It’s Red

Just a couple of days ago, markets were trading in an upward range indicating a bullishness never seen in last few years. The gains however looked hollow as the strength was only sentiment driven and not the structural one. The domestic business environment is slowing; Inflation is inching higher plus an election year meaning a status quo on policies. The things now seem to be coming back to the originality where the markets were looking for some structural gains. We believe that the short term party is now over and that the investors would now look for reasons that why a stock should command a particular valuation.

The global markets too have become volatile even though the FOMC outlook was in their favor. As September FOMC meeting did not say anything on tapering, the markets are sensing that Fed would most likely start tapering the QE this year itself, so the risk of liquidity is not yet over completely, and it will never be so as QE has to go sometime in future. After all an economy cannot take such supports for long time, it has to walk alone if it wants to grow.

Another reason is that the markets have become concerned of the weak recovery in the US markets which may take more time to come back to the glorious path. The sluggish recovery means a slow growth in the exports of the other countries.

Yesterday the manufacturing PMI data in US and Europe came in below the expectations. Europe’s Manufacturing PMI was at 51.1, still indicating an expansion but the reading was tad below the earlier level that led to the volatility in the European markets. Even in the USA, the manufacturing PMI reading was at 52.80, below the August reading indicating the slower growth in the manufacturing sector. The weak data has now impacted the course of the markets across the globe.

The Nikkei at this time is down 0.7% while Shanghai is down 0.9%. Hang Seng has tanked by more than 1%. SGX Nifty is also down by more than 0.4% indicating a volatile opening. It’s going to be a very sluggish day.