The equity markets in United States posted record gains in the month of March. Signs of economic recovery and strengthening activity among major economic indicators encouraged investors to favor the equities. Despite the federal budget cuts implemented by acceptance of sequester bill during the last month, the investor’s sentiments were riding high because of the increased house hold spending and increased activity in housing sector. The sentiments of the investors were also supported by the hopes that the recovering the economy would force the Fed to continue the stimulus measures for a sustained period of time. Overall it is a bullish start for the US markets in the year of 2013. Other major markets posted mixed results. Japanese stocks continued their rally on the back of aggressive Yen- weakening measures by BOJ. European markets were hit by Cypriot crisis. The continued economic weakness and Cypriot crisis, weighed the European markets down.
The Indian markets have incurred around 7% losses in the previous two months. With the political uncertainty being translated to the uncertainty among the investors, the Indian markets posted huge losses in the month of March. However, the Indian Markets started the post budget week on a positive note in the month of March. The markets rallied on the back of some positive global cues in the form of positive economic data in US and announcement from the Bank of Japan to continue their stimulus measures. The markets remained range bound during the second week and ended in red.
It was in the third week of March, the Indian markets faced some significant corrections. Markets reacted negatively to the news that one of the major supporting parties pulled plug on its support to the Central Government. This even overshadowed the rate cut imposed by the RBI during the month. The uncertainty lingered even in the last week of the March with more statements around the instability of central government and possibility of midterm elections.
For the eight month in a row, FIIs emerged the net buyers and DIIs emerged as the net sellers. This signifies the dependency of Indian markets on FIIs. However, while the FII numbers are showing some healthy signs, they have been on a decelerating path in the past few months. Cues in Europe resulted in declined FII inflows during the month of March. Despite the high Current Account Deficit, the Indian rupee and Equity markets were supported by FII inflows. However, it is to be observed that the surge by Indian government to take an economic reform path was the driving force behind FII inflows. So, it is in the best interest of Equity markets and the Indian Rupee that the government would end the current political turmoil. This would help the government to continue its push for economic reforms and attract more foreign inflows.