A Buoyant Day In The Offing

As expected, yesterday, so to say, turned out to be a rather mellow day for the markets. Both the Sensex and the Nifty ended with rather normalized gains. But if you look at movement of the indices you will certainly notice the volatile nature of the move, which throws open the uncertainty surrounding the markets. The point that we are trying to make here, is also visible in the spread of the market as determined by the Advance-Decline ratio.

There is always going to be some factor which will move the market on either side. So, on a day when ‘cobraposts’ and higher trade deficits will pull it down, on some other, lower inflation numbers will help it up. Though it is all a matter of sentiment, there is a difference in the impact that these factors have on the markets. The types of ‘cobraposts’ will always be short term hiccups for the markets while something more fundamental and macro like inflation coming down will have a larger impact.

So the next few days will obviously revolve around what to expect as a result of the lower inflation numbers that have come out yesterday. Overall inflation is down to 4.89% while core inflation has dropped to 2.8%. According to reports, an across-the-board drop in food, fuel and manufactured goods costs has resulted in the easing of inflation. Food inflation is down to its lowest level since January 2012 to 6.1% while fuel inflation came in at 8.8%, despite rising diesel prices.

What will all this translate into? Well, as the very famous hindi adage goes ‘the world survives on expectations’. So now on, expectations will start building up. Talks of a cut in interest rates will begin gathering steam until the RBI meets up in the month of June. With this will come in calculations of how lower interest costs will translate into a better operating environment for corporate Indian and obviously the markets as usual will love to ride on this positivity at least for some time to come. So far, looks so good. But as we always say, the markets will always have a way of surprising you on either side. While all this points to a fairly modest day for the markets today it is certainly important to look at international cues too.

There is no better example of how irrational markets can behave at times than what is happening in Europe at the moment. European stocks are reported to have climbed to multi-year highs. Yesterday was a good day for the markets out there which took cues from an improving sentiment in the US markets. Greece the birthplace of all the trouble is reportedly being upgraded by ratings agencies. This will certainly add to the buoyancy of the markets not just in Europe but possibly everywhere. Meanwhile, US stocks continued with their dream run. They hit a new record on Tuesday riding on the improving economic scenario.

Taking cues from all these developments overnight, Asian markets have opened on a very strong note this morning. Except for Korea, all other markets are trading in the green.  Japan, Singapore, China, Hong Kong, Indonesia and Malaysia are all upbeat and are expected to remain so for the remainder of the day as the overnight pointers from the Western markets have been favourable.

So what should you expect from the Indian markets? Global cues are in a good stead and with inflation falling back into the RBIs comfort zone, the markets are sure to respond well to expectations of a rate cut and eventually a better economic growth scenario. You could see a fairly decent open and a strong move in the markets today. Most of the frontline companies are out with their results so the worry of any mishap on that front is almost behind us. Of course the Tata group companies are yet to announce their results, but not much of a divergence from expectations is expected from them. For now, look at the lower inflation numbers and position yourself for a good trading ahead today.