Equity Market

Overview

• As of August 17, 2011, the Nifty index closed at 5,057, down 7.8% MTD while the Sensex Index closed at 16,841 down 7.5% mtd.
• The index of industrial production, or IIP, rose 5.6% in May from a year ago. Manufacturing accounts for about 75.5% overall industrial output. Eight of the 22 manufacturing sectors reported a contraction in output during the month. Production of capital goods, an indicator of investment activity, expanded only 5.9% in May, against 7.3% in the previous month, while that of consumer durables rose 5.2%, compared with 3.7% in April
• Headline inflation eased to its eight-month low at 9.22 per cent in July from 9.44 per cent. The non-food category in primary articles recorded a drop to 15.51 per cent in July from 18.57 per cent in June. The fuel and power category also observed a falling trend, from 12.85 per cent to 12.05 per cent in July.
• Month to date, the economy has seen FII outflows of approx. USD 1bn from equities, while the YTD inflows have been approx. USD 1bn.

Outlook

• The markets have corrected further, down 3% over the last two weeks taking cues from the global news flows. Calendar YTD the Indian market is down 18%.
• Inflation continues to be at elevated levels, though the softening of commodities and crude oil to help the situation going forward
• First quarter results have come below estimates at 14% for the quarter ending June 2011
• YTD FII inflows have been USD 1 bn
• FDI was the strongest during the quarter (June numbers up 310% to $5.68 bn
• With this correction, the markets are now trading at less than 14x FY12 earnings which looks attractive
• Fall in global commodities on fears of US and Euro zone recession could benefit India
• IIP data for June was strong at 8.8% vs. 5.9% in May
• With this correction, India's relative valuation is in line with the other developed markets. It has come down from 35% to 20%

Source: Internal, as on Aug 18, 2011