Further Consolidation Ahead Of FOMC Meet

Equity indices were expected to slide yesterday and similar movement occurred also. Amid volatile trading session, markets have ended marginally lower as the Wholesale Price Index (WPI) accelerated unexpectedly. Already the geopolitical reason had affected the sentiments and the increase in WPI resulted in additional worries. With added concerns, the S&P BSE Sensex was lower by 37 points or 0.15% at 25,190 while the CNX Nifty declined 16 points or 0.22 % at 7,525.

Meanwhile, what surprised everyone was broader markets outperformed the benchmark indices as BSE Mid cap and Small cap indices surged 0.35% and 0.31% respectively. With geopolitical reasons playing on the minds of the investors, even we had expected the mid cap and small cap indices to witness decline. The overall market at the BSE was weak with 1,573 declines and 1,377 advances.

The wholesale price index (WPI)-based inflation rose a five-month high of 6.01% in May against 5.2% in the previous month, driven by costlier protein-based items, fuel and some manufactured products. The data, released officially today, presents a complex picture before the government and the Reserve Bank of India as its consumer price index-counterpart had eased to a three-month low.

The rupee hit 60.23 in trade on Monday, its lowest level since May 6, after government data showed wholesale price inflation surged to a five-month high. At 14.25 p.m., the rupee was at 60.10 versus its close of 59.76/77 on Friday.

Crude oil futures rose 0.74% to Rs 6,431 per barrel yesterday as speculators enlarged positions on a firming trend in the Asian region and surged to a nine-month high due to Iraq violence. We attribute the rise in crude futures to a firming trend in Asian trade as investors kept a wary eye on the worsening crisis in Iraq, where insurgents were advancing on the capital Baghdad.

As for the US Markets, U.S. stocks rose, after equities posted their first weekly drop in a month, as corporate deals and growth in American manufacturing overshadowed escalating tension in Iraq. The Standard & Poor’s 500 rose 0.1 percent to 1,937.78 after fluctuating between gains and losses throughout the session. The Dow Jones Industrial Average added 5.27 points, or less than 0.1 percent, to 16,781.01. The International Monetary Fund foresees the U.S. economy growing a modest 2 percent this year, below its previous estimate of 2.7 percent. That would be nearly identical to the economy's 1.9 percent growth in 2013. For the Fed, the forecast means, policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets. There was however good data on macro front, The New York Fed’s Empire manufacturing report rose to 19.28, exceeding the average estimate of 15 in a Bloomberg survey of economists, a separate report indicated. As for data points, FOMC meet is scheduled today and it is expected to cut the bond buying by another USD 10 billion.  

With positive cues on US manufacturing data front, the Asian markets are also trading on positive note. Nikkei is trading with gains of 0.61 % followed by Taiwan and KOSPI with Marginal gains. However Hang Seng and Shanghai Composite are trading in red with half a percentage points losses.

For Indian equities we feel consolidation would be the right word today. Indian equities have witnessed a good amount of up-move in past one month. Hence profit booking may happen in some of the trading sessions in near future. Further the FII inflows are actually declining. Though not negative, slower inflow is also affecting the Indian equities. SGX Nifty is trading with marginal loss of 13 points (down 0.17%). Hence we expect consolidation to continue in Indian equities along with a negative bias.