Gear Up For A Pressured Open And A Downward Bias

Its that big day again when anticipations will drive the market at least during the first half of the day. The RBI meets for the second quarter review of the monetary policy today. Though the outcome of the meet is fairly assumed, you never know what could be transpiring within the closed doors. An assumption of a 0.25% repo rate hike along with a reduction in the MSF rate is all pervasive.

So, any surprise, even if it means leaving rates untouched for now, could mean a big sentiment booster for the markets. Will that happen? It could be hazardous to bet on such an outcome, given that the economic situation is still cloudy and according to the various assessments about the situation, it could be at least the end of the financial year before you could see any meaningful traction in economic growth.

The mega projects that can really help in pushing the economy towards a noticeable growth rate are yet to pick up. Regulatory clearances are being looked upon as the biggest hurdle in getting these large projects off the ground. Though there has been some action on that front with the government moving to clear some of these projects, their actual implementation is still away. There is one more catch that you cannot lose sight of. The general elections are soon approaching.

Will the government be as agile and prepared to clear more projects in the current circumstances? What if the ruling alliance does not come to power again? Will the new government not be reaping the benefits of what their predecessors did? All this could lead to a slowdown in the clearance of projects until elections happen. The sum total of this argument is, you should be expecting some real action only after the elections are through in May 2014.

That is a fairly longer time frame to talk about. The immediate and short term situation of the market is not looking as scary as one would have expected it to be. In fact, the slow and gradual rise that we have seen has taken us very close to life time highs. Now, whether these levels are sustainable or not, is just another question. But there is nothing in the short term which can really hurt the market badly. So a cruel correction from these levels is probably ruled out.

Globally too the situation is quite calm, so to say.  Europe continues to ride the delayed US tapering along with the quarterly results. Markets opened the week on a positive note yesterday with the FTSE 100 index gaining 0.2% to 6732.05, while the German DAX 30 was up 0.3% to 9008.31. France's CAC 40 rose 0.1% to 4,276.10. On the other hand US markets ended on a flat note on the first trading day of the week following some mixed economic data points that came in. Nevertheless, the S&P 500 set a record high for a second straight session. The industrial-production reading beat expectations but a pending-home-sales meter missed forecasts. That kept the markets quite volatile during the whole session, in the end, closing rather flattish.

Asian markets are trading mixed ahead of a long timetable of economic data points that are to come out today. The Japanese Nikkei is down by more than half a percent, followed by Singapore, Malaysia and Indonesia. The Straits Times is currently trading down 0.08% while the KLSE Compsite is down 0.06% and the Jakarta Composite is down 0.26%. China and Hong Kong along with Korea and Taiwan are trading in the green. The Shanghai Composite is up 0.78% While the Hang Seng is currently trading up by more than half a percent. The Taiwan Weighted and the Seoul Composite are trading up 0.15% and 0.05% respectively. The SGX Nifty is trading up 18 points.

Overall, it looks like a mixed day in the offing. The markets will track the RBIs policy decision on interest rates very closely to get any indication of the time to come. As of now, a hike in rates is considered to be a given and whatever the reactions to those expectations has already set in yesterday. Yet, it could be a pressured and cautious start to the trading day. The downward bias is a bit too heavy on the markets today.