A Negative Open But A Flat Day Ahead

The worst thing about the markets is, when you wait for triggers with great hope and they turn out to be diametrically opposite to your expectations. A slowdown in industrial growth continues unabated and this obviously isn’t a good sign for the markets. According to the data released yesterday, the Index of Industrial Production (IIP) registered a decline of 2.2% in the month of June over the corresponding period last year. But not all is bad. Retail inflation has shown some signs of easing out at 9.64% in the month of July against 9.87% in June. So, how does all this augur for the markets today?

The IIP numbers are well below what was expected (-1.2%). To add to this, there is the usual revision of the numbers for earlier months. The decline in the IIP for the month of May 2013 has been reported to be revised to 2.8% from the earlier declared 1.6%. This is a mystery of a kind. How can the revised number be almost double of what was announced earlier? A 100% margin of error in an economic factor is just too much to digest. However, that could be a matter of discussion and debate for another instance. Right now, the numbers announced after market hours yesterday could mean some really nervous trading for today.

How are global factors looking this morning? Not bad, one should say, considering that European markets closed the beginning of the week at almost a two-month high. Good economic data points emerging from both the European and the Chinese region are reportedly keeping markets there in an upbeat mood. But there is more to come this week including the GDP data for the Euro zone which could provide some real shape to the European markets’ future.

US markets were mixed yesterday with the Dow closing slightly in the red but the technology laden Nasdaq managing to keeping its head up. Fears of the Fed tapering off its bond buying have submerged to a good extent and this leads us to believe that there no major shocks in the near to medium term at least from that front.

Near to home, the Asian markets have opened strongly and continue to trade so. Except for China (which too is only marginally down) all other markets are trading decisively in the green. The main kickoff to a positive start came in from Japan where Prime Minister Abe was seen talking about a cut in corporate tax rates. All frontline Asian markets including Taiwan, Korea, Indonesia and Malaysia are trading well in the green with an average rise of half a percent from their yesterday’s close. Singapore is hovering around a quarter percent up and the SGX Nifty is currently trading up by 8 points.

All factors put together point to a very tight situation for the Indian markets today. While on one hand the domestic data points (IIP numbers) have been really disappointing, on the other, global cues are pointing towards a fairly calmer day ahead. It could be a negative opening which is reactive to the lower IIP numbers, but a flattish day of trades based on the overall global scenario.

The corporate result season is on in full swing. It hasn’t really been a good quarter so to say for India Inc. worries remain and these are visible in the IIP numbers as well. There is nothing which can conclusively help in changing the course of the markets right now. We would rather preach caution at this point in time without getting into any kind of adventurous trades.