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Monthly market commentary: May 2014

LiveMint logoLiveMint 05-06-2014 Lisa Pallavi Barbora

May was a lacklustre month in terms of global capital market activity. US economic growth is moving along, but experts suspect that it is doing so at a pace which is slower than expected. In Europe, too, things are status quo. In Europe, the first quarter gross domestic product (GDP) numbers suggest that the positive growth is once again due to Germany. There was some mildly negative news from China on the construction activity and property sales front. The main source of concern, however, was the slow pick up in the US economy and a fallout of that was the continued investment in US bonds. Towards the end of may, global market participants were waiting for the European Central Bank meeting in June to see if there could be any more monetary easing in that region.

Data from global funds tracker, EPFR, shows that by the end of May institutional investors were moving money out of developed market equity funds, while emerging market bond funds were getting increasing inflows. Retail investors are investing in developed market bond funds and their interest in emerging market equity and bond funds is waning. However, institutional investors have been increasing their allocation to emerging market equity and bond funds since March this year.

As foreign institutional investor interest in Indian equity and bond markets increased, the rupee too got a boost and May was a good month not just for risky assets but also for fixed income markets and the currency. Macroeconomic data is yet to show improvement, but the tide has really turned on expectations. While the much awaited election outcome only came in mid month, expectations already got built into financial markets. Finally, the results showed a definite mandate for the Bharatiya Janata Party (BJP) which got a majority in the Lok Sabha and this buoyed expectations even more. Economists have now upgraded their FY16 GDP target to levels of 6.5-6.8%. This in turn has trickled down to asset markets which saw a sharp rally in May.Paras Jain/Mint

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