A Disastrous End To The Week Is Staring At Us

Just minutes before the Finance Minster was about to rise and present his budget yesterday, Shankar Sharma the perennial bear made a very interesting statement. He had a point to make. According to him the exercise of a pre-budget analysis was a completely unwarranted activity. You can only speculate on what could probably come out and not conclusively predict anything.  The Budget that was presented by P Chidambaram for FY14 put a stamp of correctness on what Sharma said. While the whole nation was speculating about what the FM could announce, the actual Budget turned out to be completely different from what was expected. Expectations were trashed beyond limits yesterday. Neither was it a populist budget nor did he announce anything that could conclusively be held to in favour of prudent financial management. No wonder, many termed it as a boring budget while many called it insipid and bland. Whatever it was, it did more damage than help the markets.

The markets reacted, and reacted badly. The Sensex tanked almost 300 points while the Nifty was down a massive 100 points. The reason really was not want of positive provisions, but rather the magnitude of what is on offer. Of course the devil that lies in the detail will come out over the course of the next week or so. I would not like to get into the details. For that you would do better by reading the extensive analysis that has been put up on the website. For now the fact remains that the markets have gone into a tailspin and will probably see a terrible day even today.

While the domestic scene is marred by a rather boring uneventful budget, on the global front too the news isn’t as good. Sequestration or automatic cuts in government spending kick in from today in the US. These have already begun hurting the market sentiment not just there but globally. But the pull is very clearly between sequestration and the loose monetary policy that has been put into effect. For now the latter seems to be helping the markets to some extent. Europe particularly has been tracking the US economic happenings very closely. With Ben Bernanke, head of the US Fed, and Mario Draghi, head of the European Central Bank coming very clear about how monetary stimulus is actually playing out a positive role in keeping the economies rolling, markets in both the US and the Europe have fairly arrested their declines. In fact Europe earlier in the day had closed in the positive while the US markets in overnight trading ended their day with some losses.

Asian markets have begun the end of the week on a mixed note. The bias however is clearly on the negative side. While Taiwan, Korea, Malaysia and Indonesia are trading in the green, the larger ones which really matter are witnessing a downtrend. Singapore, Japan, Hong Kong and China are all trading in the negative. The only consolation out there is that the degree of the fall today isn’t very acute.

Back home, while the FM has failed to deliver as expected, there is one more very important data point which will come to haunt the markets today. Released post-market hours, the GDP growth for the December quarter has come in at 4.5 per cent against an expected 4.8 per cent. For the markets which are already reading too much into the budget, this piece of data will act as an extra burden to cope with today. There no iota of doubt that we are bound to see a negative open and a downwardly biased trading throughout the day. Overall, it could well be a disastrous end to the week.