The confusion in the minds of the Indian market participants will continue on the lines of what happened yesterday. The rupee will in all probability open weaker and slide further today. Most would like to wait and watch what happens on the geopolitical front. Tapering and the US Fed will for now remain on the sidelines. The bias for today remains on the negative side with benchmarks likely to slide for the second straight day amidst the noise of mortar and shells emanating on the far shores of Iraq.
The internal conflict in Iraq is worsening and that surely isn’t good news for us. After pretending to ignore the noise around it, Indian markets slipped on oil concerns yesterday. Benchmark indices were down almost a per cent at close following further escalation of the terror strife in that region. Crude remains the main concern and with the militants attacking Iraq’s largest oil refinery the worry about supply shortages becomes even more acute. That clearly means higher crude prices in international markets and of course a disruption of the economic improvement in the Indian context to some extent. The sooner this strife comes to end the better it would be for us.
Global intervention is yet not clear on the Iraqi front. Its neighbours are looking to step in with military assistance to help with the ‘ethnic cleansing’, which can restore normalcy to the chaos. The US which a few years ago was fighting in the region a battle to form a government is now facing prospects of battling the militants to save that government. The cost of war is humungous and with the US economy on the improving bend, it is unlikely that the USA may readily step in to Iraqi territory once again. Also, with the US now less dependent on external sources for its energy needs, will have a limited personal agenda to come to the rescue of Iraq. In these circumstances, the strife could go on for days together with the result of crude getting dearer.
The Indian economy surely seems to be on the verge of getting hurt. The new government has been moving fast to ensure that a mis-managed economy is put back on its feet and can at the least start walking if not running. Ministries are at work and talks of revamping, re-looking and in some cases even changing legislation passed by its predecessors is on the cards. Some of it are welcome moves.
Transport Minister, Nitin Gadkari has been reported to have hinted at changing the Land Acquisition Act passed by the UPA 2 Government last year. The amendments sought to be made are expected to help kick start held up road projects worth Rs 60000 crore. The amount is quite a big one and infrastructure development will surely get a big boost if that happens. From ensuring easy environmental clearances to spelling out its roadmap to curb inflation, the Government has been making all the right noises over the past one month since it assumed power.
Just when the markets were gearing up for the next big leap, Iraq happened and put the onward journey in a limbo. How much ever one may want to ignore it, the simple ground reality is that, we do import crude and the rising price of it will certainly hurt the economy. As suggested yesterday, the negating factor (Iraq conflict) currently has a higher weightage than the positive factors (government actions and their expected results). Domestic macros too sending out mixed signals.
All this clearly indicates that the markets are going to remain in a confused state of mind. On the global front, western markets are conveniently downplaying the Iraq factor for now. US markets cheered the Federal Reserve’s assessment of the US economy which has hinted at a robust recovery there. The Fed has further curtailed its bond buying exercise by another 10 billion USD. European markets too danced to the US tune and traded higher yesterday. In the US the Dow rose more than half a percent yesterday while the S&P 500 was up by a good 0.77%. The Nasdaq Composite ended the day 0.60% higher than its preceding close.
On the Asian front, its been a mixed opening to the day so far. China, Indonesia, Singapore and Korea are trading down while all others are in the green. Except for China and Japan where benchmarks have assumed a decisive direction, all others are dithering on the brink. That brings out the confused state of mind of the markets. There is a lot to read in the behavior of the western markets, particularly the US. It apparently seems like they are unmindful of what is happening in Iraq. On the other hand, Asian markets are getting more and more confused and hence volatile.
The confusion in the minds of the Indian market participants will continue on the lines of what happened yesterday. The rupee will in all probability open weaker and slide further today. Most would like to wait and watch what happens on the geopolitical front. Tapering and the US Fed will for now remain on the sidelines. The bias for today remains on the negative side with benchmarks likely to slide for the second straight day amidst the noise of mortar and shells emanating on the far shores of Iraq.
