El- Nino – A Cause Of Worry

Indian equities consolidated in the preceding week as profit booking kept the indices under check. Factors like delayed monsoon and geopolitical tensions played over the minds of investors. The benchmark Sensex on Friday rose 0.15 per cent or 37.25 points, to end at 25,099.92, notching up a weekly fall of 0.02 per cent. The Nifty rose 0.21 per cent, or 15.60 points, to end at 7,508.80, closing above the psychologically important 7,500 level and marking a decline of 0.03 per cent for the week.

If we look at the market movement, we feel that the market sentiments turned better on broad-based buying by funds and retail investors after crude oil prices in the global markets eased and beginning of new settlement of July series in the derivatives segment. However, there are two factors that may affect the markets that are poor monsoons and prolonged Iraq problems.

As on the monsoon Front, the country had received 41 per cent less June rainfall than normal - the scantiest in a decade and one of the rarest occasions when the shortfall in the month was more than 30 per cent - private weather forecaster Skymet said in its daily weather forecast in preceding week.

Even as the southwest monsoon continued to remain sluggish over many parts of central and western India, Skymet said "The month of June has been the driest in India in a decade." According to the India Meteorological Department (IMD), of the 36 meteorological subdivisions, the rainfall in the month was excessive in five, normal in six, deficient in 11 and scanty in 14 subdivisions. However, a ray of hope was seen in the official weather forecaster's expectation of a monsoon revival from July 6. What is also bolstering this hope is that the fear of the El Niño phenomenon, which could have caused a major drop in southwest monsoon, is showing signs of waning.

However, the adverse effect of a low rainfall in June and its long absence in many parts of India are also becoming apparent. Data from the department of agriculture showed kharif crops were sown on 13.15 million hectares till June 27, which was 34.55 per cent less than the area covered in the corresponding period last year. Worse, the area covered during the period this year was around 13 per cent less than normal acreage - the average of the past five years.

With tensions in Iraq there were few spurts in the Oil prices. However Brent crude oil settled at USD 113.30 a barrel, up 0.1 % on the day but down 1.4 % on the week for its worst week in a month as fighting in Iraq stayed away from the country's south, where most of its oil is produced.

US stocks erased early losses to close up on Friday but still finished the week lower on mixed economic data, while European equities had their first weekly drop since April on worries over Iraq and Ukraine. The dollar fell a quarter % against a basket of major currencies for a second week of losses. The S&P 500 finished in striking distance of the intraday record high it hit on Tuesday. But some held their breath in the prelude to the earnings period that will start in the next two weeks, which will provide clues on whether the economy and profits are both picking up. For the week, the Dow fell 0.6 % and the S&P 500 dipped 0.1 %. The NASDAQ added 0.7 % for its sixth weekly rise in the past seven. The 10-year benchmark yield was at 2.5340 %, after hitting a low of 2.507 % earlier in the day. Europe's main stock indicator, the FTSEurofirst300 settled at 1,371.28, flat on the day, but down 1.7 % for its first weekly loss in 10 weeks. The MSCI world stocks gauge was at 428.10, up 0.2 % on the day but down 0.3 % on the week.

Asian indices are Showing mixed trends with Nikkei trading in red with loss of 0.20% and even Straits Times is trading in red, down 0.24%. However Shanghai Composite and Hang Seng are trading in green with gains of 0.27% and 0.32% respectively.

SGX Nifty is trading in green with gains of 0.17%. With this many cues, Indian equities are likely to open on a flattish note and then remain range bound in the first hour of trade.