Markets
Equity markets lost much of the gains from April 08, finishing close to a negative 6% for the month. Weakness was seen in sectors like real estate, engineering, banking and oil. Export oriented companies performed well this month, on the back of a near 8% weakness in the Rupee. The portfolio finished positively for the month due to exposure to exporting companies that would benefit from a weakening Rupee. Conditions for equity markets are expected to be tough in the coming months due to a combination of a high inflationary environment, rising oil prices, a central government that is facing up to a precarious election year and some signs of weakness in economic growth.
Environment
After almost a year, inflation is starting to become a cause for concern. The Current high inflation figure is primarily led by high food grain price, led more by global shortages. Effects of high oil prices are yet to impact inflation inIndia. We are also seeing signs of some slowdown in sectors where there has been a build up on capacity. The high inflationary environment would limit the RBI’s ability to drop interest rates in a slowing economic environment.
The effects of high Oil prices and a pull back of funds by foreigners affected the Rupee quite dramatically this month. The Rupee has depreciated close to 10 percent over the past few weeks.
Companies
Several companies announced results during the month. Sundaram Finance announced a 32% growth in earnings and announced a high dividend and a 1 : 1 bonus share. Expectation on earnings from the IT sector has improved dramatically due to a combination of a weak Rupee, shift in taxation policy for STPIs and a resilient US economy. Plastiblends grew revenues by 27% for the year, and grew earnings by 36%. The company has also confirmed its plans to expand capacity by close to 80% over the next 2 years. Consumer good companies have also been doing well, being perceived as a defensive and based on their ability to pass on inflationary pressures.