Though It Looks To Be A Good Week, Be Cautiously Optimistic

A new week sets in with some new hope. Hope of a better tomorrow for the economy, hope of a cheerful festive season, hope of calmer global macros and hope of peaceful domestic geopolitics. Well all these are looking to be in favour of the markets at least for now. The situation, as it stands today, looks like a perfect recipe for a cheerful Diwali. The sentiment is pretty upbeat in the market and is expected to continue that way.

Talks of the economy’s probable bottoming out are getting louder. Reportedly, credit growth is improving, the monsoon has been good enough, the government’s clearance to the many projects is beginning to see some traction on the ground and of course the upcoming elections are expected to spur a good amount of spending and in turn push up demand.

All this certainly augurs well for the markets. Corporate results which have been driving the markets for some time now, have been pretty much in line, or, in cases even better than what was expected. But the biggest factor that has contributed to a change in the sentiment and helped markets very close to their top has been the global soothing which came along with the US pushing its tapering of the bond buying into the distant future. When will it happen? We don’t know and would not want to put a guess on it either. The sentiment is good and we would rather let it be that way.

So, are there any worries on the horizon? The biggest will be the monetary policy review slated for tomorrow. There is loud consensus thinking on interest rates going up tomorrow. The MSF is expected to be brought down to align it with the repo rates. Should this hurt the markets? Probably not, because that is already being factored in by the markets as of now. Will it be good economics? Probably yes, because if we can endure a little bit of a pain on the growth front now, it could go a long way in improving the economic fundamentals in the long run.

Globally the scene has been pretty good with benchmark indices in the US having finished the week at record highs. A better than expected corporate performance along with the clouds of doubt drifting away on the tapering front as well as the government opening up for business again has helped markets in there as well as in other parts of the world. The European markets are facing some resistance. Economic data points emerging from various parts of Europe have not been very encouraging. This has pulled down markets there last week. But then again, that region has faced its own set of problems and will take some time before it can get its hold firmly back.

Monday morning seems to be panning out pretty good for Asian markets. Except for Malaysia, all other markets are trading very much in the green this morning. Japan is making a decisive move on the higher side with the Nikkei trading almost a percent up from its previous close. Taiwan, Korea, Singapore, Hong Kong and China are all trading positive with the Hang Seng leading the way followed by the Taiwan Weighted and the Straits Times. The SGX Nifty is currently trading up by a good 50 points.

All put together, you could see a positive open for the markets here too. Point to remember is, you will have to show some cautious optimism as you head into a new trading week. Activity could be slower than expected, first, awaiting the monetary policy and then as we head into a festive mood. Stay focused on corporate results as these could lend a good amount of insight into where the markets are headed.