ECB's Action Would Help Markets To Open Higher

The Indian markets may open on a positive note with cues from the other global markets. The SGX Nifty is trading up by 48 points at 5,318, indicating a positive start for the markets today.

The much-awaited event of the European Central Bank meet yesterday finally led to some positive outcome. According to a Reuters’ report, ECB’s president Mario Draghi, backing up his promise to do whatever it takes to defend the euro, announced a new and potentially unlimited bond-buying programme aimed at lowering the painfully high borrowing costs for stressed member states. The announcement resulted in most of the global markets to shoot up by almost 2 per cent.

Overnight, the U.S. markets closed higher as the American stocks rallied to close at multi-year highs. Major indices like S&P and Nasdaq closed higher by more than 2 per cent while Dow ended the day by gaining just under 2 per cent. Further, as per a Reuters’ report, the overall sentiment was also boosted by stronger-than-expected data on the U.S. services sector and the labour market, which was especially notable ahead of Friday’s non-farm August payrolls’ report. The European markets also zoomed higher with the FTSE closing higher by 2.07 per cent while the CAC and DAX closed higher by almost 3 per cent.

Reacting to the same, the Asian markets also moved higher with major indices like Hang Seng and Nikkei trading higher by 1.45 and 1.47 per cent respectively. The Chinese index Shanghai is trading higher by 0.54 per cent. According to media reports, there was a sharp matching of offshore gains overnight after the ECB unveiled its expansive bond-buying plan and the U.S. data painted an upbeat employment picture.  

Back home, the RBI’s deputy governor K C Chakrabarty said that the massive bond-buying programme announced by the ECB could boost capital flows into the country and help cover the huge current account deficit while on the flip side the move could also jack up the commodity prices. It would be tough to assess the quantum of the fresh round of bond purchase as it is not spelt out clearly but the estimates vary from 750 billion to 1.5 trillion euros.

Meanwhile, a fuel price hike is imminent and sources claim that the government may allow oil marketing companies to go ahead with a petrol price hike of Rs 5 per litre in the next 24 to 48 hours. We at Dalal Street Investment Journal believe that this would again help inflation to move higher, which in July had showed some kind of moderation.

The depreciating rupee continues to be a major headwind above the Indian economy and is currently trading at 55.9735 against a dollar. Further, from the low of USD 89 per barrel Brent crude has again started moving northwards and is currently trading at USD 113 per barrel, which is again not a good sign for the economy.

We expect the markets to remain volatile with a positive bias in today’s trade and our advice to investors is step ahead with caution.