A Bad Day In The Offing. Brace For A Negative Open

The big triggers finally start coming in from hereon. With the Railway Budget slated to be announced today, all eyes and ears will now be tuned in to what comes up in it. In fact it could be a precursor to what can be expected on Thursday. Meanwhile, yesterday panned out exactly as was expected, a positive open, followed by a limited upside. In fact markets were seen trading in the red for most part of the day and closed marginally up at end. The reaction to new banking license norms wasn’t much as the markets have already been factoring this for quite some time now.

There seems to be a worry on the way the mid- and small-cap spaces have been trading. A host of reasons ranging from margin calls on a big speculator to pledging of shares and a sell off triggered by the HNI segment have been doing the rounds of the markets. It could well be one of those, or rather plainly a preparatory sell off ahead of the budget. The next two days stand to be very crucial at least from the markets short to medium term future.

Europe as well as the world was watching Italy very closely. An inconclusive result in Italy has sparked off fears of a fresh round of ‘political instability’ in the European region. This had the American markets reeling under pressure in yesterday’s trade. Earlier in the day, European markets were seen trading stronger hoping Berlusconi and his centre-right allies would probably not make it, and that, Pier Luigi Bersani’s center-left alliance would in all probability win both, the lower and upper houses. But that was not all which did in the US markets yesterday. They have anyways been reeling under ‘sequestration’ pressures for some time now. The Dow saw its worst day for this year yesterday.

How have Asian markets reacted so far? There seems to be blood all over the streets this morning. Markets across Asia have opened in the red and are seen trading down. The Italian effect combined with the overnight US sell off have seen Asian markets do what was naturally expected. There is not one market in Asia which is showing any kind of strength today. The Japanese Nikkei was seen trading down by almost a percent and a half followed by Hong Kong and China. Singapore, Korea and Taiwan too have been badly hit in the aftermath of the European mess and the US conundrum.

In these circumstances, what can you expect from the Indian markets today? Italy seems to be a bane for India in some form or the other. The Italian connection has anyways been haunting us for quite some time now – you surely know about the chopper deal which has had political circles in a tangle recently. So today, it will be the turn of its political mess to come and hit our markets.

In line with what is happening on the global front, it does not take any rocket science to tell you where the markets are headed today. It could be anything between bad to worse, further depending on what the Railway Minster does announce in his Budget. Any negative (hike in freights) could see the already nervous markets slide like there is no bottom. Be prepared for a good dose of volatility throughout the day. From a stock specific approach, the game now changes to macro triggers. The sentiment has already weakened following global developments. It is rather sensible to remain on the fences and be prepared to jump either side depending on how the markets pan out rather than go all out and take a bet based on current developments and expected outcomes.