Pain To Persist In Short Term

With a surprise rate cut by 50 basis points by the reserve bank governor, the domestic market showed good gains. The domestic markets bullishness also was supported by the global bullishness. In fact, European markets gave positive reaction after one of the worst run up in last four years. European markets were also in a kind of feast during last couple of week as all major indices showed appreciation with FTSE 100 leading the rally with 6.52 per cent followed by CAC 40, and DAX that jumped by 6.35, and 5.47 per cent respectively. US markets was also inspired by the all around positivity as some sort of consolidation is happening in major indices across the globe. In fact this appreciation was equally powerful as was the decline during last few trading session. Crucial Dow Jones industrial average jacked up by 6.31 per cent, while, S&P 100 and Nasdaq appreciated by 6.32 per cent each.

After US Federal Reserve unchanged its policy rates and continuous weak macroeconomic data, the rate hike by Fed seems to be vanishing in CY2015 and the Indian market gave big gains after delaying expected foreign institutional investors’ outflow. However, the Volkswagen emission scam in US remains overhang for the markets and expected to impart negative sentiments till the issue gets more clarity. On domestic front also, the corporate earnings declared till date by leading IT companies is not encouraging. The BSE IT index already has already corrected by 5 per cent during last couple of weeks.  According to report by Thomson Reuters, the revenues of India's top companies are expected to fall 8.2 per cent in the July-September quarter, the biggest decline in at least four years. The worsening in quarterly results will definitely lead market correction in coming days.

Meanwhile, manufacturing and inflation data released during the last week. According to the official data released, the Index of Industrial Production (IIP) for the month of August came in above street expectations at 6.4 per cent and compared to 0.5 per cent growth a year ago same month. The cumulative growth for the period April-August 2015-16 over the corresponding period of the previous year stands at 4.1 per cent. The main contributors to the growth were Manufacturing and Capital Goods sectors. The Consumer Price Index (CPI) inflation for September reported 4.41 per cent, much higher than the 3.66 per cent recorded in the month of August. The wholesale price index (WPI), which tracks inflation at the wholesale inflation, came  at -4.54 per cent on yearly basis, improving from -4.95 per cent in August. It is in the negative zone since November.

Interestingly, positive news for India is that EY’s annual 'Attractiveness Survey - India 2015' revealed India being most attractive market this year by 32 per cent respondents. Though this is definitely positive for longer term, the short term for India is full of negatives. In domestic market investors are disappointed with the political stalemate on reform process, weak monsoon, and expected worsening of corporate earnings season. We also feel nervousness will remain in the market for near future.