Taper Continues. Indices Likely To Witness An Up-move.

One factor that everyone wants to avoid in the stock markets is higher volatility and uncertainty. In the last trading session Indian equity markets witnessed the same. With a trading holiday next day and FOMC policy announcement in the evening, the Indian equity markets remained volatile on Wednesday. Volatility could be seen easily from the fact that markets opened on a positive note, however the selling pressure resulted in Sensex taking a nosedive. However again a good amount of buying in the end helped the indices recoup some of the losses. Amid this high volatility the Sensex closed at 22417 (down 48 points) and the Nifty closed at 6696 (down 18 points).

While the Indian indices remained volatile there was hardly anything that was surprising. If investors could remember the March meeting of the FOMC was considerably quite. The only thing then That surprised the investors was when new Fed Chair Janet Yellen unintentionally surprised and spooked investors with talk of an interest rate increase before year’s end.

However afterwards not much as a surprise was expected from FOMC this time as expected no surprises were delivered. Markets reacted in kind. The US equity Benchmarks were little changed ahead of the Fed’s statement and modestly closed higher after the announcement.

As widely anticipated, the FOMC continued with the winding down of its quantitative easing bond purchases. For the fourth time in as many meetings, the committee trimmed its asset purchases by another USD 10 billion to USD 45 billion a month. The Fed has been buying bonds since December 2008, with a goal of stimulating a struggling U.S. economy. Yet amid signs of an improving economic landscape, the Fed started weaning the economy off this stream of money in January. Now many on the investors would be surprised as the taper continues despite inconsistent job growth and a stubbornly elevated 6.7% unemployment rate.

The policy statement however stated that “The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions”. Also acknowledged in the FOMC statement was the recent spate of lackluster fiscal data, which the Fed attributed to an unusually harsh winter. But the Fed sees things improving. The policy statement also stated that, the growth in economic activity has picked up recently, after having slowed sharply during the winter because of adverse weather conditions. As for the future course of action the Fed confirmed it will continue to monitor economic data and financial developments and proceed accordingly.

Another factor to be noted is several analysts speculated that Wednesday’s first read on Q1 2014 gross domestic product (GDP) might sway the Fed to change its stance and hold off on a taper this month. GDP, the broadest measure of the U.S. economy, grew at a meager 0.1% annual pace in the first quarter, data from the U.S. Bureau of Economic Analysis showed. Economists had foreseen tepid growth amid a brutal winter, but the results were much worse than expected. Consensus forecasts were for 1.2% growth. Also as expected, the FOMC said that the near-zero interest rate environment will continue for some time.

The US markets reacted as expected and remained in a positive zone after the announcement of taper. However some amount of profit booking took the markets downward yesterday. Further some uncertainty was seen ahead of the announcement of non-farm payrolls today. While the DJIA closed at 16558 (Down 22 points) 0.13% the S& P closed almost flat at 1883.

Most Asian stocks are trading in red as investors weighed corporate earnings before the release of U.S. non-farm payrolls today. The Bloomberg report suggested that, U.S. employers probably added 218,000 workers in April, up from an increase of 192,000 in March, according to the median estimate in a Bloomberg survey of 94 economists.

As for the Asian markets Nikkei is trading in red with loss of 40 points or (Down 0.28%).     Straits Times is also trading in negative marginally. Other Indices like Hang Seng is trading up by 0.30%.

We feel the Indian markets are likely to remain positive here after. Though there is some possibility of FIIs inflow witnessing some amount of brakes. But we feel it would be affecting more to other emerging markets than India. The SGX Nifty is trading up by 30 points and we expect similar gap up opening for Indian equities also.