Political Forces May Drive The Indian Markets

The Indian markets yesterday followed a tight range throughout the day, ending negative due to political uncertainty and the lack of positive global cues to add strength to the markets. The global markets too were trading in the red due to concerns over China, Japanese trade data and the rise in oil prices seen during the week. There have been changes on the domestic front with no apparent threat to the government due to opposition. Moreover, the government came out with a notification to get the retail FDI rolling. Globally, there was significant amount of data released in the U.S. and every reading had a mixed story to tell.

Yesterday, the Sensex closed lower by 146.76 points at 18349.25, down by 0.79 per cent and the Nifty closed lower by 45.80 points at 5554.25, down by 0.82 per cent.

Due to mixed cues on the global front and tons of data indicating different trends, the recovery picture seems far from clear. While a day of easing announcements in Japan brings cheers among investors, trade data released on the following day manages to spoil the mood and consolidates for all the gains. Indications of a slowdown in China though are becoming increasingly evident with the release of various figures. Data from the U.S. led to the Dow higher and S&PO and Nasdaq lower.

Initial jobless claims dropped by 3,000 to 382,000 in the week ended 15 September 2012, lower than expectations, but the average of new claims over the past month rose by 2,000 to 377,750, which is at the peak since June. The leading-economic index declined by 0.1 per cent in August while its long term trend remained positive, up by 0.3 per cent for March to August. The Philadelphia Federal Reserve Index of business conditions has been negative for the 5th consecutive month though, in September it rose to -1.9 from -7 in August.

Europe was lower yesterday with the HSBC preliminary composite eurozone Purchasing Managers’ Index (PMI) for September dropping to 45.9 from 46.3 in August. This is the lowest reading since mid-2009 and has raised concerns over the euro situation. While the services PMI fell from 47.2 to 46, manufacturing rose from 45.1 to 46.

Oil which fell by approximately 3.5 per cent on Wednesday due to comments from an unnamed Saudi Arabian official and due to data on U.S. supplies, gained some strength yesterday. After touching the 107 mark, energy and resources companies started to heavily weigh global indices down. Yesterday, crude gained about 0.41 per cent to reach USD 110.48 bbl.

On the domestic front, while the opposition had called for a nationwide bandh yesterday to display disagreement with the government’s moves on diesel prices, LPG subsidies and retail FDI, the Departmnet of Industrial Policy and Promotion (DIPP) issued a press note giving effect to its decision to allow 51 per cent FDI in retail. This move marked that the fact that the government won’t be wavering in its decision due to opposition. Moreover, the cabinet meeting schedule on Tuesday, a decision is to be taken on reducing subsidies on public distribution system (PDS) sugar for consumers below the poverty line. This move too is likely to face opposition as the centre wants states to bear the burden. Also, according to media reports the government may hike FDI in insurance from 26 per cent to 49 per cent in the cabinet meeting on Tuesday.

Action on the domestic front is likely to waive sentiments of political uncertainty for the day, giving markets a boost.