Markets Remain Listless, Eye Q1 Results

The Indian equity markets remained flat in the week gone by, with the Sensex and Nifty closing higher by 0.96% and 0.34% respectively.

On a surprising note, the RBI has tightened the bank rates in the country. This time around, the apex bank has increased the bank rates by 200 basis points, which implies that short-term loans will get costly. The markets reacted negatively to this on July 16, and this is indicative of how the economy will suffer on account of this decision.

The government has been moving ahead with its reforms process, as it had promised. After a marathon meeting of Cabinet ministers chaired by the PM, it has decided to up the Foreign Direct Investment limit in the country. The sectors where the FDI cap has been relaxed include courier services, credit information entities, asset reconstruction companies, commodities and stock exchanges. More significantly, the limit has been raised to 100% and 49% in the telecom and insurance sectors respectively from the earlier 74% and 26%.

The government has also decided not to divert natural gas from the politically sensitive fertiliser sector to the fuel starved power sector. This development can have long-lasting repercussions on the Indian oil & gas sector. The Empowered Group of Ministers (EGoM), under the leadership of Defence Minister A K Antony, has decided to fully protect the supply of gas to the crucial agriculture-specific sector. This is being viewed as a cautious step taken in an election year.

On the global front, Federal Reserve Chairman Ben Bernanke has held the gaze of the world for a while now. His more than evident influence on the markets around the globe and the consistent vacillating between a ‘hawkish’ and ‘dovish’ stance has caused the indices to move sharply in both directions. Bernanke recently indicated that the Fed’s USD 85 billion per month bond-buying programme was ‘by no means on a preset course’. This has sent out a strong and optimistic (for the markets) signal that bond-buying could be curbed or extended depending on the economic climate.

The next trigger that the markets have in the near term is the Q1FY14 results, which that have already started trickling in. However, we believe that the overhang of the rupee will not leave the markets for a while yet.