<p>Markets were very volatile during July. The month was marked by the surprise event of the RBI raising rates by 50bps against expectation of 25bps and concerns on delay in raising of the US debt ceiling which is something unheard of in recent times.</p>
<p>Global markets did not provide any support during the month, to say the least. With concerns growing on Spain and Italy, markets there have remained edgy. On the other hand, the uncertainty relating to the US debt ceiling also kept sentiments subdued. China further raised reserve requirements for banks with a view to cool down inflation.</p>
<p>RBI’s 50bps hike and its stance came as a negative surprise for most participants and provided an additional headwind for the markets during the last week of the month, just when the market seemed to be finding its feet and moving higher. RBI has probably accounted for potential surprises from monsoon and high crude prices. We believe that, the Government will take fiscal steps to tackle supply side issues and promote more investments in the months to come.</p>
<p>The quarterly results were largely unexciting and failed to lift the markets. The impact of the raw material price increases on margins and high interest costs clearly impacted numbers. While IT/FMCG/private banks reported decent numbers, capital goods and infra stocks disappointed.</p>
<p>Crude price has remained disturbingly high, despite the weakness in most of the developed economies and also in China. We were expecting the crude price to cool off post the closure of the QE2 program.</p>
<p>However, expectations of further stimulus across economies have kept crude firm. We feel fundamental factors are conducive for a fall in crude price and we expect that to happen in due course.</p>
<p>The government has shown its intent on proceeding with the long-pending reforms. Several issues are on the anvil – FDI in multi-brand retail, Land Acquisition Act, Mining Act, Banking Regulations Act, Pension Reforms, among others. The fuel prices have been partially de-regulated already and FDI limit in FM radio has been increased. We are also seeing the decision making process pick up steam, of late.</p>
<p>Overall, we feel that quick action on fiscal side and fall in crude prices will be the prerequisites for the market to sustain current levels and move up in the medium – to – long term.</p>
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