MARKET
u p d a t e

• Inflation: After dipping to a two-decade low in February, the inflation rate based on wholesale price indices rose to 1.64% for the week ended March 2, 2002. The rise in inflation rate was mainly prompted by higher energy costs and a rise in prices of a number of food items. . Slackening demand for industrial and consumer products coupled with a slowing economy were largely responsible for a continued fall in inflation from the high of over 8% early last year. The wholesale price index for the week ending March 2, 2002 stood at 161.5, rising by 0.6% against its previous week's level.
• Industrial growth: Industrial growth slowed down to 3.2% during January this year as against 4.5% in the year-ago period, mainly due to lower growth in mining, manufacturing, capital goods and consumer goods. The quick estimates of Index of Industrial Production (IIP) released by Central Statistical Organisation pegged the general index at 176.1 during January 2002, which is 3.2% higher than that in January 2001. The IIP grew by 2.5% in April-January this fiscal, which is also less than 5.7% in the same period last year. Among the major groups, Electricity production was up 3.8% in January from 2.5% a year ago. Growth of manufacturing sector, however, slowed down to 3.2% during the month as compared to 4.7% in January 2001, while Mining activities grew by only 3.4% as against 5.1% in the same month last fiscal.
• Exports: The Government assured exporters that the forthcoming Exim policy will attempt to make exports 'as free as possible' and address their concerns such as high transaction costs. India should achieve 1% share of global exports at least by 2007. This would mean a compounded growth rate of 11% during the next five years. The current year's export growth stands at 1.56% (as of April 2001-January 2002) and the government has been forced to scale down the export target for the current year to 4%.
• Forex Reserve: India's foreign exchange reserves continued to climb and reached a record high of $51.44 billion in the week ended Mar 8, 2002. This increase is mainly due to in foreign currency assets. No change was reported in the gold reserves and the special drawing rights (SDR) reserves for the week.

Implications:
The current fiscal has seen a very strong revival of the agriculture sector and some segments of the manufacturing sector have also started looking up. The situation on the external front, as far as foreign exchange reserves are concerned, is very comfortable. Inflation, too, is at an all time low. The figures released for the economic update look much better. Cement and steel sectors performance is encouraging. Jump in heavy commercial vehicles sales is also positive for the economy indicating greater movement of goods in the economy. Farm sector, the key growth driver in the economy, is expected to grow at healthy pace this year. This is indeed a positive sign for this year, which could boost the economy as a whole.

• Repo Rate: The Reserve Bank of India lowered its repo rate, the benchmark for short-term money market rates, in a widely-expected move which will correct distortions in the yield curve and cut overnight funding rates. RBI reduced the rate by 50 basis points to 6% from 6.5%. The move was seen as a logical follow-up to a move towards lower interest rates signaled in the Union budget, when Finance Minister cut rates on State-run small savings schemes.
• Call money: Call money rates hovered around 6.5%, higher than floor repo rate of 6%. Call rates were under pressure due to fiscal year ending and tax outflows. Subscriptions at the daily repo auctions held under LAF dropped on an average. Banks and primary dealers were availing central bank refinance at 6.5%, causing the amount outstanding to inch up steadily.
• G-Sec: The liquidity-driven bull run in gilts that drove yields to 20-year lows finally has taken a cautious approach, as key market players paused to re-assess the sustainability of low interest rates implied by the sovereign-yield curve. Participants turned cautious to build positions ahead of the fiscal year end. The benchmark 10-year yield hovered around 7.60%. RBI governor's statement towards the bank rate reduction from its current level of 6.5% in near future helped to lift the sentiment partially towards the end.
  

Implications:
The outlook for G-sec market is cautious. The likely cut on bank rate is expected to help the lift the market sentiment. But the mammoth borrowing requirements of the government for the next year (Rs. 1,42,779 cr.) may act as a dampener on sentiment as it could put constraints on interest rate maneuverability. But fundamental factors like moderate inflation rate, large food grain stocks, huge forex reserve, low interest rates etc, coupled with RBI's commitment of ensuring adequate liquidity in the system, are expected to provide a boost to market as a whole in the coming times.

• Overall: Market barometer, the BSE Sensex, after breaching the 3,600 mark in February for the first time since the terrorist strike, mostly remained range-bound in March, varying within a band of 3600-3700. It has posted a gain of about 40% since the rock bottom valuation in September, 2001.
• Factors: The Ayodhya factor seemed to have overshadowed fortunes on the bourses for most of the month. On the positive side, optimism that the US economy is set for a recovery, which, in turn, will lead to fresh orders for Indian IT companies triggered a rally in domestic software stocks. US markets also saw rally and Nasdaq and DJIA gained ground.
• SEBI: Meanwhile, SEBI played spoilsport on the interim dividend front first week. A slew of companies had announced interim dividend earlier during the week so that the promoters and investors get the benefit of zero dividend tax before the norm of taxation of dividend in the hands of investors becomes effective from April 1, 2002. However, SEBI directed the stock exchanges to enforce the 30-42 days mandatory notice period for setting the record date for dividend payment. As a result, most of the companies, which had declared interim dividend, revoked their decision.
• PSUs: In PSUs, a late recovery was witnessed in oil refiners BPCL and HPCL on news that the Centre has proposed to publish an advertisement inviting expressions of interest from probable advisors to the proposed disinvestment of part of its stake in BPCL and HPCL
• Reliance: Shares of the Reliance group companies lost ground on profit- taking, after both of them opened on a firm note following the declaration of merger ratio of 1 Reliance Industries share for 11 Reliance Petroleum shares.
• Others: A steady trend was witnessed in automobile shares like Telco, Bajaj Auto and Mahindra & Mahindra, Hero Honda etc. Cement shares were range-bound amid reports that the riots in Gujarat early this month would affect cement off-take. Soft cement prices also led to the lacklustre trend.

Implications:
The undertone is expected to remain bullish following the signs of a recovery in the Indian economy, driven by higher rural income and low base effect, as is being reflected in improved sales figures of auto and cement firms, strong liquidity in the system with interest rates dropping to historical low, attractive share valuations and the government's privatisation initiatives. All eyes are on the earnings figures of the companies for the last quarter of the fiscal 01-02 to justify their current valuation.

BSE Sensex	S&P CNX Nifty
Sovereign Yield Curve	Wholesale Price Index
	The Wholesale Price Index for the week endingFeb. 2, 2002 stood at 161.5, rising by 0.6% against its previous week’s levels.

Debt - Mr Bhattacharya is advised to invest in the debt funds and company deposits as these are the best investment options in the long run. He should put at least 50% of his debt allocation to a debt fund like Birla Income Plus, Pioneer ITI Income Builder or K-Bond etc. He should also invest in company fixed deposits in companies like Chambal Fertilizers, Ballarpur Industries and India Glycols.

Equity - Since Mr. Bhattacharya is conservative investor, he should put majority of his investments in debt and only a small portion in equities. This could provide him the necessary capital appreciation. But a word of caution. He should not invest directly in the equity shares as the risk in direct investment in the equities is very high. He should invest through diversified equity funds and let a professional fund manager take care of his investments on his behalf. Among the equity funds, diversified funds like Templeton India Growth Fund or Pioneer ITI Bluechip Growth are recommended for him.

Golden Rules of Financial Planning• Take care of unpredictable needs first through adequate insurance

• Keep an emergency fund aside in liquid and gilt funds
• Start early and build a long term retirement and investment plan
• The minimum time period for equity investments should be five years
• The minimum time period for investing in debt funds should be one year
• Make your financial plan tax efficient - focus on after-tax returns.