Weekly Newsletter - Sep 30 2012

Indian equity indices managed to extend the current winning streak, belying expectations of some softening, as FII inflows continued unabated. The Government too carried forward its reforms agenda by announcing relief package for the debt-ridden power sector. Also, the Centre said it will stick to its borrowing plan for FY13 and ruled out extra debt sales. India’s benchmark 10-year bonds advanced the most in three weeks. The rupee rose versus the US dollar to touch a five-month high, while the stock indices hit 16-month highs. The broader market too joined the party. However, the prospects for economic growth remain far from bright as inflation is sticky, borrowing costs remain high and capex cycle is yet to revive. The global backdrop also remains fragile despite repeated attempts by policymakers to rein in growth slowdown. From next week, short-term focus will be on latest corporate earnings even as markets await further policy action from the governments. Management guidance will be closely followed. One must exercise some caution at higher levels as there is every chance of a small correction after the recent spike.