7th Consecutive Fall Today? Doesn't Look Like.

After six consecutive days of decline on the Indian markets, investors are bound to be extremely cautious. Global macroeconomic trends, domestic political uncertainty and expectations out of the monetary policy have been keeping markets extremely volatile. Globally the mood has been uncertain, root cause being Cyprus. However, latest developments have been positive and are indicative of a good beginning this week.

Reports have been indicative of Cyprus reaching a deal with the ECB (European Central Bank), the European Commission and the IMF (International Monetary Fund), collectively known as the Troika, to secure 10 billion euros. This deal would include steps like the closure of Cyprus’ second largest lender, Popular Bank of Cyprus. Deposits from this bank would be moved to the largest bank, Bank of Cyprus. Deposits holding over 100000 euros would be frozen and used to pay debts. It was also separately reported that a 40% tax would be imposed on these deposits.

This development has panned out before the Monday night funding deadline that was set by the ECB last week. This prospective deal has turned out to be a big positive for the global markets, which had been lingering in high amounts of uncertainty.

With the news of this deal flowing in, US index futures and oil prices advanced. Asia has been amazingly positive post this development. The Nikkei, Hang Seng and Shanghai Composite are trading higher by 1.46%, 0.70% and 0.29% respectively. Australia and South Korea too are trading higher by 0.65% and 1.51% respectively.

Domestically, Finance Minister P Chidambaram said that limits for FII investments in corporate bonds and long-term infrastructure bonds will be merged effective from April 1, 2013. According to media reports, the key decisions announced by the FM are that the limits on FII fungibility for securities is going to be USD 25 billion and the limits for long-term securities as well as old securities will be merged. On corporate and long-term infrastructure bonds, the three different limits that are currently in use will now be merged into one limit of USD 51 billion. This move comes in as a step towards boosting economic growth and bridging the current account deficit.

Another development had the Oil Ministry declaring its policy on shale gas exploration in the next 10 to 15 days. The policy is to be based on launching the first shale gas block auction by the end of 2013.

Although these developments have been taking place domestically, markets are expected to remain extremely volatile because the week will see two trading holidays and option expiry. Markets are likely to show drastic movements and investors are advised to be cautious. As of today however, a positive note can be expected due to global developments.