Volatility To Persist

The Indian markets since the last few days have consistently remained in a tight range. We have been consistently stating that there are hardly any triggers in the market. The most important ones have already been over and hardly made any impact on the markets. The only impact has been seen on the intraday basis. Markets have actually remained highly volatile on intraday basis. Today we expect the markets to remain highly volatile as it is expiry for May F&O series.

Now amid volatility there are few positives that have emerged on the political front. The sources suggested that the Government may look into divestment of the sick PSUs. We are of the opinion that if Government manages to divest the stakes in sick PSUs, it will get a good help in terms of stabilizing its balance sheet. We have been consistently mentioning about the difficulty ahead of the new government in terms to finding finances to fund the excessive fiscal deficit. While the names under consideration are not known, Hindustan Zinc and Balco stake have been given nod for valuation. In terms of finances, unpaid subsidies are also been under scrutiny of Finance Minster now.

In addition one of the leading financial daily reported that, the finance ministry is scripting a liberal foreign investment policy framework that will allow at least 49% investment in all sectors, barring a few strategic ones, as part of plans to stimulate overseas interest and help lift the economy out of a prolonged slump. Moreover, the ministry will propose that the minimum 49% investment is allowed through the automatic route, without requiring time-consuming government approval, based on the argument that Indian-owned and controlled companies should not face undue scrutiny. We feel all the proposals indicate towards the expected faster process on the reforms front.

While this was the scenario on the domestic front, on the global front the S&P 500 snapped a four-session winning streak yesterday to end just shy of a third straight record closing high. The benchmark index had gained for four straight sessions as investors' appetite for equities has been buoyed by supportive US economic data recently and expectations of monetary easing by the European Central Bank. The Dow Jones industrial average fell 42.32 points or 0.25 %, to 16,633.18. The S&P 500 lost 2.13 points or 0.11%, to end at 1,909.78. The Nasdaq Composite dropped 11.99 points or 0.28%, to 4,225.08.

As for the Asian markets, the leading Asian indices fell, as investors weighed a worse-than-estimated drop in Japan’s retail sales before a report that’s expected to show the US economy contracted last quarter. Japan’s retail sales fell 13.7% in April from March, the most in at least 14 years after the first consumption-tax increase since 1997 depressed consumer spending. That was worse than a forecast 11.7% decline by analysts in a Bloomberg survey. As a result Nikkei is trading in red with loss of around 0.38%. Hang Seng and Shanghai Composite are trading in green with marginal gains.

SGX Nifty is trading in red with loss of 0.31% to trade at 7309. We are of the opinion that the Indian equities are likely to open a bit weak. However as it is expiry for the May 2014 F&O series, indices are likely to remain highly volatile.