Global Cues Weak – Expect A Gap Down Opening

Uncertainty still prevails in the markets with no clear signs on direction on domestic as well as global front. On the global front most of the Asian indices opened weak and witnessed a drop, extending last week’s loss. The simple reason being U.S. lawmakers’ wrangled over the debt limit and government shutdown. It seems that the U.S. situation is clearly abnormal and the uncertainty does not make things easier for investors in risk assets. No wonder most of the Asian markets that are dependent on the foreign money are trading in red.

Just to quantify Nikkei is down by around 0.90 %, Hang Seng Is down around 1 % and even Shanghai Composite is trading in red. So the global cues are not very positive for the Indian markets. However there is some positive news flow on the domestic front. 

First and the foremost factor is India is preparing a plan to allow greater overseas participation in the domestic currency futures market to protect the rupee from the kind of attack by speculators that saw it crash to a record low in August. Much of the speculative trade that led to the slide in the Indian currency took place in the offshore non-deliverable forwards (NDF) market, largely focused on currencies such as the rupee belonging to countries with capital controls. The government wants to kill the rupee NDF market - where contracts in the currency worth billions of dollars are traded every day - by persuading those active in it to shift to the onshore currency futures market in India by easing restrictions. The move is part of the next generation of financial sector reforms on the government's agenda. We expect the volatility on the INR front to end if the efforts fall through. 

Apart from that SEBI has eased entry rules for foreign portfolio investors (FPIs) in an attempt to attract more overseas money into the country. These rules have been framed after considering the provisions of the existing rules for foreign institutional investors, qualified foreign investors and also based on the recommendations of the KM Chandrasekhar committee. We are of the opinion that, the New FPI regulations would be a big positive for foreign investors and the Indian markets as it is likely to reduce time and compliances currently undertaken by foreign investors under the existing regulations. Again the inflow of funds would help the INR recover against the USD.

However despite such a positive news flow the markets in the near term are likely to be guided by the September quarter results. We have already stated in our earlier newsletters that the September quarter results of India Inc are not expected to be very exciting. However the IT companies may put in better performance. The scenario would get clear as Infosys announces the results on 11th October. Till then the markets are likely to remain range bound.

As for today, the SGX Nifty trading at 5925 showing decline of around 34 points. We expect the Indian equity indices to open on a weak note.