A Cautious But Modestly Positive Open

A new week comes with a new set of expectations. From a volatile market that we witnessed last week, will this week be different? Have the worries that plagued us last week all over and done with? Will the markets focus on something more fundamental and get back to a normal life? Questions abound, but answers allude. From the ever increasing current account deficit (CAD), to the rapidly declining rupee and from fears of the Fed tapering its bond buying exercise, to the US government readying to attack Syria factors internal and external to the economy have been hitting the markets left, right and center over the past month or so.

Where do we stand on the various worrying factors as of now? The government is going all out to seek stability for the rupee. From seeking to buy gold from consumers and providing the same to refiners to shutting petrol pumps for a definite period of time during the day, every possible measure is being tried to curb foreign exchange outflow and enhance inflow into the country. Overall economic growth obviously has bore the brunt of the macro developments and is showing in the numbers that have been released over the weekend.

While the worries were too much, the markets slowly got over some of them towards the end of last week. Benchmark indices came back to close in the green over the week end and the rupee recovered quite smartly rising almost 4%, thanks to some measures initiated by the RBI. But remember, the main factor that helped markets up over the weekend was the fear of a US attack on Syria simmering down considerably.

The week kicks off with some important economic data points being released. Many of these released since this morning seem to be in favour of the markets. South Korea has seen a lower inflation than was expected. Its Consumer Price Inflation was up 0.3% on a month-on-month basis, against an expected 0.4%, while the same on a Year-on-Year basis was up 1.3% against an expected 1.5%. Japanese capital spending has remained the same against an expected contraction of 2%. In more encouraging developments the HSBC Manufacturing PMI has come in at 47.50 against the previous reading of 47.20, while that for China stood at 50.1, a level similar to what was clocked in the initial estimates but certainly better than the 47.7 it recorded during the month of July.

All this has seen Asian markets open mixed this morning. While China and Taiwan are trading on the borders and could go any way, most others are trading in the green. Korea, Singapore, Japan and Hong Kong are trading positive, but with a caution. Indonesia and Malaysia are two geographies which are witnessing a down pressure this morning. Indonesia awaits its economic data to be released shortly while overall, geopolitical fears are probably making the markets feel jittery.

One hour into todays trading will see the release of the HSBC Markit Manufacturing PMI for India. Expected to come in at 49.90 against a previous reading of 50.10, this piece of data will keep the markets on its toes at least in the first hour of trade. Though the week has ended on a fairly good note, trying to recover its early losses, we go into the new week with a lot of caution. The SGX Nifty a key pointer to the Indian markets is trading up, and looks like the Indian markets will track their Asian peers to open in the green this morning. However, the rupee will continue to drive the markets in a big way and the US-Syria standoff will be keenly watched. A repeat of what we have been saying – be careful before playing big bets.