Equity Market Update
 
Indian markets continued to fall in line with the global equity markets. Infact, 150 bps CRR cut and comparatively lower inflation of 11.8% against 11.99% last week also failed to cheer the markets as globally equity markets are going through a phase of risk aversion and growth scare. Sensex was down almost 16% and all the sectoral indices also closed deep in the red for the week.

Outlook for the week
 
US and Global financial turmoil has had its collateral damage on all equity markets including India. Although fundamentally India continues to be not impacted by this, we have seen heightened volatility in India led by loss of confidence in Western financial system, poor sentiment, impact of FII outflows & lower IIP numbers. De-leveraging has started happening and has led to poor credit availability in the international markets despite global coordinated efforts by few key central banks in terms of supply of liquidity and rate cuts. Increasingly the world seems to be moving away from inflation scare to growth scare and heading towards a global slowdown. While a global slowdown will lower our growth as well, we feel that our ‘growth gap’ will remain intact or infact improve over the rest of the world, mainly because of lower input cost for the economy due to lower commodity prices and predominantly domestic nature of our economic growth. While currently we are witnessing FII outflows from India due to so called ‘Risk aversion’, over a longer term we see renewed interest in the structural stories of Asia and India in particular as the concept of ‘Risk aversion’ gets redefined.

Debt Market Update

Outlook for the week

Liquidity conditions continued to result in high LAF figures through the week. Secondary market rates continued to be under pressure. World markets continued to reel under the impact of global liquidity squeeze and impact was felt strongly across Asian markets as well. Finance Ministry as well as the RBI took cognizance of the situation and RBI has responded by canceling the scheduled gilt auction for Rs 10,000 crore and cutting the CRR by 150 bps. CRR cut is likely to infuse liquidity to the tune of Rs 60,000 crore in the system w.e.f. Saturday. This would have an impact on money market rates as well and they are likely to decline in the coming days.

Also, with the macro data now beginning to show that the Indian economy is slowing in tandem with the global slowdown, we expect the next move from RBI would be to lower the interest rates.

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