Kavita Chacko Economist, CARE Ratings
For the Indian stock markets, 2013 has been a year marked by large fluctuations. It has been a year where the markets tasted sharp drops as well as a lifetime high. It has also been a time where the domestic markets were driven primarily by foreign investor sentiments.
The domestic equity markets witnessed sharp volatility through the year. The benchmark stock indices (Sensex and Nifty) during January-April declined 5% only to rise by 6% in April-May. Thereafter indices dropped nearly 7% in the period May-August. Since September to mid-December, markets have been witness to a turnaround, surging by nearly 20% from the lows of August to reach an all time high in December.
The Indian capital markets (debt & equity) recorded large foreign outflows since end-May following the US Federal Reserves indicating that it would be looking at scaling down its monthly $85 bn quantitative easing or monetary stimulus programme, which could curtail the availability of cheap money and resultant global liquidity. The outflows from the debt segment however far outpaced that of the equity markets. In case of the equity segment, barring the period Jun-Aug’13 which saw net outflows of $3.6 bn, healthy FII inflows have been recorded totaling $17.5 bn during Jan-Nov’13, $2.5 lower than the inflows in Jan-Nov’12. The debt segment on the other hand saw net FII outflows of $9 bn during Jan-Nov’13 (this segment saw net inflows of $6.2 bn in Jan-Nov’12). The foreign outflows during Jun-Aug’13 had economic bearings for the country. The rupee slumped to record lows pushing the country towards a crisis like situation. The various policy measures by the RBI and government helped stabilize the rupee and calm investor unease.
The increases witnessed in the Indian benchmark stock indices during the year were not reflective of the economic environment or market conditions. It belies the state of affairs of the country’s economy which has been witness to a sharp slowdown. The index movement was merely fuelled by the buoyant foreign inflows supported by easy money and global liquidity. Moreover, the increases have not been broad-based across scrips. Investor interest has been confined to only a few large stocks and sectors, which helped push up the overall index values. The majority of stocks have seen significant price drops and lack of investor interest. The slippages in the country’s growth momentum have been weighing on general market sentiments. On the whole, the markets have been weak.
Domestic investors have been rather conspicuous by their absence from the markets in the year gone by, owing to lower returns.
The Indian equity markets are ending the year on renewed worries of the impact on foreign investments into the markets and the consequent impact of this on the value of Indian equities following the US Federal Reserves earlier than expected announcement of a $10 bn reduction in its monthly monetary stimulus programme from January’14 onward, bringing down its monthly monetary stimulus to $75bn.