Macroeconomics
Advanced GDP growth estimate released by CSO projected a growth of 8.7%, which indicate that though there is moderation in growth but Indian economy is mainly driven by domestic consumption and net exports play a marginal role in the economy. In the Union Budget that was presented on last day of Feb, the government largely maintained policy direction with the focus on agriculture and education sectors. The budget has reduced excise duties and at the same time increased the income tax exemption slabs. This will translate into more disposable income and thus translate into consumption. However, concerns remain on the funding of farm loans waiver for Rs. 60000 cr and the increased outlay for some sectors mainly on populism due to impending general elections in 2009.

Equity
Equity market was nervous and volatile amidst ongoing worries about high oil prices and economic slowdown. For the month Sensex declined by 0.4% while Nifty was up by 1.6% to close at 17,579 and 5224 respectively. Markets corrected after the Union Budget due to the increase in short term capital gains tax and absence of tax cuts Both FII and MFs were net buyers for the month to the tune of US$1271 mn and US$ 16 mn respectively. The outperformed sectoral indices for the month were BSE Metal (9.32%) and BSE Healthcare (9.03%), whereas BSE Bank (- 5.6%) and BSE Realty (- 3.09%) were the under performers.

Fixed Income
Debt markets were largely range bound during the month as rate cut expectations on the back of moderating growth and benign macro conditions, were tempered by tight liquidity and rising inflation. The Union budget was announced with fiscal deficit projections and market borrowings being lower than expectations. Yields of long-dated bonds and corporate securities rose during the month. The yields on the benchmark 10-year paper rose by 5 bps during the month, to close at 7.62%. In the long end, the 30 year gilt saw a 12 bps rise in yields. However, the 1 yr gilt registered only a 2 bps increase in yields over the month. The yield curve steepened slightly with the spreads between 1/30 year gilts increasing to 44 bps (from 34 bps at end of January).