Weekly Newsletter - Sep 22 2012

Indian stocks ended near 52-week highs on the back of a ~2% surge on Friday. Indian stock indices were among the best-performing ones globally. This week’s ascent can be attributed entirely to the Government’s new-found enthusiasm on economic reforms. Last week’s announcements were followed up with formal notification of FDI norms for various sectors. The Government also slashed withholding tax on overseas borrowings to attract critical foreign capital flows, besides approving an equity market scheme for smaller investors. The rupee too benefited from the UPA’s reforms push. The issue of UPA Government’s stability was also settled after the Samajwadi Party said it will support the Congress-led regime from outside. With the troublemaker TMC out of the way, the Government seems all the more emboldened to go ahead with pending reforms. Markets could rise further if the bottlenecks to fresh domestic investments are removed. Global markets also need to be supportive. However, one must be careful as inflation remains sticky and the RBI may take a while before slashing rates. The external situation also remains fragile, especially in Europe and China.