A Flattish Open, And A Choppy Day Ahead

Rajans magic continues to enthrall the markets. Benchmark indices have seen a unidirectional move northwards for two straight sessions after the RBI announced its second quarter review of monetary policy. A rate hike was anyways expected, and, the quantum of the rate hike was much in line with what was expected. So, there was no reason why the market would react adversely. But the indices reaching very close to their life time highs, is a mixed moment to cherish in the present macro economic circumstances. Yesterday, the Sensex closed at its highest closing level ever. But is this a sanctified move?

Macro economic pressures have ebbed, but not disappeared. GDP growth is being pegged to come in at around 5% by the RBI, (the Government estimate is even lower at around 4.7%), inflationary pressure continues to keep the monetary policy in check and other worries like a higher CAD and the fluidity of the currency, though have come down a bit, still remain the biggest concerns.

Globally too, the environment is seemingly calm after the US deferred the tapering of its QE initiatives. There is a slight upturn in the European economic conditions and on the Asian front the Chinese economy though sputtering, is moving ahead.

The one single point of debate in all this is, whether the positivity that is presently all encompassing, is really sustainable? Most of the euphoria that you are witnessing in the current markets is a direct result of the liquidity infused by the Quantitative Easing. And, this is not just about the US bond buying exercise but about a generally lose monetary policy that is being pursued by economies all over the world in order to push growth.

While it is okay to ride this euphoria and make some good short term returns, it is equally important to not get carried away, in order to save yourself from the troubles of a sudden change in sentiment when reality strikes.

So, coming to what you should be expecting from the markets today, Europe remained flat awaiting the Federal Reserve to come clear on the taper decision yesterday. While in the US the Fed has decided to hold on to its current stance on monetary policy as economic conditions weren’t really supportive of a pull back from what it was doing. The committee decisively agreed to continue with its bond buying exercise to the tune of USD 85 billion a month which essentially means, that liquidity is here to stay at least for some more time. Surprisingly the US market seems to be reading too much into the Fed statement and concerns of the taper happening sooner than expected have hit stocks there.

The same sentiment is probably being carried over in today’s trades in the Asian markets. Except for Indonesia, all other Asian markets are today trading in the red. While the Japanese Nikkei is down 0.35%, the Shanghai Composite is trading down by almost 0.70%. Hong Kong too isnt looking good with the Hang Seng trading down by nearly 0.60% and Malaysia, Singapore, Korea and Taiwan have no different story to tell. A lot of economic data that is to come out today in this region is probably weighing on the markets here.

The SGX Nifty is trading down 15 points and that indicates towards a cautious open to the Indian markets. But the Indian markets will probably ride the positivity that is presently surrounding them. Benchmark Indices have hit all time highs (on closing basis) and the most important factor is that we are in a festive mood. As for the opening session, you could see a flattish open this morning. But remember today marks the futures expiry and hence markets could remain choppy, albeit with a positive bias.