Overall markets corrected sharply during the beginning of the month with the Sensex falling all the way down to under 9000 and then rebounded sharply towards the end of the month closing with a small positive performance for the month. On the other hand, the broader market saw an even severe fall and is yet to rebound back fully.
Fall in stock markets in India and across the world has been triggered off by concern over inflation. In a period of high inflation, regulators normally would be forced to increase interest rates. In India, we have seen housing loan go up from 7.5% to 9.5% over the past 2-3 months. One of the objectives of this is to slow down growth rates and the excesses that are happening in the system. In an environment where the real economy is growing at over 8%, it is better to clamp down on excesses at regular period in the interest of longer term stable growth. Government seems to have taken a good step to cool off the real estate excesses. Many of the concerns due to which the markets fell are still present. Markets seem to have rebounded in the assumption that the worst is over, but the impact of the increased interest rates are yet to find its way into the economy.
With markets at current levels, the only real concern is if the economy slows down from the 8% growth levels. At least as of now, that does not seem to be a major worry.
We are starting to see some very attractive valuation. There are several good quality companies with dividend yields over 4%. The sudden move up over the past few days have decreased the number of very attractive opportunities. It seems likely that the markets would be range bound and consolidate over the next few months before any major move.