A Flat Open Expected, Trade With Caution

No one would have expected the benchmark indices to hit their all time highs within a year, at the beginning of Samvat 2069. This was a natural given, considering the economic sluggishness, which has been the result of various factors, not just on the domestic front but also globally. But beating all the pessimism, the markets have scaled a new peak as the year drove to the close and have welcomed the new trading year in great style. The Sensex has hit a new all time high of 21322 points at Muhurat trading, to close at a new peak of 21239 points. The Nifty too has impressively ended at a record high level to begin the year on a very bullish note.

Economic data points that have been emerging over the past week or so have been a mixed bag. After a long time, it looks like the government machinery is working in tandem to ensure some stability in the markets. The Finance Minster has gone on record to defend the policy action of hiking rates, pointing toward the changed circumstances in which the new RBI governor was operating. This seems to be a welcome change. The Finance Ministry and the RBI have earlier been at loggerheads of sorts, with the former criticizing the latter for having traded off growth to counter inflation in its policies. With the change in circumstances then and now, the equations between to the both, too seem to be changing.

Assuming that the new found optimism of the market will sustain and take it to dizzying heights from here on could be dangerous. The underlying fundamentals on which we were operating for a better part of last year (Diwali to Diwali) have not seen any big shift. The economic sluggishness omnipresent globally is yet not done with. Talks of growth bottoming out are good to hear. But, unless you see some concrete evidence of the same, it would seem rather foolish to have got over consumed by the loud voices on that front.

The Finance Minister has revised the current account deficit (CAD) target this fiscal from the earlier USD 70 billion to USD 60 billion. A good traction in exports has led to the lowering of the target by the FM. But, as pointed earlier, there are conflicting signals emerging on the economic data point front. The HSBC Manufacturing PMI remained at the same level of 49.6 for the third straight month in October. This indicates a moderation in the manufacturing output of the country. Efforts of the government in the direction of kick starting stalled projects are expected to begin bearing fruit. But, these will probably start reflecting in the economic analysis in two quarters from now. Until then, some amount of pessimism and a lot of caution is necessary so as to avoid getting trapped between the mixed signals of growth and economic improvement.

While India was celebrating the festival of lights, global markets have been riding some good earnings reports. The European markets ended in the green, In the US too, the S&P 500 ended yesterday’s session just a tad below its all-time closing high of 1772 points. The Dow Jones Industrial Average was up 24 points, closing the day at 15639 points, while the Nasdaq Composite was up 0.4% at 3937 points.

Asian markets are trading mixed this morning. Japan is trading on the borderlines (the Nikkei is down 0.13%), while China is looking weak (the Shanghai Composite is down 0.73%). Hong Kong is trading the lowest among all (the Hang Seng is down 0.84%), while Korea (Seoul Composite is down 0.34%) and Taiwan (Taiwan Weighted down 0.47%) too aren’t looking great. The only saving grace in the Asian pack is Singapore. The Straits Times is trading up by around a quarter percent. The SGX Nifty is trading marginally down.

The Indian markets are likely to come out of the early euphoric signs of a new bull run to consolidate before they begin the year in real earnest. Activity is likely to remain low on the bourses as the festival of lights officially draws to close today. Taking cues from its Asian peers, looks like, you could see a flattish opening with some positive bias and a choppy trading session today. We would reiterate our cautious stand on the markets unless some more stability emerges on the economic front. Here’s wishing you all a very Happy and Prosperous Trading Year ahead!