The Developed market indices and the emerging market indices have witnessed a strong rally in the month of December 2013 following positive developments in the economic recovery of the US and the European nations. The momentum is expected to continue for the global markets in the new calendar year of 2014 as most of them have already registered record high levels in 2013. The strong positive sentiments have also sustained momentum in the emerging markets as liquidity in the developed world has been maintained with near zero interest rates to stimulate growth.
The benchmark indices of Dow Jones Industrial Average, NASDAQ and S&P 500 rose 2.4%, 2.67% and 1.83% respectively on a month on month basis and 27.4%, 40.3% and 29.76% respectively on a year on year basis since December 2012. The German DAX and the UK FTSE rose 1.76% and 1.16% respectively on a month on month basis and 25.49% and 13.6% respectively on a year on year basis since December 2012. Most of the developed world market indices are trading at record high levels due to sustained economic recovery in the US and the European economies. The Federal Reserve announced the much awaited taper in the bond purchases of USD 85 billion per month by USD 10 billion to USD 75 billion per month in the monetary policy meeting on 18th December 2013.
The major benchmark indices rallied as a result as the taper in the bond purchases comes on the back of sustained positive economic data that was reported for the US economy. The Jobless Claims were reported at 3,38,000 in the third week of December as compared to a revised 3,80,000 claims from 3,79,000 in the previous week for the US economy. The annualized GDP growth for the third quarter of 2013 was revised upwards to 4.1% which was higher than the previous estimate of 3.6% for the US economy.
The Japanese Yen depreciated to a five year low of 105 per USD and this depreciation boosted the Nikkei 225 benchmark index by 3.59% on a month on month basis in December 2013 and by 56.72% on a year on year basis. The Euro strengthened by 1.54% to 1.3814 USD per Euro on a month on month basis and by 4.52% on a year on year basis.
Crude oil has remained flat at 111 USD/bbl and Gold has declined 27.19% to USD 1205/Oz on a year on year basis. The decline in gold prices is seen due to recovery in the global equity markets on account of recovery in the US economy. The investment in equity is expected to continue in the year 2014 and gold prices would remain subdued as more and more funds are invested in stocks. Bond yields have risen with ten year US treasury yields up by 105 bps (basis points) on a year on year basis as funds are seen to be diverted to equity markets on the back of the recovering US economy.
The Indian benchmark indices the Nifty and the Sensex have risen 3.27% and 2.96% respectively to touch all-time record highs of 6,415 and 21,483.74 respectively on a month on month basis in December 2013 and have risen 6.48% and 8.74% respectively on a year on year basis since end of December 2012. The markets rallied in the month of December 2013 on back of the announcements made by the RBI and the Fed. The RBI in its mid-quarter policy review kept the key interest rates unchanged and surprised the market that was expecting a 25 bps hike in the repo rate considering the CPI and WPI inflation levels at 11.24% and 7.52% respectively. The inflation primarily rose on account of vegetable prices rising by 60% year on year but the RBI is of the opinion that vegetable prices should decline in the immediate future. The State Election results cheered the markets in the beginning of the month as the Bharatiya Janata Party (BJP) clinched absolute majority in Rajasthan, Chattisgarh and Madhya Pradesh and emerged as the single largest party in Delhi. Announcement by the Fed on asset purchase taper also cheered the markets as a sustained recovery in the US economy shows better growth prospects for the external sector of India.
The year 2013 saw the Indian benchmark indices of the Nifty and the Sensex reach year low levels of 5290 and 17900 respectively in August 2013 and recover to reach record high levels in December 2013. The momentum is expected to continue as the current account deficit and the fiscal deficit is expected to narrow in the year 2014. The inflation is also expected to reduce from the current high double digit levels to moderate single digit levels in the year 2014. Positive triggers in the domestic and global markets have led to the current rally and further positive developments are expected to keep the momentum going ahead in the new year of 2014.
In the sectoral indices the S&P BSE IT index rose 59.44% followed by S&P BSE Healthcare index at 22.36%, S&P BSE FMCG Index at 10.76%, S&P BSE Auto Index at 7.6% and Oil and Gas at 3.26% while S&P BSE Bankex declined by 9.36% and S&P BSE Metal index declined 9.56% on a year on year basis. The IT index rallied as a result of the rupee depreciating to record levels in the year 2013. Positive developments in the US economy has also helped the index sustain momentum throughout the year. Bankex index declined on a year on year basis as monetary tightening by the RBI and rising NPA (Non-Performing Assets) levels dimmed growth prospects for banks. The outlook for banks looks better in the year 2014 as interest rates are expected to marginally decline if inflation levels drop down to optimum levels. The Auto index registered a growth on a year on year basis inspite of the slowdown in demand witnessed in the sector for the year 2013.
The S&P BSE MID CAP and S&P BSE SMALL CAP indices rose 5.24% and 7.06% respectively on a month on month basis but have remained flat on a year on year basis since end of December 2012. Positive domestic and global cues has fuelled a rally in the Midcap and Smallcap stocks in December 2013.
Table 1: Monthly Market Movement