Cyprus + (UPA – DMK) = Bad Day

The situation is bad internationally and domestically. The markets tumbled yesterday due to these issues, falling by about 1.5%. Internationally the mood was no different and the trend continued to have a negative bias. Developments on the Cyprus bailout front and political instability domestically resulted in a terrible trading session. Today is expected to have a negative bias as well. However, not as much as yesterday.

The much-awaited and looked-at debate and voting on the Cyprus bailout plan took place yesterday. The parliament was to vote on whether to allow the unprecedented and highly controversial levy on bank deposits of citizens. This proposal was rejected in yesterday’s voting. This development has proliferated the amount of uncertainty with regards to what will happen next. The voting definitely puts a big doubt on the bailout of Cyprus and thus increases the probability of a default. The worst-case-scenario – the nation’s exit from the Euro-zone and a threat to the unified currency.

Yesterday was eagerly awaited by the street due to the monetary policy review. As expected, the RBI delivered 25 basis points cut in the repo rate. However, it warned about the limit of monetary easing in the future. Although this was expected to take centre-stage and decide the trend for the Indian markets, unexpected political movement had the markets turning extremely negative.

The major trigger came about when DMK pulled out of the UPA alliance. This led to a heavy-sell off in equities, completely sidelining any other form of stimuli. The markets ended the day with a massive negative bias. The Sensex closed at 19008.10, down by 285.10 points or 1.48% and the Nifty lower by 89.30 points or 1.53% at 5745.95.

Due to the sour mood internationally and domestically, we expect a negative opening for today. However, losses won’t be to the extend we saw yesterday.