Markets Functioning On Words Not Actions

The markets opened higher because of global cues acting on the Indian markets. The Sensex was higher by 250 points minutes after opening. The small cap and mid cap indices though were weaker as compared to the Sensex with them trading higher by 0.8 per cent and 1 per cent respectively with the Sensex opening 1.5 per cent higher. Moreover, the rupee opened at 55.52 per dollar boosting the markets to recover losses from yesterday.

The Sensex and Nifty are currently trading higher by 1.34 per cent and 1.49 per cent respectively. The Sensex is currently trading higher by 223.38 points while the Nifty is trading higher by 75.1 points. The Asian markets had opened positive today and have seen a further rise making it the second day of appreciation. The Hang Seng, Nikkei and Shaghai Composite are currently trading higher by 1.88 per cent, 1.23 per cent and 0.09 per cent. The Japanese market has also been higher although data from the economy has been slower and has been showing signs of growth cooling down. Retail sales and consumer prices have seen a reduction but Draghi’s comments have been pushing markets higher more than 1 per cent.

Mario Draghi’s comments have certainly boosted markets worldwide reflecting high returns on equity markets and bond yields for Spain and Italy dropping more than 6 per cent to fall below the dreadful 7 per cent mark thus providing some ease to investors. But all this has done to Indian markets is, given it a quick spike and over reaction. The sustainability of this spike is highly unpredictable. The time frame of the upward movement can either be only for today or for the initial days of next week.

Overreactions have been ruling the behaviour of markets over today and yesterday, both seeing polarised changes. What should really be driving markets are visible changes in underlying factors and not words about the probable changes. The same happened when Manmohan Singh came into the picture and loaded the markets with a series of positive reinforcing announcements. The inaction that followed on the policy front slowly started acting up and cutting off the gains seen. Whether this time the trend repeats is difficult to say considering the gravity of the European situation and signs of action in terms of speculation over giving the ESM a banking license among others.

What would really make the market move is the RBI meet next week coupled with the ECB, BoE and Fed meetings scheduled within 24 hours of each other next week. These are the kind of moves that would define market movements.

ICICI Bank, the country’s largest private sector lender was seen trading more than 4 per cent higher before the company announces the Q1 FY13 results later today. Other gainers trading above 4 per cent higher are Tata Motors, Sterlite Industries and Tata Steel.

As said earlier, it is difficult to estimate the time frame of the sustainability of this rise but looking at the markets movement sticking above gains of 200 points, the trend may last through the day.