European debt crisis to keep markets volatile

Volatility in the domestic stock market is likely to persist till the European debt turmoil is resolved, even though the impact has not been much on India, the government said in its Economic Survey for 2011-12.

"The euro zone imbroglio kept the global markets fluctuating throughout the year. Unless the crisis in Europe is settled, volatility in global markets including India will

tend to persist," said the annual report card of the state of economy, tabled in the Parliament by Finance Minister Pranab Mukherjee.

However, the Indian market has been less affected by the European turmoil, compared to other major stock indices worldwide, it noted.

Subdued inflow of foreign funds not only led to a decline in Indian markets but also contributed to the sharp fall of the rupee, the Survey said.

FIIs pulled out as much as Rs 213 crore (Rs 2.13 billion) from the Indian equity market in April-December 2011 period whereas they had invested Rs 110,121 crore 9rs 1101.21 billion) in the last fiscal.

During the 2011 April-December period, FIIs pumped in Rs 30,590 crore (Rs 305.90 billion) in the debt segment while their investment in equity and debt stood at Rs 30,376 crore (Rs 303.76 billion).

Nevertheless, the number of registered FIIs rose to 1,767 at the end of December last year compared to 1,722 as on March 2011. The number of registered sub-accounts also increased to 6,278 from 5,686 during the same period.

As per the Survey, much of the rupee depreciation was due to "flight to safety by foreign investors, given the troubled European and inflation-hit emerging market economies".

Further, moderation in economic growth as well as hawkish monetary stance affected the domestic market. "Moderation in the growth rate of the economy has also affected market sentiments... Monetary tightening in India has led to some correction in stock markets," the Survey said.

The resource mobilisation through primary market also slumped during this fiscal.

"The cumulative amount mobilised as on December 31, 2011 through equity public issues stood at Rs 9,683 crore (Rs 96.83 billion) as compared to Rs 48,654 crore (Rs 486.54 billion) in 2010-11... only Rs 4,791 crore (Rs 47.91 billion) was mobilised through debt issue as compared to Rs 9,451 crore (Rs 94.51 billion) in 2010-11," the Survey noted.

Union Budget 2012-13: Complete coverage