Geopolitics To Drive The Markets

Equity markets have many surprises for the investors and the way equity Indian soared yesterday, it was another example of the same. Benchmark indices gained over 1% each in yesterday’s trade on value buying in beaten down index heavyweights like ITC and HDFC. What was noticeable was, the total market turnover registered a new high at Rs 6.86 lakh crore, crossing its previous high figure of Rs 5.33 lakh crore it had touched on October 31, 2013. We feel the market was enthused by Finance Minister, Arun Jaitley’s statement that India needs to act ‘now’ to fix the health of its economy, which is facing a challenging time.  As a result with more value buying happening, the Sensex was up 338 points at 25,369and the Nifty gained 87 points to close at 7,580. Outperformance resumed in the broader markets with both the mid and smallcap indices up 1.6% each. Tracking positive global cues, the markets started on a strong note. The broad based buying pulled the markets to a day highs in noon deals. The Sensex hit a high of 25,414 and the Nifty was at its peak at 7,593 in today’s trade.

However the scenario is expected to a totally different toady as we are only one day short of June Month F&O expiry. Further the Geopolitical tensions are hovering over the minds of the Investors. What added to the worries is the delayed monsoon which may eventually end as a draught like situation. We have been consistently updating our readers about possible El Nino Impact and impact on Inflation.

While this is the story on the domestic front, the scenario is no different for the other global markets, where the Geopolitical factors have overshadowed improvement on the macroeconomic improvements. US Indices fell a second day, after equity benchmarks rose to record levels last week, as reports of escalating violence in the Middle East overshadowed data that boosted optimism in the world’s biggest economy. The Standard & Poor’s 500 Index lost 0.6 % to 1,949.98, erasing a morning gain of 0.3 percent. The Dow slid 119.13 points or 0.7 % to 16,818.13. The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 10 percent to 12.13. Experts suggest that, with the stock market at or near all-time highs and yet with the GDP and earnings growth a little on the sluggish side, that has people a little nervous. There is a lot of complacency and people are not worried about major downside because the Fed has their back, but they are nervous about a short-term pullback.

Even the Asian Indices are trading on a cautious note, as escalating violence in the Middle East sapped demand for riskier assets. Nikkei is trading in red with loss of 0.34% followed by Shanghai Composite down 0.25%. Other leading indices are also trading in red with marginal losses.

SGX Nifty is trading flat with Marginal gains of 2 points or 0.02%. We feel as markets are heading towards the June month F&O expiry tomorrow, volatility would increase.  We expect the Indian equities to open on a flattish note and then remain under selling pressure as witnessed in other global markets.