A Volatile Day Ahead

Today’s markets remind us of what Gerald Loeb, a renowned Wall Street trades once said; “Stocks are bought on expectations, not facts”. The Indian markets for a long time now have been operating on expectations alone. Expectations of the government moving ahead on the reforms front, those of the Central Banker (RBI) cutting interest rates and all this culminating in a better financial performance of India Inc and thereby the markets. While these are only domestic factors, there are also a host of international worries that are weighing heavy; the impending ‘Fiscal Cliff’ and the Euro zone crisis are playing a major role in the behavior of the markets and will continue to do so at least in the near future.

The trading week could begin on a nervous note with the RBI slated to meet tomorrow for its policy review. Not much is expected from the RBI. Inflation numbers haven’t been very encouraging to expect the RBI to cut key interest rates. However, the Central Banker is known to throw surprises, and this could keep the markets volatile at least for today.

Asian markets have opened mixed with the Japanese Nikkei trading up almost by a percent and a half while the Shanghai Composite is currently trading up by almost half a percent. On the other hand, the Hang Seng and the Kospi are trading in the red. But the most important cue that could set the tone for todays trading is the SGX Nifty which is trading in the red (down 17 points). 

The government is strongly sticking to its stand of wanting to go ahead with reforms on a much larger scale. The disinvestment agenda has been well held up by none other than the Prime Minister himself. Chief Economic Advisor, Raghuram Rajan on the other hand has categorically stated that though the economy does not look to have decisively turned the corner, it is very less likely to go down from here on. This sounds encouraging.

Another factor that could help negate dullness are cues emerging from the advance tax numbers of India Inc. The advance tax paid by leading companies is showing an increasing trend on a YoY basis. Higher taxes equate higher profitability and this could bode well from India Inc’s performance point of view for the December quarter. Since the numbers have begun pouring in over the week end, the market could be looking at them closely.

Though these factors could lend a positive bias to the market, it is the RBI’s expected action tomorrow which will primarily drive the markets today.