Global Markets Lower by More Than 1%. Will Nifty Follow?

The Indian markets today are expected to see a negative opening considering a thumbs down in the global sentiment. The markets all over the world have tumbled by more than 1 per cent overnight as investors got increasingly worried over the fiscal cliff in the U.S. and due to concerns over Europe. The American elections had caused a great deal of uncertainty in the markets and had led to low volume trading with a directional movement that was not firm. The markets were expected to be definite with regards to direction once the outcome of the American presidential elections was out.

The outcome of the U.S. presidential elections has been in favour of Barack Obama being re-elected and securing a second term as president. In congressional elections, Republicans maintained control of the House of Representatives while the Democrats retained control of the Senate. Attention has now turned to the more than USD 600 billion in tax raises and spending cuts that would come into effect in January unless lawmakers reach a budget deal. Post election, ratings agency Fitch said that the U.S. must fix its fiscal issues in order to maintain the country’s AAA credit rating.

At the same time, Europe too saw some negative sentiment seeping through and adding downward pressure to the markets. The European Commission said that the Eurozone economy would expand by a mere 0.1 per cent in 2013. This has been a downward revision of an earlier forecast of 1 per cent growth. Moreover, European Central Bank President Mario Draghi said that the Eurozone debt crisis is beginning to have an impact on Germany which has so far been insulated from tough times faced by its neighbouring economies.

With these factors in play, the Dow, S&P and Nasdaq were seen closing lower by 2.36 per cent, 2.34 per cent and 2.49 per cent respectively. The European equities too saw heavy selling with the FTSE, DAX and CAC ending the day down by 1.58 per cent, 1.96 per cent and 1.97 per cent respectively. Following these global trends, the Asian indices too opened on a negative note and the Hang Seng, Nikkei and Shanghai Composite are currently trading lower by 1.31 per cent, 0.97 per cent and 0.94 per cent respectively. Considering these factors which have been led to by a very foul global sentiment, we expect the Indian markets too to start the day on a significantly lower note.

Yesterday, however, the Indian markets continued the soft opening and lacklustre trading trend that they had been following from the beginning of the week. This trend was expected to discontinue shortly after yesterday’s opening as a result of the election outcome to be declared. With some rigidity on the political outlook in the U.S., the Indian markets saw a sudden rise. The Sensex ended the day higher by 85.03 points at 18,902.41, up by 0.45 per cent and the Nifty ended the day higher by 35.70 points at 5,760.10, up by 0.62 per cent.

The rupee yesterday saw some strengthening, recovering from a month and a half low. The U.S. election outcome resulted in a boost in risky assets globally, thus causing an appreciation. Gold and oil too extended gains on Wednesday due to additional security perceived by the markets on the provision of monetary stimulus which carried a lower probability if Mitt Romney had come into the picture. Though the rupee, gold and oil have seen gains, the equity markets are expected to witness downward pressure today.