AN ALL TIME HIGH In The Making

For the past three days a debate has been raging on whether the benchmark indices will breach their all time highs, and when. They continued to scale their highest ever closing levels, and, the optimism about them going past their highest ever levels only got stronger. Surprisingly, Indian markets bucked a general global trend yesterday, wherein most of its peers were struggling to cope with the resurfacing of murmurs about the US going in for a tapering of its quantitative easing sooner than was expected.

The most interesting part of yesterdays’ trading action was the record turnover. At Rs 5 lakh crore it stood at a multi-month high. A higher turnover implies higher volumes of stocks bought at higher prices. This trend, if it catches up and continues, in normal economic circumstances could have been interpreted as the beginning of a new Bull rally. But in the present circumstances, that cannot be the case. According to many a bull run not driven by a positive change in fundamentals cannot be sustainable.

Following data on core sector growth that has come out, that theory to some extent may get thrashed today. Eight core sector industries have reported a fastest pace of growth in output almost in a year, for the month of September. These eight core industries bare a sizeable weightage in the Index of Industrial Production and signal toward a better number on that front now. Another significant development that has come up is the maintenance of the Fiscal Deficit at the same percentage level as it was in August. The markets always thrive on positive news flows and with the sentiment already upbeat, this piece of economic data could act as booster dose for it to breach it’s all time high levels today itself.

As said earlier, the Federal Reserve’s stand on its monetary policy on Wednesday, wherein it suggested that a tapering of the QE may happen sooner than expected put global markets in a cautious mode. While the Asian markets traded the whole of yesterday in the same manner, Europe as well as the US reeled under the pressure of that uncertainty and closed at lower levels too. On our part, the RBIs readiness to handle any kind of a tapering by the US of its economic stimulus package has already been sounded out. This is probably the reason why the Indian markets have shrugged that and moved on.

Economic data points being declared today are keeping Asian markets edgy and mixed. While Japan and China are trading in the red followed by Taiwan, Singapore and Indonesia as well, Korea, Malaysia and Hong Kong are trading positive. The Japanese Nikkei is down nearly half a percent followed by the Indonesian Jakarta Composite (down 0.39%), the Singaporean Straits Times (down 0.26%) and the Taiwan Weighted (down 0.21%). The Chinese Shanghai Composite is trading marginally down. The Korean Seoul Composite is currently trading up by a little over a quarter percent followed closely by the Malaysian KLSE Composite (up 0.15%) and the Hang Seng (up 0.01%).

Today marks the official beginning of the festival of lights. The enthusiasm of the festive season will only add to the already high optimism of the market today. There seems to be no reason why it cannot be seen scaling that very important level - AN ALL TIME HIGH! Having said that, remember that economic recovery is not about a month or two of good numbers. Sustainability is the key. Though all seems calm on the surface, assuming it to really be so could turn out a bit dangerous. Lets wait for some more concrete evidence of a full fledged economic recovery before we go full throttle. Meanwhile have a blast this Diwali amid the euphoria that will grip the markets over the next couple of days. Here’s wishing all of you a Happy Diwali and a Prosperous New Year!