A Flat And Cautious Beginning Ahead Of GDP Numbers

The RBI finally managed to bring in some positive correction through its actions. Its decision to lend dollars to oil firms, which guzzle a huge amount of foreign exchange every month came in as a major breather for the rupee and in turn the markets. While the rupee strengthened more than 3% the markets too found their way up; the Sensex having risen by more than 400 points and the Nifty close to 125 points.

So, finally all seems to be coming back to rationally normal positions? Or is it a mirage? Has the rupee really changed course and so have the markets? It’s probably too early to think so. What one needs to check if we really are reversing course would be the CAD and other macro factors which in the first place have perpetrated such a fall of the rupee and consequently the markets.

Today is probably one of the most important days from that perspective. GDP numbers for the first quarter are to be announced today. The estimates for this set of data are not really encouraging. According to reports Bank of America – Merrill Lynch in its report on India equity strategy expects the economy to clock a 4% growth. Other estimates have peg economic growth to come in between 4.5 – 5%. These numbers certainly do not qualify to be called anywhere near to comfortable.

The RBI on its part continues to announce measures it intends to take in order to help the rupee recover. In its latest, the central banker is reportedly eyeing buying gold from ordinary citizens and diverting it to precious metal refiners through commercial banks in order to take off some pressure off the rupee. Well, ambitious and radical as they call it. But will it succeed? Why will the ordinary citizen who stocks up on gold for personal use in most cases be willing to sell his holding and that too, to the government? Also, will the government be paying market rates and follow the basic principles of demand supply led pricing while buying gold from the citizens? There are a lot of questions to be answered before this measure yields results.

Coming back to the markets, European markets rose to close the day on a positive note yesterday. After a three day fall, markets there took a breather with fears of an attack on Syria receding. In a late night development, the UK parliament has summarily rejected taking part in the Syria attacks which considerably brings down the fear of a larger escalation of the matter. In a sentiment driven market that the European region currently is in, this is a development which will help it to some extent.

Global markets seem to have come to terms with the tapering talk. At least that is what yesterdays market action, both in Europe, as well as the US, is suggesting. The US economy reportedly grew at a much faster pace in the second quarter than was expected. GDP grew at 2.5% in the second quarter against 1.7% which was the ‘initial reading’.  Focus is now gradually shifting towards growth with fears of a bond buying taper coming off sharply.

Asian markets are trading mixed this morning. Japan, opened positive but has slid back to trade half a percent down from its earlier close. Taiwan and Korea are carrying their previous day’s momentum into trading today. Both are up close to half a percent each. Indonesia, Hong Kong, China and Singapore are trading negative; all except Singapore down a quarter percent until now. in Singapore the Straits Times is down half a percent while the SGX Nifty is trading marginally down (4 points).

Where does all this lead the Indian markets today? Indications are, the markets will open on a flattish note this morning. Of course, all will depend on what the currency does. A sharply wobbling currency could turn the tables for the markets from being flattish to moving on either side. Overall, a calmer expiry yesterday does not warrant too much of worry for the open today. The most important factor to look out for is the GDP numbers. A wayward move from what is being predicted in that piece of data could spoil the day in a big way. Stay cautious.