End Of A Relief Rally. A Negative Open In Sight

A volatile trading day saw the markets close with very nominal gains yesterday. The focus is now on larger macro and political developments happening in Delhi. The government has finally passed a very ambitious Food Security Bill in the Lok Sabha (the nod of the Rajya Sabha is expected to come in too) paving an outlay of almost Rs 1,25.,000 crore for the exchequer. How well does this bode for the economics of the nation, is a fairly debatable issue. Is there enough of money with the government to subsidise food at this stage? How much of pressure will the additional subsidy create on the fiscal deficit? Will the government be able to contain the fiscal deficit to around 4.8% of GDP? A whole lot of questions need to be answered in the light of this development. But the government will probably sweep aside those vital questions in the light of the fast approaching elections.

Meanwhile, in a bid to put growth back on track the government fast tracked as many as 36 stalled infrastructure projects which also include 28 power projects with investments to the tune of Rs 1,56,000 crore. This is slated to give the beleaguered power sector a major push as projects in the waiting will now begin moving ahead.

Talking of our most important problem; the rupee slid another 100 paise to close above Rs 64 to a dollar mark on month end demand from exporters. The RBI has been aggressively stepping in to contain rupees’ slide by stepping up its dollar sales. This is one factor that will continue to keep the markets in a volatile state for at least some time in the future.

On the global front, every piece of economic data in the US is being watched very closely. Markets across the globe have been curious about the sustainability of US growth numbers which will decide the Feds’ bond buying taper policy. European stocks ended rather insipid following an uncertain sentiment in yesterdays’ trades.

Meanwhile, in the US the Syrian chapter is worrying the markets with the government stepping in to hold that nation accountable for the chemical attack that killed many. The markets reacted to these calls and ended in the red yesterday. The possible flare up between the US and Syria in case a military action is initiated by the latter is holding market breadth.

Asian markets are not looking good this morning either. Except for China and Korea all other markets are trading negative. Indonesia and Malaysia are among the worst performers, closely followed by Singapore, Japan, Taiwan and Hong Kong.  The US-Syria tussle is being looked upon as a cause of concern in this region too. The SGX Nifty is looking very weak this morning. It is currently trading down by 46 points indicating a possible pressure on the Indian markets for today.

So where do we begin the day? Well, hard core economics comes into play in determining today’s market action. The additional subsidy burden which comes along with the Food Security Bill will certainly weigh on the markets’ mind. The markets are likely to open in the negative and continue trading with a negative bias for today following a shaky sentiment which comes with overnight political developments.