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Monthly Review

Economy: Inflation eases but slowdown intensifies India’s trade deficit stood at USD10.5 billion in October 2008 compared with USD10.6 billion in the previous month. Though the trade deficit is up by 61.2% year on year (yoy), the same remains largely flat on a month-on-month (m-o-m) basis. With this, the year-till-date (YTD) trade deficit has now widened to USD75.8 billion from USD45.5 billion in the comparable period of the previous fiscal.

Equity markets: Volumes continue to decline
During November 2008, the benchmark indices corrected by 7.0%, followed by an increase of 8% during the month-to-date (MTD) period (December 01–15), negating the decline in the previous month. However, the volatility in the equity markets has taken its toll on the volumes, which continued to decline in the MTD period. In the month till date, the volumes in the futures and options (F&O) continued to decline while that in the cash market remained largely stable compared with the previous month. For December 2008, the MTD fund flows indicate that the foreign institutional
investors (FIIs) have turned net buyers whereas the local mutual funds (MFs) have remained net sellers.

Outlook
For the period December 1–15, 2008, the BSE Bankex grew by 15.1% compared with the Sensex that saw an increase of 11.2% in the same period. The credit demand is likely to remain strong in the near term due to drying up of the alternative sources of funds. However, credit demand may remain lower going forward as economic activity slows down further. Though we have been cautious on the banking stocks due to the concerns over the quality of their assets, a further slide in bond yields, easing in corporate spreads and rapid rate cuts would warrant some easing of these concerns, thereby making these stocks attractive at the current valuations.