Expect A Gap Down Opening

Preceding week was quite eventful for the Indian equity markets as the indices fluctuated on the news flow coming from the international well as domestic markets. While on Thursday while the Indian markets got pleasant surprise with US Fed extending the stimulus, the very next day there was crude shock for the Indian markets. Raghuram Rajan in his first mid quarter review increased the Repo rate by 25 basis points. The markets tanked significantly with the rate sensitive taking more than the broader market. The reason behind the hike in repo rate has been simple, the RBI feels headline inflation has been higher than the comfort levels and hence as a prime responsibility RBI wanted to focus on inflation.

While everyone on the street was quite surprised with RBI increasing the repo rate to 7.50 per cent, we were expecting an action on similar lines. But as they say the markets runs on expectations. With majority on the street expecting a status quo, the hike in repo Rates dented all the hopes of immediate bounce back of Indian markets in terms of GDP growth.  As expected the Indian markets witnessed a decline and almost washed away the gains Indian equities had enjoyed in the preceding trading session. On the domestic front there are hardly any triggers for the equity indices to bounce back on immediate basis. All the macro economic factors are only indicating towards the weakness.

As regards the global markets, like the Indian markets even the US markets lost some of the gains on Friday the indices had enjoyed on Thursday. The Dow closed in red with 1.20 % decline. Even the European markets witnessed weakness on Friday.

However the scenario in the China seems to be something different. The Shanghai index is up around 1 %. Chinese factory output expanded for a second month in September. A preliminary HSBC Holdings Plc and Markit Economics’ purchasing managers index rose to 51.2 after jumping the most since 2010 to 50.1 in August. We feel even the improvement in Chinese markets is a negative news for the Indian markets. As for the other leading Asian markets, the Japanese and Honk Kong markets are shut today on account of national holidays.

As for SGX Nifty, it is trading at 5973 witnessing a decline of more than 75 points. We are of the opinion that Indian markets are likely to remain under pressure as the profit booking would take place. Expect a gap down opening today.