Global weakness is likely to weigh on the Indian markets today. The week will probably close with another volatile session, though the bias will remain largely positive for today. Markets may behave contrary to expectations and see some upward move but the real ‘Budget Rally’ could start unfolding only with the start of a fresh week. Play the upside with a little bit of caution as sudden dips following global developments cannot be ruled out.
A volatile week is about to end. The markets have seen a rollercoaster ride throughout the whole of past trading week, which had begun quite apprehensively following the Iraq crisis. Fundamentally, there is nothing on the domestic front that could have disturbed the markets at least in the short term. The global geopolitical scene has however turned out to be a big worry, not just for India but to the whole of Asia.
Excluding Malaysia almost every country in the Asian region is a net oil importer. Fears of a shortage in crude supply have sent prices soaring up. Even if one were to assume that the current prices are well within a tolerable range, it would definitely not take much time for them to spiral out of hand on further escalation of the strife in Iraq. That has come in a big way to hit the market sentiment, at least in the Indian context, sending benchmark indices on a downward bend.
The F&O expiry is anyways a time of added volatility and yesterday wasn’t any different. But, the point worth noting in yesterday’s expiry is that the rollovers have been on a higher side. That lends a lot of strength to the ‘positive bias’ theory for the markets. Traders have reportedly carried forward more number of contracts to the July series than they had done for the June series. This is a definitely bullish signal. 71.4% of the Nifty Futures contracts were rolled over as against an average 58% that has happened over the past three months.
Though Iraq has been a major disturbing factor for the markets, the positives are far more in favour of a rising trend. The very first and big trigger is the expectations from the forthcoming budget. To be announced on the 10th of July, there is a lot of hope on developmental policy announcements which can help actuate growth. While betting on the markets based purely on hope could be detrimental, there is more that adds conviction to that hope.
The RBI in its Financial Stability Report that comes out twice a year has categorically pointed towards better days ahead. It believes, a stable government at the centre signals the end of bad days for the economy. Now that is a big vote of confidence for the new dispensation. Of course, it has placed its caveat by warning about the supply side constraints which need to be removed if inflation and hence interest rates have to come down.
There is a mixed set of factors working right now. Newly appointed ministers, under the supervision and guidance of the Prime Minister are trying their best to establish the difference in the working of the new government vis-à-vis the UPA 2 regime. From simplified environment clearances to talks about modifying the land acquisition bill and from opening up FDI in various sectors to doing away with retrospective taxation, the talk is all positive and bodes well for the market sentiment. The test of how much of this is for real will be held soon. The budget is just a fortnight away and that will clearly spell out the future course that governance and growth will take.
For now, the market has a lot of mixed signals to focus on. While the domestic front is all bubbling with budget expectations (mostly on the positive side), globally, the scene is quite a volatile one. US stocks ended the day down yesterday following some ‘hawkish’ comments from a Federal Reserve official on the interest rate front. The Dow was down 0.13% from its previous close while the S&P 500 declined 0.12%. The Nasdaq fell marginally. Europe, as usual, was run over by the comment too. Markets there floundered to close on the lower side.
Asian markets are largely following their western counterparts today. Except for Hong Kong all others are trading negative. Japan is down more than half a percent while China too is facing the same amount of weakness. Indonesia, Malaysia, Singapore and Korea are down an average quarter percent as of now, while Taiwan is trading on the borderlines.
Global weakness is likely to weigh on the Indian markets today. The week will probably close with another volatile session, though the bias will remain largely positive for today. Markets may behave contrary to expectations and see some upward move but the real ‘Budget Rally’ could start unfolding only with the start of a fresh week. Play the upside with a little bit of caution as sudden dips following global developments cannot be ruled out.
