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Market Review


The Union Budget for FY18 which was presented post demonetisation was directed at domestic, especially rural consumption. Public investment in infrastructure, especially roads, railways and affordable housing was stepped up. Despite this, the government has maintained its expenditure growth target below 7% and the fiscal deficit at 3.2% of GDP. On the international front, US protectionist policies could impact the Indian IT and pharma sectors.

The Index of Industrial Production (IIP) for the month of Nov 2016 rose 5.7% as compared to decline of 1.87% in Oct 2016. Consumer Price Index (CPI) decreased to 3.41% in Dec 2016 from 3.63% in Nov, 2016.

In January 2017, Nifty gained 4.6%; metal, telecom and power sectors’ outperformed while IT and pharma underperformed the Nifty. FIIs were sellers for more than Rs1,177 cr which was absorbed by domestic institutional buyers who bought more than Rs4,749 cr of equity during the month.

The Bond market rallied during the month of Jan 2017. The benchmark 10 year G-Sec (6.97% GOI 2026) closed 10bp lower at 6.41% against 6.51% last month.


For bonds the target of fiscal deficit of 3.2% of GDP and net borrowing post buyback at Rs 3,502 billion against Rs 3,658 billion last fiscal year is highly positive. Government borrowing to fund the fiscal deficit has fallen from 83% in 2015-16 to 64% in 2017-18. Demonetisation might keep growth and inflation subdued in 2HFY17. The primary risk for interest rates continues to be faster pace of Fed rate hikes and continuance of capital outflows witnessed lately.


The Budget is expected to aid growth, bring down interest rates and inflation and promote investment and financial savings. Equity markets have managed to hold on despite aggressive selling by FIIs in last few months because of very healthy inflows to domestic institutional investors. This trend is expected to continue as more savings flows to formal channels like insurance, mutual. Focus on infrastructure in budget would lead to new avenues in domestic growth. Long term investors should focus on growth areas and stay invested.

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