Market Mood Likely To Be Flat

The Indian markets yesterday were range-bound throughout the trading session and closed flat by the end of the day. The Sensex closed 40.73 points higher at 16,918.08, up by 0.24 per cent while the Nifty closed 10.25 points higher at 5,128.2, up by 0.20 per cent. All the major indices over the world closed in the red yesterday and the Indian markets were the only ones that ended higher, though the movement was not significant.

The U.S. markets yesterday dropped in the range of 0.82 per cent and 0.94 per cent. This was partly due to the results announced by Apple which were below expectations. This has been a result of an overall slump in demand. Even the gross margins of the company have been drastically lower than earlier. This made the stock price of Apple decline by as much as 5 per cent post the results announcement. All the companies that are dependent on Europe for a chunk of their earnings have faced the slowdown in figures. This includes majors like Canon, Samsung and Sony among others.

The other reasons for a decline in markets worldwide have been fresh concerns over Europe. Signals from Greece in terms of implementation have not been showing positive signs which will lead to Europe being negative for the present. Greece’s creditors met to assess if the country has strayed from its bailout terms and by how far. The need for Greece’s further debt restructuring inflamed European worries further. This, coupled with the ongoing Spanish blues, has been resulting in declines all over.

The Asian markets saw a decline in stock prices for the fourth consecutive day yesterday. Though China was slightly optimistic due to the flash PMI figures, it would eventually boil down to negatives in the market because at the end the manufacturing output is still contracting. Today the Hang Seng, Nikkei and the Shanghai Composite have opened in the negative by 0.75 per cent, 1.24 per cent and 0.26 per cent respectively.

Japan posted a trade surplus in the month of June and this has surprised investors. The primary reason has been the fall in oil prices. After the tsunami in Japan, its nuclear reactors were closed and the import of petrochemical products doubled for Japan in the fiscal. Moreover, the country’s exports have been hard hit because of the currency appreciation seen lately due to investors considering the yen as a safe haven relative to other assets. However, fears of a slowdown in China have been drastically affecting the Japanese markets. China is Japan’s largest trading partner and the Nikkei has been dragged down because of the negative Chinese sentiment yesterday and today.

Meanwhile, fresh concerns in Europe have again started to add downward pressure on oil prices. Oil dropped further to USD 102.95 per barrel. On the currency front, the rupee is expected to witness further depreciation due to policy inaction. This has been reflected in the future currency prices as well. On the domestic front, monsoon fears are deepening as delays in showers have not been covered up for as expected. The chairman of the Commission of Agricultural Costs and Prices said yesterday that the monsoon may fail and the government has to act now in terms of saving food and implementing contingency plans in a potentially drought situation. This will definitely add to the worries of investors and will be reflected in the market movements.

In line with the government’s plans to boost foreign investments, yesterday 14 FDI proposals worth Rs 1,584.11 crore were cleared. These included majors like Abhijeet Power, Bajaj Finserv, CLSA, etc. CLSA, for example, has a plan for the induction of foreign equity to carry on the business of process outsourcing services for clients, both domestic and offshore. Also, 15 proposals were deferred due to various reasons. The government rejected Zara Holdings’ offer for retailing the brand ‘Massimo Dutti’. According to media reports, the FIPB rejected the proposal citing violation of a rule framed by the Department of Industrial Policy and Promotion (DIPP) under which an investor must own the brand it proposes to bring to India. The government also announced that it is working on a master plan to improve the investment climate in India.

It has been reported that a major IT outsourcing deal contested by Indian and foreign IT companies has been won by IBM. Media reports say that the size of the deal was close to USD 1.5 billion. The 10-year deal, which was for the Mexican cement major Cemex, was of significance to Indian IT companies as contracts of this size are seldom seen in markets these days. Deals have been fragmented lately and been sourced to multiple vendors.

The markets today are again expected to be flat to negative because of no improvement in the European situation which has been creating a global impact. Moreover, the domestic worries include monsoon’s performance and eventual inflation. The FDI approvals might bring in little support in terms of upward trends but the overall mood is just not set for an upward swing.