Equity markets witnessed a sharp correction during the month, and at the lowest point was down almost 9% for the month, before recovering to finish the month with a drop of 3.6%. Our portfolios have broadly been insulated from the fall in the market due to a combination of cash in the portfolio and the equity component doing of the portfolio holding up relatively well. We believe we are well poised for any sharp correction that one could witness in equities.
The correction in markets was led more by international events rather than any reasons specific to India. One may ask how events in Greece, Spain and Korea can possibly impact markets inIndia. The Indian economy seems to be doing fine and apart from some pockets of exports to Europe, most other businesses seem unaffected. Concerns over events in Europe led to FIIs pulling out close to Rs 8,400 cr out of Indian markets over the course of the month. This was the largest single month outflow by FIIs since Oct 2008. Global investor appetite for equities reduced to some extent. Since FIIs hold close to 17% of Indian equities, and a far higher proportion of the actual floating stock, any small change in their inflows or outflows normally has a larger impact on stock prices itself. More importantly, if the concerns over the global economy plays out the way it is feared to, one could see continued FII selling.
The larger fear facing equity markets in India is the risk of a potentially sharper fall in overall markets. Our real concern is to evaluate the risk of markets falling significantly from current levels and to protect the portfolio for such a risk. Given current flow of events, it seems unlikely that one can see any dramatic rise in equities in the immediate term.
Last month marked a shift away from the concerns of the economic recession of 2008 to a current concern of excessive government borrowing across the world. Many countries have announced their intention to aggressively reduce borrowing and give up stimulus measures. If global concerns over Europe continues and governments start to reduce borrowing aggressively, the global economy should go through a period of correction. In such an event, there is a serious risk of equity markets going through a period of correction.
Our portfolios are broadly positioned to handle any major correction, and actually to take advantage of any such major correction. Any major market correction is in reality a great opportunity to buy into high quality companies are great prices. One can do so only if there is sufficient cash in the portfolio. We believe one can put the cash in the portfolio to good use in the weeks to come.
Even after the correction of the past month, we are not yet seeing attractive prices, though the highly priced pockets of stocks seem to have moderated a bit. We continue to closely monitor markets for attractive prices and looking forward to committing capital as and when we do see sensible prices.