After A Selloff Expect Some Stability

Indian markets yesterday witnessed a sharp decline owing to factors like expected early QE Taper and the INR again depreciated against the USD. If the US government stops its current bond purchase, it is likely that the FIIs which are currently helping the Indian equities to sustain higher level may take a flight back to safety. And this would result in markets witnessing a southward movement.

It was not only Indian markets that witnessed a decline. Even the other Asian Peers like Shanghai Composite and Hang Seng also witnessed a decline despite getting some positive cues like expansion of manufacturing activity in China. The HSBC PMI stood at more than 50 indicating towards the expansion.

While the Asian markets were down, the macro economic data from European markets was good. The Euro Zone manufacturing PMI inched up to 51.50 in November. The best part is, German PMI increased to 29 month high level of 52.50 in November 2013. However despite the positive data the European markets closed on a flattish note.

While global equity indices remained weak, US markets however rallied yesterday. Snapping a three-day decline the Dow Jones Industrial Average closed above 16,000 for the first time. Even the S&P 500 has jumped more than 25 percent in 2013, poised for its best yearly gain in a decade. Positive news flow on the jobless data front was the prime reason behind the upsurge. U.S. jobless claims dropped by 21,000 to 323,000 last week, the fewest applications since September, the Labor Department said. The median forecast of 47 economists surveyed by Bloomberg News called for a drop to 335,000. Another report showed wholesale prices fell for a second month in October and the Philadelphia Fed’s index of manufacturing in the region dropped to 6.5 in November, trailing the median economist estimate for a reading of 15.

Today the Asian markets are trading in green. Asian stocks rose, with the benchmark regional index climbing for the first time in four days, as the yen weakened against the dollar, boosting the earnings outlook for Japanese exporters. The MSCI Asia Pacific Index gained 0.4 percent to 141.50 as of 9:27 a.m. in Tokyo, with seven of the 10 industry groups on the gauge climbing. In Asian markets while Nikkei is up by 1.29 % Hang Seng is up 0.70%. Shanghai is still trading in red with marginal decline of 0.24%.

Indian equities are likely to witness a flat opening today. The SGX Nifty is trading in green with miniscule gains of 6 points. We expect some amount of positivity with the finance ministry planning to look out for an alternate way to achieve its divestment target of Rs 40000 Crore in FY14. Till date the government has managed to do only Rs 1320 Crore. The idea is to issue bonds which can be converted in to shares of PSU at a later date. We feel this may provide some support to Indian equities. However, we still expect the Indian equities to witness profit booking pressure today.