Weak Global Cues Add To The Woes

It was another weak session for the Indian equity markets yesterday as weak global cues resulted in majority of the equity indices witnessing a decline. Continuing its southward journey, Sensex closed with a loss of 296 points, down 1.1% at 26347 while Nifty ended down by 93 points or 1.2% at 7852. It was likely possibility of slowdown in China and weak macro economic data from Germany (Industrial output) that Resulted in such a weak movement of Indian benchmark indices. Already there has been pressure on the global markets about possible hike in interest rates by US Government earlier that the expectations of streets. It was no wonder that the indices witnessed a broad based selling and even the Mid Cap and Small Cap indices declined by 0.8% and 0.9%.

One of the major concerns right now has been consistent selling by the FIIs. As stated in on e of our earlier morning calls, we had stated that the FII buying in the month of September was lowest in the past seven months. Experts are of the view that the selling may continue going ahead as well. Slower than expected rate of reforms by the BJP Government has been one of the reasons of FIIs getting worried about the growth prospects.

However the IMF report suggests something else as it has increased the growth expectations for India and reduced the expected global growth rate. Just to put the figures in perspective, IMF reduced the growth rate expectation for 2014 to 3.4 % and for 2015 it is being reduced to 3.8%. Possible weaker performance of Japan, Europe and Latin American countries is seen as a reason behind the cut in growth rates. However the IMF increased the growth rates for India for FY15 to 5.6% as against the interim levels of 5.4% made in July 2014. For FY16 the GDP growth rate is pegged at 6.4%.

According to the IMF report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating. The reports also suggested that, the IMF warning comes three months after the Fed said prices were stretched in some small-cap and biotechnology shares.

It was no wonder that the US stocks witnessed a southward movement, with the S&P 500 declining to a nine-week low. The S&P 500 declined by 1.5 % to 1935.01. Reports also suggested that thus slide was the biggest in almost three weeks. The Dow also declined and lost 274.64 points, or 1.6 %, to 16,717.27, the biggest retreat since July 31.

Taking the cues from US markets the Asian indices are also trading weak with Nikkei declining more than 1.45%. Hang Seng Which Showed some signs of recovery yesterday is also trading in red with loss of 0.77%. Owing to weak PMI Manufacturing and Services data the Shanghai Composite is also down 0.25%. SGX Nifty is also trading in red with decline of 0.35%.

We are of the opinion that Indian equity indices are likely to witness a weak opening today. Rather we would not be surprised to see a gap down opening. However one can expect range bound movement in early hours of trade.