 2014 as compared with 1.77% for the previous month. There was broad based decline in prices of all major components including primary, fuel group and manufacturing. The CPI further eased to 4.4% in November from 5.5% in October 2014 as inflation slowed across sub-components of the index.
As a result, Govt. bond prices ended higher in the month, with the yield of the 10-year benchmark paper ending at 7.86% on Dec 31 compared with 8.09% on Nov 30. Yields fell sharply during the month due to falling international commodity prices. The INR remained relatively weak in December, despite decent flows in capital markets, mainly on account of global dollar strengthening. In the month of December, INR depreciated by 1.62% against USD.