The Pain Is Yet Not Done

There is a huge difference between ‘not being good’ and ‘actually being bad’. This became very clear in yesterday’s market move. As one would refer to it in market parlance, the street continued to bleed profusely for the second consecutive trading day, following up Friday’s sell off with another one on Monday. So while we started off the day by saying it does not look particularly good, it actually turned out to be peculiarly bad for the markets. Rs 3.80 lakh crore worth of investors’ wealth erosion over two trading sessions is by no means a small amount. But such market behavior should not come as a surprise, considering the macro developments around it.

No matter what regulators and policy makers try their hand at, the rupee just does not seem to get over its relentless fall. It hit an all time low of more than Rs 63 to a dollar yesterday. Meanwhile, there are other factors which point toward acute pain at least in the near term for the economy and in turn the markets. Though a downgrade isn’t in the offing (as was being suggested from certain quarters), the economy certainly is not in the best of its health. In fact, the condition of the economy, and more so, the rupee, seems to be rather precarious. A whole lot of the markets conditions today are being seen as a result of the weaker currency. Of course there are other factors too which aren’t really good and a sluggish economic growth is principally the main among them.

While economic growth returning back to its earlier trajectory remains a distant dream for now, what is more important is that all efforts being made to stabilize the rupee are going down the drain. While so much is happening on the domestic front, one would expect at least the international scenario to improve. But there too, improvement in the economic conditions in the US has led to a new conundrum. Fears of the Fed pulling back on bond buying to support the economy have come back to haunt global markets.

The first evidence of this comes from the European markets which ended Monday on a negative note. With no major triggers on the domestic front, markets in Europe took cues from the US and slid on fears that the bond buying would taper off sooner than later. In the US itself, markets ended in the red for the fourth straight session with the Dow Jones Industrial Average and the S&P 500 declining on rising bond yields. Rising yields mean higher interest rates, which in turn suggest slower economic activity. This piece of information is quite critical in the Indian context. Higher interest rates in the US have been one of the prime reasons why there has been a higher outflow of dollars from here.

Following up on yesterday’s trading action and with the rising US bond yields playing heavy on their minds, Asian markets have begun mixed today. However, the positives are far lower than the negatives. While Taiwan, Korea and China are trading mildly positive, Japan Indonesia, Hong Kong and Malaysia are on the mildly losing side. Singapore is down by more than quarter of a percent and the SGX Nifty is trading lower by 60 odd points.

So, where do we see the Indian markets open today? There have been numerous instances in the past too where depicting the markets on a particular day does not look very challenging. Today could be one of those days. The weaker sentiment could follow the markets into the third straight trading session today. The rupee is not yet done with its fall with many voicing more pain for it in the time to come. The government has been trying its bit, but the measures seem to be too little too late of a kind. All in all it could be yet another day of a negative open and sluggish or rather a bearish day of trades for the markets.