MARKET
u p d a t e

• Inflation: The inflation rate based on wholesale price indices fell 0.13% to 2.11% for the week ended June 29, 2002. In the previous two weeks, inflation rate had risen led by a hike in diesel and petrol prices. The inflation rate in the previous week was 2.24%. The fall in inflation rate was mainly due to a dip in prices of primary articles, mainly food-based products. Manufactured product prices, on the other hand, increased. The index was over 5% in the comparable period previous year.
• Industrial Growth: India’s industrial production increased by 3.8% in May 2002 as compared to 1.7% in the same month last year. Manufacturing sector, which accounts for two-third weightage in the Index of Industrial Production (IIP), grew by 3.7% as against 1.8%. Industry grew by 3.8% during the first two months of the current financial year (April-May), over 2.1% growth registered in the corresponding period last year. In the manufacturing sector, the recovery has come mainly in the basic goods and consumer non-durables categories. The mining sector also grew significantly at 7% during May 2002 as compared to a negative growth of 0.5% in the same month last year. The cumulative growth in the first two months stood at 5.6% over 1.4% in 2001-02. However, the electricity sector witnessed a decline to 2.4% as compared to 3% during May 2001, while the 2-month growth was up at 3.8% as against 2.2% last year.
• Foreign Trade: India’s exports grew by a mere 3.8% in May 2002, after having risen a sterling 18% in April 2002. In May 2002, exports were $3.77 bn. against $3.63 bn. in May 2001. Cumulatively, for the first two months of the fiscal, India's exports were valued at $7.45 bn. against $6.74 bn. in April-May 2001-02. In percentage terms, exports rose 10.4% in April-May 2002. For FY 2002-03, India has targeted a 12% growth in exports. Imports during April-May 2002-03 were lower by 3.6% to $8.44 bn. as against $8.77 bn. in April-May 2001-02.
• Foreign Direct Investments: FDI into India for the five months January-May 2002 jumped 60% to $1.89 bn. from $1.18 bn. in the corresponding period of the previous year. Figures for the year 2001-02 show that FDI in the country increased marginally to $4.8 bn. from $4.5 bn. in the previous fiscal. FDI inflows rose despite the global recession.
• Forex Reserves: India’s foreign exchange reserves continued to climb and reached a record high of $58 bn. during the week ended July 5, 2002, due to the huge spurt in gold reserves. Meanwhile foreign currency assets and special drawing rights (SDR's) dropped during the week in review.
  

OUTLOOK
The current fiscal has seen strong revival of some segments of the manufacturing sector. The situation on the external front, as far as foreign exchange reserves are concerned, is very comfortable. Inflation, too is at a low-key. The economic update figures reveal that economic health has started looking up. Farm sector, the key growth driver in the economy, is expected to grow at healthy pace this year, provided the monsoon-level is satisfactory. This could boost the economy as a whole.

• Call Money: Amidst easy liquidity in the system with plentiful supplies outstripping demand, call rates hovered easy around 6%. The liquidity is reflected from the huge daily subscription to the repo auction.
• Govt. Securities: Despite the buoyant liquidity conditions and easy call rates, sentiments remained cautiously optimistic and event-driven. Initially, security prices opened on a bearish note on news of the new FM emphasising the need for increasing small savings. Later, fresh buying emerged on expectation of an EPF rate cut which drove the 10-year paper to a YTM of 7.32%. However, the labour ministry kept the EPF rate unchanged at 9.5%, government bonds reacted adversely. Besides, the huge surplus liquidity heightened expectations of auction or OMO by RBI. Thus, surplus liquidity provided buying support to the market, while OMO/auction fears provided significant selling pressure too.
• Rupee: On the rupee front, it kept hovering in a small range. Till the mid-month, the support was mainly seen at 48.78/$. The rupee even at current levels is highly undervalued against the dollar as compared to other Asian major currencies.

OUTLOOK
The market currently is in consolidation mode and the market participants are expected to gradually regain confidence. Given the surfeit of liquidity existing in the system and fresh inflows, the medium-term outlook continues to be positive. Latest growth estimates points towards an economic recovery and the need for low interest rates. The auction outflows are unlikely to have any tightening impact on the excess liquidity in the markets.

• General: The market was range-bound as the sentiment turned bearish after an initial cheerful period amid the global tech sector’s woes following a slew of accounting scams and profit-booking in Old Economy stocks, after their recent gains.
• Factors: The market opened on a buoyant note welcoming the new finance minister. Resumption of buying by FIIs and hopes of an economic recovery also led to positive sentiment on the bourses. But towards the second week, the market was affected adversely dogged by concern over a series of accounting scandals of some US and local firms. US stocks sank to their 5-year low. Back home, Q1 results have shown mixed trend.
• Tech Stocks: Infosys Technologies slipped, despite impressive Q1 results. For theQ1 02-03, it posted a 14.10% rise in net profit to Rs. 216.85 cr.
• Old Economy Stocks: Initially, stocks across sectors like automobiles, steel, cement, construction, textiles, auto ancillaries, power, consumer electronics, chemicals, engineering, paints and sugar etc. firmed up on good buying support. But monsoon woes and drought like situation emerging in some parts led to selling pressure on stocks across categories.
• PSUs: Some action was seen in PSU stocks, on hopes that the government’s divestment programme may gain momentum. Nalco was one of the major gainers. ONGC and GAIL gained ground, after the announcement of limited stake sale in these PSUs.
• Others: Pharma stocks like Ranbaxy, Dr. Reddy's Lab witnessed buying support initially, but monsoon woes hit these stocks too. Cement stocks witnessed relatively less action on monsoon fears.

OUTLOOK
With more Q1 results expected to pour in, investors are expected to gain confidence. With economy showing signs of recovery and with government putting its divestment programme in top gear, stocks are expected to move up in the long-term. The selling pressure in Old Economy stocks of late has been more due to profit-booking, after their recent gains on monsoon woes. These stocks are likely to recover once the valuations become attractive. The slide of the New Economy stocks is also limited despite global weakness in the tech sector.

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Debt: Mrs Chaterjee is advised to invest in the debt funds and company deposits as these are the best investment options in the long run. She should put at least 50% of his debt allocation to a debt fund like Sundaram Bond Saver, Birla IncomePlus, HDFC Income etc. She should also invest in company fixed deposits in companies like HDFC, Jindal Seel and Powerand Chambal Fertilizers etc.It should be kept in mind that these instruments give superior returns than a bank fixed deposits.
Mrs Chaterjee is also advised to invest in Government Saving Schemes like National Saving Certificates and Public Provident Fund which help in saving tax as well.
It is also important for her to plan for her forthcoming retirement. For this she should also start creating a retirement corpus apart from her employer provided benefits. Jeevan Suraksha Plan of LIC or Forever Life of ICICI Prudential Life Insurancewill help to do that.

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 5 years and the minimum time for investing in debt funds should be 1 year
• Make your financial plan tax efficient — focus on after-tax returns.