Regaining Strength

Print Edition: May 2011

The new financial year began on a happy note on Dalal Street. After the strong eight-session rally during which the Sensex gained 9%, investors booked profits on the first day of April. But the outlook remained optimistic as the markets saw a revival of foreign buying who were net sellers in the past months. Compared to the week before, the Sensex gained by 0.2% for the week ending, whereas, the Nifty increased by 0.3% during the first week of April. However, it was followed by a see-sawing market.

The benchmark indices made a negative start on the second week of April on increased concerns of rising crude oil prices. The indices were further hit as the February IIP recorded growth of 3.6% compared to a 3.95% in January. A single digit growth for three successive months also sparked concerns that it might upset economic growth. The global markets also remained weak. The Sensex slipped and closed nearly 1% lower while Nifty fell by 0.96%.

However, the markets witnessed a rally on 13 April as a decline in crude prices from its two-and-a-half year high eased macro-economic concerns. The Sensex and Nifty closed higher by 2.3% and 2.2%, respectively. This was followed by another dip in the next session. The market was dragged down by Infosys Technologies stocks which shed the most on disappointing results for the quater ending, marking a poor start to the earnings season.

  • The second round of quantitative easing by US Federal Reserve which is expected to end in June, may affect the flow of foreign funds.
  • The RBI is expected to increase the key interest rates by 0.25% in its monetary policy in May.
  • The Asian markets have been affected by Japan's ongoing nuclear crisis. This can affect Indian stocks too.
The sentiments were further undermined as the March headline inflation was estimated to be at 8%, more than what RBI had predicted earlier. This also meant the central bank can further increase interest rates in its next monetary policy review.

Amidst all the ups and downs, after giving negative returns in the last two months, the Lifestage Model Fund Portfolios showed signs of recovery. The Money Builder portfolio, which registered a loss of 2.3% last month, has given an absolute return of 3.1% this time.

With two banking stocks among the top five, the portfolio has its highest equity holdings of 19.69% in the financial sector. The RBI has increased the key policy rates eight times since last April, which has taken a substantial toll on the performance of this sector.

However, according to Angel Broking, the credit demand which was sustained above 20%, indicates a strong underlying demand. Correction in their valuation can be lead by tight liquidity and high inflation.

The portfolio has another chunk holding in the energy sector, accounting for 14.42% equity holdings. The oil and gas index outperformed the Sensex by 1.8% during the fourth quarter.

However, Angel Broking says, the substantial increase of 10.6% in average crude price, has reduced chances of any further deregulation reforms. This can be a spoilsport for the oil marketing companies (OMCs).

Overall OMCs are expected to show a mixed performance in their quarter end results, says Angel Broking. The other portfolios have also performed well. The low-risk Income Generator, with 17.09% funds in equity, has given the highest return of 5.5%, while Wealth Maximiser has earned a return of 3.8%. The debt-oriented Stable Growth, which we shall study in detail in the next issue, delivered a return of 2.9%.

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