A Weak End To The Week In Sight

Disproportionate moves can be a killer. A big positive tends to take the market higher, but only to a limited extent, whereas, even slightly negative news tends to pull it down vigorously.  The market action over the past couple of days has been exactly like that. A broad sell off over Wednesday and Thursday has pulled down the broader markets by more than 3% with the Sensex having lost 531 points and the Nifty 173 points to close below critical psychological levels.

Are the markets over-reacting to the threat of an early election? Probably yes. Elections are anyways due next year and the outcome of those elections is kind of a foregone conclusion to some extent. So, will it not be a better idea for the markets to focus on its fundamentals? Meanwhile, economic reforms that were initiated by Chidambaram are presently moving at their own pace. An example of this is the partial decontrol of Sugar that happened yesterday. The move is likely to add Rs 5300 crore in subsidy burdens on the exchequer. Corporate performance report cards for the March quarter and FY13 will start coming in soon. That according to us should be a bigger trigger, than these frivolous threats of government destabilisation.

While the domestic market grapples with a situation of understanding why the selloff, overnight developments indicate a rather mixed sentiment for the markets today. On the European front, the ECB has decided to leave rates unchanged and so did the Bank of England. In fact the BoE left the targeted asset purchase program size at £375 billion at its monthly policy meeting held yesterday. But this did little good for European stocks. With Mario Draghi expressing fears that the Euro zone economy was staring at a deepening recession hit stocks took the down side in almost all European markets. The economic data points that are emerging from the European region too are conclusively pointing towards this. The services PMI numbers have been miserable for the month of March. While the Composite index came down to 46.5 from 47.9 in February that for France came down to 41.3 which is a multi-month low. The German Services PMI fell sharply to 50.9 from 54.7 in February and surprisingly the country that is supposed to be a problem – Italy saw a rise in the PMI to 45.5 from 43.6. But remember, any number below 50 indicates a contraction.

In the US domestic data was swept aside by the markets to take cues from Bank of Japans decision of unleashing easy money into the economy. Jobless claims in the US jumped to a four month high. However this had a minimal impact on stocks yesterday, as markets reacted more to Japan’s monetary policy move.

So, how does the day pan out for Asia? To begin with, it’s been a rather mixed start for markets here today. The Japanese markets look insane. They are up almost 4 per cent in early trades and continue to move in a unidirectional manner. The easy monetary policy announced by the Bank of Japan has put the markets on a new trajectory. The Nikkei has breached the 13,000 mark and is all set to move higher in the coming days. But barring Japan and to some extent Taiwan, all other Asian markets are in the red today. Hong Kong, Malaysia, Singapore and Korea are all down.

Overall global cues are quite confusing this morning. Indian markets are likely to remain nervous as the week draws to a close. It could open with a downward bias and trade like that throughout the day. Indices have cracked through the crucial 200 day moving averages and this could spell a further technical pull down. Even sentimentally there is nothing to cheer about. There is more glum in the air and this could see the markets wobble wildly with a negative bias today. Take a measured call without taking undue risk of keeping large positions open. The market could go any way as it stands today.