The BSE Sensex fell below the 20,000-levels in the first ten days of the month, before hitting a new life-time high later in the month. However, the rally did not sustain and the benchmark index ended the month near 20,500-levels. The NSE Nifty too ended up 3.45% lower.
For the first time in many months, foreign investors put more money in debt instruments than the equity market. Foreign Institutional Investors (FIIs) bought $2.061 billion (Rs 1260.86 crore) in the debt market and $124 million (Rs 71.43 crore) in equities.
The key factor that moved markets were the December quarter earnings announcement by companies. While the results of most Sensex companies met Street expectations, financial performance has been weighed down by an increase in costs and poor demand. However, a few laggards like ICICI Bank and Maruti Suzuki worried investors about the prospects for the banking and auto sectors.
Another key factor was the surprise move by the Reserve Bank of India (RBI) to hike interest rates in its monetary policy review citing high inflation.
Many international developments too dragged the markets lower. The US central bank Federal Reserve finally cut down its bond-purchase programme by $10 billion. This put pressure on markets worldwide. Worries about a slowdown in China and the fall in emerging market currencies like Argentina and Turkey too influenced global markets. This, in turn, pulled down markets back home. However, India was relatively less affected by the weak global cues.
All eyes will continue to remain on inflation, which softened moderately in December. Retail inflation fell to a three-month low of 9.87%, while WPI slowed to 6.16%, much higher than the RBIs comfort levels. However, the RBI indicated that if the inflation softens further, it may not increase interest rates in the near future.
Meanwhile, the government announced a cut in LPG prices. Any such measures which would increase the governments fiscal burden would be closely monitored ahead of the general elections.
B Gopkumar, Executive Vice President & Head Broking, Kotak Securities