Markets To Open Flat And Trade With A Negative Bias

After a rather flat ending on Tuesday, the markets open today after a gap of a day following a public holiday yesterday. What will be the broader direction of the markets today? Well, we are almost a fortnight into the results season and as you would have been taking cues, it hasn’t really panned out to be a good one. In fact it has been more or less in line with expectations, with some nasty surprises on the down side. Infosys killed whatever hopes that had being built around corporate India’s March quarter performance and some of its peers actually aggravated the situation further. However, the banking sector seems to be coming up with some good set of numbers, especially in the private banking space. But as said earlier, corporate India’s performance for the March quarter has more or less been discounted by the market. Nothing great was expected of it and negative surprises will trigger a sell off as happened in the case of Infosys.

Extraneous factors have been creating a lot of pressure on the markets of late. What we really mean by extraneous is the government and its woes. The Prime Minister’s Economic Advisory Council (PMEAC) has estimated in the Economic Review for 201-13 that the economy will grow at 6.4 per cent in 2013-14 against 5 per cent that it did last year. According to C Rangarajan, Chairman PMEAC, “The economy has bottomed out and there is a possibility of achieving 7 per cent growth”. Well we would really want to believe these estimates and all the big talk about what is required to remove the bottlenecks which include fast-tracking project clearances, bringing down the current account deficit, managing the capital account, improving the power scenario, containing inflation and ushering in agricultural reforms by improving the marketing and supply chains there. But, how much of this is really doable is anybody’s bet.

The markets may read into some positives that this report brings to the fore.  But the situation on ground does not really look like allowing the government to do what it intends to. The government is in a solid spot following the BJP’s stepping up of its demand for the PMs Resignation for his alleged role in the Coal Block allocations. The house panel has ruled all coal block allocations since 1993 as illegal. But the larger worry for the UPA comes from CAG’s bashing of the Centre as well as the States for corruption in the ambitious NREGS which has been the UPAs pet favourite. These are some very obvious factors to which the markets will probably cling in order to seek direction. Hope is, they get resolved faster than expected and the intent as spelt out by the PMEAC finds its ground to change the fortunes of the economy.

Meanwhile, hopes of yet another rate cut by the European Central Bank at its meeting to be held next week have fuelled a rally in European stocks yesterday. This particularly followed a slide in German business confidence as measured by the Ifo business-climate index. The Index reportedly fell to 104.4 points in the month of April from 106.7 in March, a second consecutive month of decline. Some good corporate results for the March quarter also helped in adding to the positive sentiment in that region.

The US markets on the other hand ended flat yesterday taking cues from some leading corporate results. The Dow was pulled down by selling pressures in P&G and AT&T in particular. The S&P on the other hand ended where it had begun the day.

Asian markets have opened quite mixed this morning. The greens are lagging in strength and the reds are moderately stronger. Japan is just about keeping its head above water while Taiwan, Singapore, Malaysia, Indonesia and China are all in the red. Korea, led by its better than expected economic growth and Hong Kong are the only markets which are presently trading in the green. Overall there is a completely negative trading bias which is being witnessed in the Asian markets this morning.

What does all this mean for the Indian markets? You could see a flat opening to the market today with a bearish strain on it. Will good banking company results prop them up? Well, they could, but the problem is, there seems to be an overall gloom in the air following the political instability that has been rocking the markets for quite some time now. Just a couple of good results could mean nothing to the markets in the light of what is weighing them down. As the week nears a close, it is better to be stock specific and ride the ones which have a potential to hold up irrespective of the noise that surrounds the broader market.