All Eyes On FOMC Policy Announcement

Indian equity markets closed in red for the third consecutive day with the benchmark indices losing 0.7% each in yesterday’s trade. On the sector front weakness in banks, metals and FMCG heavyweights weighed on the indices. The Sensex closed down by 165 points at 22,466 and the Nifty slipped 46 points to end the day at 6,715. Broader markets which were resilient in the first half, turned weak in closing deals. The midcap index gave off 0.4% while the Smallcap index closed flat with a negative bias.

Market participants were cautious as foreign investors trimmed their purchases in Indian equities in the past two sessions with net purchases of Rs 295 crore on Friday and just Rs 77 crore on Monday, as per the provisional data released by the stock exchanges. Further, as mentioned earlier in our market commentaries, the India Meteorological Department (IMD) on Thursday announced that the country will likely get below-normal levels of monsoon rain this year. Investors also maintained caution ahead of the announcement of Federal Reserve's monetary policy review today.

As global indices would be keeping an eye on the US policy announcement today, the U.S. equity stocks rose yesterday as Internet stocks rallied for the first time in five days and results from Merck & Co. to Sprint Corp. topped estimates before a Federal Reserve decision on monetary policy.

As for the performance of Indices, The Standard & Poor’s 500 Index climbed 0.5 percent to 1,878.33 at. The Dow Jones Industrial Average increased 86.63 points, or 0.5 percent, to 16,535.37. The Nasdaq Composite Index advanced 0.7 percent. Here we are of the opinion that earnings have been strong and for the most part, companies have been upbeat with their full-year earnings outlooks. Apart from that experts suggested that, data on earnings and data on consumer confidence means one should not expect much change from the Fed. As for the consumer confidence, US consumer confidence dipped in April 2014 but remained near a six-year high, while home prices rose in February, suggesting the economy continued to regain momentum after a winter lull. In the reports, the Board said its index of consumer attitudes dipped to 82.3, the second-highest reading since January 2008, from an upwardly revised 83.9 in March. An unusually cold and snowy winter disrupted economic activity early in the year. In addition the next catalyst in the market will be Friday’s jobs report.

So the important question is what to expect from the Fed policy announcement today. In one of our previous morning market commentary we had stated that, we expect a status quo on QE Taper front. However data released on the consumer confidence front along with strong earnings, we now expect another taper of USD 10 billion.

Apart from the US policy announcement, the Japanese policy announcement is also expected today. Here also the analysts are not expecting much of change in the stance of Government. With this many events lined up today the Asian equity indices are trading almost flat with positive bias.

Nikkei is trading with gains of 0.53% and Straits Times is trading with gains of 0.71%. Hang Seng and Taiwan are trading in red with almost half a percentage point losses. Shanghai Is trading flat with gains of just 0.06%.

As for the Indian markets there was news on currency front as the Reserve Bank of India signaled that it will not let the rupee appreciate beyond Rs 60 to the dollar as it shifts to consumer prices as a basis for calculating the real effective exchange rate or REER. The central bank has released a new measure for REER based on the consumer price index or CPI. REER is the inflation-adjusted value of the currency factoring in inflation differentials among trading partners. This should a positive move for the Indian markets.

Further as we are fast approaching the May 16th (Date of Poll results) the investors are getting cautious. But overall the sentiments are positive. As for today the SGX Nifty is trading at 6779 (Up 15 points). We are expecting the Indian equity indices to open in positive zone. However the trading would be highly range bound ahead of the US Policy announcement today.