The Sensex ended last Friday at 15,896 points, down (-)5.44 per cent compared to its closing level at the end of the previous week. It is currently trading at a 12-month trailing price to earnings (PE) ratio of 20.21. Foreign institutional investors (FIIs) withdrew Rs 83.7 crore from Indian equity markets last week.

According to Vikram Kotak, chief investment officer, Birla Sun Life Insurance, “After a dream run that lasted almost six months, the markets have been listless in October. The equity markets were looking for reasons to correct and events like weak global markets, credit policy stance, and disappointment regarding the quarterly numbers of a few large companies caused the decline.”

All the sectoral indices declined during the week. FMCG and Healthcare indices declined the least, falling by (-)0.57 per cent each. The sectors that fell the most were Realty (down -15.4 per cent) and Metal (down -9.6 per cent). Explaining the resilience of FMCG and Healthcare, Kotak says: “During every correction defensives like FMCG and Healthcare outperform the rest of the market, particularly Banking and Realty.”

Last week’s credit policy review had a significant impact on sentiments. “The tough words used by RBI regarding inflationary pressures made the markets jittery and signalled the possibility of rate hikes in future. But in our view RBI is likely to continue with a growth-supportive policy because the global outlook remains uncertain and domestic recovery is still not comprehensive,” says Kotak.

Regarding the near-term outlook, he says: “In the short term, the markets may see a correction of another 5-7 per cent. But every correction provides an opportunity to build a medium-term portfolio.” He also expects the Indian markets to take cues from the US and Asian equity markets in the short term.

... contd.