Equity markets held their ground in the month of March despite global concerns and geopolitical issues. The large cap indices gained the most as they shot up ~ 9% during the month. There was a reversal in the FII flows as assets were seen moving back from the developed economies to the developing nations. Better than expected Union Budget and depreciating dollar also helped markets. FII flows to India have picked up in the month of March after seeing slowdown in the last three months. The last quarter results and further FII flows accompanied by periodic buying from Domestic Institutions would decide the near term market trend.
Domestically, the broader indices ended positive but major upside was seen in the Large cap segment as they rallied by more than 9% during the month. Nifty ended higher by 9.38% to end the month at 5,834 levels and Sensex ended higher by 9.10% at 19,445 levels. The Mid and Small Cap indices also gained 7.85% and 4.59% during the month.
ü Sectoral indices: All the sectoral indices ended the month in the green with Realty & Auto being the major beneficiaries gaining 18% & 12% respectively. FMCG and Metals were few sectors which managed to gain only 5% during the month.
ü Global indices: Dow Jones and Hang Seng gained 0.76% and 0.81% respectively whereas Nikkei and FTSE lost 8.81% and 1.42% respectively during the month of March.
ü FIIs turned out to be net buyers in the Indian Equities to the tune of Rs. 11,054 crores after a span of two months. Domestic Mutual funds on the other hand continued to be net buyers to the tune of Rs 1,623 crores during the month.
Key Events during the month
ü Index of Industrial Production (IIP) for February grew by 3.60% as against 3.70% seen in January. The Industrial production was largely impacted by a sharp fall in the capital goods output while the output of mining sector rose at a two year low pace.
ü From robust 21.7% growth in October, the capital goods sector witnessed sharp deceleration in growth to 12.7% in November. Moreover it fell by 9.3% in December 2010, 18.8% in January 2011 and 18.4% in February 2011 thus contributing to lower IIP.
ü WPI based Inflation for the month of March stood at 8.98% as against 8.31% seen in the month of February.
Outlook
From a long term perspective, Indian equities seem to be reasonably valued even though short term blips cannot be ruled out. We firmly believe that 2011 will be a year where picking the right stock would outperform broader indices. The challenge for fund managers lies in identifying these stocks and sectors ahead of the curve. Bearing in mind the fact that the markets had corrected quite a bit in January & February, we had recommended clients to start taking exposure to equities. The call has spanned out well with the broader indices gaining over 9% during the month. Even though oil prices can play a spoil sport and add to some short term blips, we believe that with an investment tenor of 3 years plus, SIP route in Large Cap Funds can be adopted.