Bad Vibes: Expect a Flat to Negative Open

The biggest of all political dramas of recent times is to unfold today. Though the results of the Gujarat elections are a fairly foregone conclusion with Narendra Modi all set for a third consecutive term as Chief Minister of the state, you never know how tables turn on the political scene. The results are expected to set the tone for the 2014 Lok Sabha elections and hence will be keenly watched by one and all. The market obviously will take cues from these developments today. Meanwhile, yesterday wasn’t particularly as eventful as was expected to be.

Overnight developments in the US over the Fiscal Cliff are worrying. Just as everybody was beginning to believe that the stalemate between the Republicans and Democrats had ended and that a solution to managing the ‘fiscal cliff’ problem could come soon, last night saw a change in the situation. The Republicans have been talking about passing a resolution that is significantly different in its tone than what was being talked about in the negotiations between the two parties. Voices against each other (Obama Vs Boehner) have been quite loud last night sending the US markets on a downward spiral after having scaled new heights over last week’s development there.

These developments already seem to be weighing on Asian markets today. Japan has been trading significantly lower. While the pull back of the US markets are primarily exerting their pressures, the monetary policy of the central bank to be announced today is another reason why Japanese stocks are trending lower today.  Following suit are other major Asian markets including Singapore, China, Hong Kong and Korea. The opening for the Indian markets will be in line with this.

You can expect a flat to negative open for the markets today. Though things have been pretty decent on the domestic front, international cues aren’t good for today. The SGX Nifty began with trading in the green but has slipped down (currently trading marginally in the red).  Though election results are likely to add some tinge positivity to the markets as we progress into the day, the outcome looks to be already priced in.

As the day progresses, European markets are expected to fall, in line with what has happened in the US and the way Asian markets are panning out. This could create some kind of a downward pressure on the Indian markets too. The pre-noon session may take some direction from the noise of the Gujarat election results while the European markets will then set the trend for the remaining part of the day.

All in all, expect a volatile trading day today with a limited upside. Caution will be the word on the street. This was already visible in trading yesterday, when contrary to expectations, the market, after opening with a good gap up, remained flat for most part of the day.