A Nervous But Positive Beginning In The Offing

The markets began with a whimper but are all slated to close the week with a bang. Now, this bang could either see it zooming up or coming down with a thud. The reason? Well, the big daddy of IT, Infosys will announce its March quarter and FY13 results today. These are the first set of numbers for the March quarter and FY13 which have the capability of shaking up the markets on either side. You could actually say, the real results season begins today.

Anticipation and hope are two factors that can drive a lot in life. The markets have been driving on these two for quite some time now. There have been no triggers for it on the macro front. Newer worries have been emerging every now and then to turn the tide against the bulls who had gained some control towards the beginning of the year. In fact, matters are now getting worse with FIIs turning bearish on the markets. The flow of money from that important quarter is easing on concerns of political instability. The reforms process initiated by the UPA II with Chidambaram spearheading the action is slowly fizzling out. Translation of reforms into corporate action on the ground is a far cry away and this is being taken note of by the FIIs.

Another point to note is the way the US markets have been behaving. Frontline indices (The Dow and the S&P) have scaled life time highs and continue to rise. This would mean, money beginning to flow back in search of higher returns.

The US dollar has been strengthening against all major currencies and reports suggest that the Rupee is on its way to hitting a fresh low of as much as Rs 60 to a dollar by year end. Fears of India getting caught in the global currency war, particularly impacting the Asian region cannot be ruled out. All this does not particularly paint a rosy picture at least of the short run.

But, having said that, remember the downside to this market is fairly capped. You could see a 5 – 10 per cent drop from the current levels in the worst of the cases. Most of the negatives will get priced in at that level. From there on the move up could see the markets scaling good heights.

For now, economic data points from the US are keeping global markets on the move. The jobless data that came in yesterday has been at the core of the market rally not just in the US but also in Europe. Initial jobless claims are said to have declined by 42000 to 346000 last week. This number was expected to come in at around 360000. While the FTSE, the CAC and the DAX all ended in the green.

The US markets continue to be on a tear. The Dow and the S&P have scaled to new lifetime highs in yesterdays trade. This has been a surprising phenomenon. All the trouble began in the US way back in 2008. The country continues to struggle with its economic growth. it has just come out of it problems on the government fiscal front (or at least managed to brush it under the carpets for now) and yet their markets are doing well and scaling newer life time highs every passing day.

What is wrong with Indian fundamentals (apart from the finicky politicians) that turn investors so bearish? Why shouldn’t the Indian markets brush aside its worries and focus on the longer term prospects of the economy? These could well be a matter of a larger debate. For now, Asian markets have begun on a mixed note. Japan seems to have paused for a breather after a long drawn climb to the top. Other peer country markets are however trading well this morning except for Korea and Taiwan. China, Hong Kong, Indonesia and Malaysia are all up, though the strength of the rally today is slightly lesser as compared to what we have been accustomed to seeing.

So, where do we open and what happens in the Indian markets today? As mentioned earlier, all eyes will be on Infosys as it declares it results today. The markets will most probably open in a slightly greener zone and take cues from Infy results. Any divergence from what is expected could pull them down badly but even a speck of positive could see them zoom past crucial levels. Do not be in a hurry to take positions based on mass market expectations. Remember, Infy has a habit of surprising the markets on either side.