Weak Global Cues To Take Indices Lower

Equity markets are all about expectations as it is the forward estimates that drive the markets. And the macroeconomic factors like Inflation data CPI (Consumer Price Index) and industrial manufacturing data are followed by the investors very closely. On Friday the IIP data for the month of July 2014 was announced along with CPI numbers. If we take a look at the IIP data, with new Government in the place the industrial production was expected to pick up some pace. However the numbers for the July month are quite disappointing at just 0.50% as against the 1.20-1.50% of street expectations.

If w analyses the numbers the consumer durables declined by 20.9% as against the Decline of 23.40% posted in June 2014 and growth of 3.20% growth posted in May 2014. Event the growth in electricity was slower than expected as the growth was 11.7% against the 15.7% in June 2014. The biggest disappointment was capital god which declined around 3.8% as against 23% growth posted in June and 4.5% posted in May 2014.

Another important factor was inflation which for the month of August stood at 7.80% as against the 7.96% posted in July 2014. We feel contraction in inflation is good news for the Indian equity markets. We feel this would guide the RBI at its meet at the end of September to take some dovish stance. While this was the story about CPI, the WPI numbers would be announced today. Street estimates suggest that the WPI for the month of August to be at 4.1% to 4.3%. Though the numbers look good as WPI inflation is contracting, one needs to understand that higher base is a prime factor behind the same.

As for Global markets, US Markets closed in red. While Dow closed in red with decline of 61 points (Down 0.36%), the S&P 500 was down 2 points (Down 0.60%). Ahead of the FOMC meet this week we feel the US markets are likely to remain under pressure. Fed will announce its policy on September 17th.

As regards the Asian markets, taking the cues from weak US market closing and below than estimates macroeconomic data from China, Asian indices are almost trading on a flat note.  Reuters reported that, Asian stocks stumbled to a five-week low on Monday after a batch of disappointing data out of China raised the specter of a sharp slowdown in the world's second-biggest economy. Data released on Saturday showed China's factory output grew at the weakest pace in nearly six years in August 2014, while growth in other key sectors also cooled. Experts suggest that, this confirms a slowdown in growth momentum in Q3 following the Q2 rebound.

Weakness is clearly seen with most of the equity indices witnessing flattish trade. Hang Seng is down more than 1% and Shanghai Composite is also down by 0.13%. Other indices like Jakarta Composite, Straits Times and Taiwan markets are also trading in red. SGX Nifty is also trading in Red with decline of 0.70%. We feel Indian equities today to open on weak note. Weak IIP number and weak global cues is likely to weigh on markets.