Setbacks And Corrections Impact The Market

The last one year has been extremely good for the Indian equity market. Frontline indices and broader indices have given the best returns since the year 2009. The Sensex has appreciated by 30 per cent (till December 23, 2014) while the mid-cap and small-cap are up by 50 per cent and 66 per cent in the last one year. Nonetheless, over the last fortnight we have seen the markets getting too volatile and all the indices except for Bankex and IT closed in the red. The immediate reason for such a fall in the market was due to a surprise announcement by Russia’s central bank to raise its key interest rate to 17 per cent from 10.5 per cent.

The move was the largest single increase since 1998, when Russian rates soared past 100 per cent and the government defaulted on debt. This created a jitter among the global markets that saw some sharp corrections, including the Indian market. Foreign institutional investors (FIIs) remained the net sellers and sold shares worth Rs 1,500 crore in the last fortnight. Baring December 8 and 9, FIIs remained the net sellers of Indian equity. It was only due to the support of the domestic institutional investors (DIIs) that the Indian market could hold the ground to some extent. The DIIs in the same period pumped in Rs 5,192 crore.

Domestically we saw the winter session of the parliament coming to a close on December 23 without striking out the many items on the ‘to do’ list. The opposition parties targeted Prime Minister Narendra Modi’s government on a plethora of issues from black money to religious conversions and didn’t allow the normal functioning of the parliament. Out of the total 37 bills that were listed before the session began on November 24, the parliament managed to pass only 11 bills. Moreover, the finance ministry’s mid-year economic review also flagged fiscal challenges like subdued revenue collections even as investment is yet to pick. This put pressure on the Indian market. The combined effect was that India under-performed the major global market over the past 15 days.

The much required solace came to the international as well as domestic markets after the Federal Reserve Chair Janet Yellen, after a two-day meeting of FOMC, said that the Fed is likely to maintain rates at near zero for at least through the first quarter of CY15 and it can be “patient” in its approach to raising the benchmark lending rates. While the major events impacting the market are behind us, we see it remaining range-bound for a week due to the absence of any major triggers. Moreover, as we are approaching the year end there is a holiday season in most of the markets. The further direction of the market will be determined by the fresh allocation of the funds next year and the early results of the third quarter of FY15.