EARNINGS SEASON TO CREATE MARKET VOLATILITY

For the last couple of weeks, government officials announced various domestic economic data which created good volatility in the markets. The Index of Industrial Production (IIP) for February 2015 grew at a robust 5 per cent. However, there are little positives to cheer for the market as the IIP for February 2014 contracted at -2 per cent. The robust numbers for the latest IIP number was predominantly due to a low base effect. However, the good IIP numbers can be taken as indication of a further improvement of IIP numbers for the coming months as the government has initiated steps for boosting economic growth and the efforts will now start yielding rewards. Further, almost all banks started easing the lending rate by 25 basis points. We can definitely expect some credit pick-up and on the ground infrastructural growth should intensify in the next few months.

The deflationary situation over Indian economy persisted for straight five months as the Wholesale Price Index (WPI) for March 2015 fell to a record low of – 2.33 per cent against – 2.06 per cent in February. If you compare the WPI with last year’s reading, the reduction magnitude is considerable as the WPI for February 2014 was at 6 per cent. The consistent deflation for the last five months gives sufficient space for the RBI to cut the policy rates.

This has been further complimented by the Consumer Price Index (CPI) for March 2015 which was at 5.17 per cent against 5.37 per cent in February 2015. The easing in CPI inflation during the latest month was predominantly because of easing in food prices. However, the RBI governor is wise enough for not getting influenced by easing of the inflation readings in the current month as the expected higher food inflation due to unseasonal rainfall in the recent past has not been factored in the latest readings. Hence, the RBI will take quite a good time to cut further policy rates in the coming days.

On the global front, the European Central Bank (ECB) was expected to announce its policy. However, ECB was expected to continue its quantitative easing. Further, the Greece debt crisis still remained unresolved, influencing and creating volatility across global markets. The crude oil showed some ‘bounce back’ on the demand upgrade in 2015 by the International Energy Association. The Chinese economy posted a six-year low GDP growth rate during last week. The International Monetary Fund too upgraded India’s GDP growth and announced that India outperformed as compared to Chinese economy in FY2015-16. Though the long-term picture is rosy, the upcoming earnings season will create good amount of volatility in the domestic markets.