A Soft Open And A Nervous Day Ahead

It was a day most would love to forget. Yesterday the markets witnessed their worst fall since May 2012 with the Sensex tanking by more than 430 points while the Nifty gave up a humungous 130 points. What caused the fall? While the blame squarely falls on the trade data that came in which saw the deficit widen further, RBIs action against large private banks is also being seen as having spooked the markets yesterday. Of course, then you also have the US Federal Reserve and its likely action of squeezing liquidity as one of the reasons for the markets to fall. While all this may technically seem to be correct, let’s not lose sight of one basic parameter. There ought to be some correction and consolidation when markets rise in a secular manner.

A couple of market reports have been an aside to the normal wisdom when it comes to understanding yesterdays fall. ITC has been the single largest propellant of the Sensex over the recent past. This is also true of a couple of other stocks including the HDFC group companies (HDFC Bank and HDFC). The given circumstances that the market is in, it is natural for investors to look at the best profit booking opportunities in counters that have run up quite well. This is what exactly seems to have happened yesterday. ITC cracked, and, it did so severely right from the beginning session putting a solid downward pressure on the markets in general and the frontline indices in particular. In a situation like that, all you need is a small reason for the markets to go downhill without brakes. That reason came in the form of the trade data yesterday.

Well, if the US Federal Reserve action of ‘mapping out a strategy to wind down the monthly $85-billion bond-buying programme’ is to be blamed for yesterday’s carnage, what do you make of the US markets behavior on the same evening? The US markets were almost unchanged with the S&P 500, in fact, managing to end slightly higher. Earlier in the day, European stocks came down from their 2013 highs after a four day consistently rising streak. The European markets were reportedly reacting to some economic data points emerging from China. Well, as far as Europe is concerned, markets there look to be reacting to anything and everything outside of Europe. One reason for this could be, there is nothing worth discounting about that region per se for the markets.

So how has the day begun? On the Asian front, except for China all other markets are trading in the green. At present, except for Hong Kong, none of the markets seem to be showing conclusive strength in trading. Japan is marginally up and so are other markets including Indonesia, Malaysia, Singapore, Korea and Taiwan. The SGX Nifty is trading in the green too and this leads us to believe that the Indian markets too could open with a positive bias today. It could probably see a very tight trade range after yesterday’s broader fall. The results are yet pouring in but the action is again moving towards macro cues. You could see a rather nervous trading day today.