Equity Market
Among sectoral indices, the BSE IT fell the least with a negative return of 7.53% while the BSE Realty performed poorly with a negative return of 43.62%. October 2008 saw significant action being taken by several countries to de-freeze the credit market and protect their banking systems. The economic slowdown is also reflected in the dismal IIP (Index of Industrial Production) figure of 1.3% for the month of August 2008.
The only silver lining in the past month has been the fall in crude prices.
Debt Market
On October 20, 2008, the Reserve Bank announced a reduction in the repo rate under the Liquidity Adjustment Facility (LAF) by 100 basis points from 9.0 to 8.0 per cent. The cash reserve ratio (CRR) of scheduled banks was reduced by 100 basis points from 6.5 per cent to 5.5 per cent of net demand and time liabilities (NDTL). Bond markets turned bullish on account of the aggressive cuts in CRR & Repo rate. Shorter end yields eased due to the liquidity measures taken by RBI.
Forex Market
RBI has announced various measures to enhance dollar supply and control rupee depreciation; however these measures are unlikely to provide an immediate relief to the Rupee as we do not expect immediate increase in foreign capital inflows. Rupee has depreciated by about 5% during the month and by 16% over the past three months. The relaxations in ECB, FCNR(B) and NR(E)RA is positive for the Rupee in the medium term but is unlikely to lead to significant inflows immediately.
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