Taper Fears Are Back, Brace For A Pressured Trading Day

Yesterday turned out to be contrary to our opening expectations. The markets opened a bit weak, traded flat and closed in the negative. They say its profit booking. It may well be it, but remember the caveat we have been putting against all the rosy numbers and optimistic voices before you draw a conclusion on what really takes the market down after two or three days of an up move. And this has been happening quite often nowadays. All of it clearly points towards the fact that investor’s are yet to be fully convinced of the return of growth and improvement of economic fundamentals. After all, what you see is what they want you to see and not what really may be happening.

Please note that ours is a voice of caution and not pessimism. An all round growth of the economy bodes well for all and there is no reason why we should not be expecting it. But the point that we have been making, and to which we stick to, is that, fundamentals do not change overnight (read as, in a matter of one or two quarters). Yes, the measures taken by the RBI in arresting the decline of the rupee and hence helping the CAD situation along with rising exports are now beginning to reflect in the numbers. But this may not be a sustainable improvement and one has to wait for at least another quarter before he can start completely believing in them.

The Parliament gets back to business on the 5^th of December. This is probably the last of the major sittings of the Parliament before we go to the Lok Sabha polls. The government will obviously try hard to push for bigger reforms in a bid to safeguard its possibility of coming back to power by shoring up the economy. Given the very limited number of days (12 in all) that this session is scheduled for, it looks impossible that it would be able to conduct any meaningful business, forget passing vital bills and pushing forward reforms. If it does succeed in extending the tenure of the sitting, probably it could look at working towards the passage of at least some bills to help itself and of course the economy. The markets will certainly await the result of the deliberations in the session to find some cues for the course to take going forward.

Consistently rising markets can also be a cause of worry and this is being proved by the behavior of the western markets. Worries of uncertainty over tapering have been hurting the European and the US markets for the past three days. Moreover, investor’s foreseeing a pullback after the indices have a risen to record levels is also keeping the markets in the US under pressure. The latter can be understandable, but the former is a complete sham. The Taper fear has been haunting markets globally for quite some time now. Stronger economic data points suddenly turn out to be not so favourable for a taper and this see sawing has been continuing for quite some time now. Get over it, is all we would say. The stimulus is here to stay. America cannot afford a taper so soon.

As for markets this morning, Asian equities are witnessing a tremendous pressure, again, driven by fears of the taper. Except for Taiwan and China none of them are holding their head above water. The Taiwan Weighted is marginally up as of now, while the Shanghai Composite is trading up 8 points (0.37%). Japan is suffering big time with the Nikkei having lost a huge 370 points (2.35%) and is being followed by Korea, Hong Kong and Indonesia. The Seoul Composite is down almost one percent, the Hang Seng is down 0.59% and the Jakarta Composite is trading down 0.74%. Singapore and Malaysia as of now are trading down only marginally. The SGX Nifty is trading down 35 points as of now and that should not sound good to Indian ears.

Taking cues from its global peers, Indian markets are expected to begin the day on a weaker note. The bias is completely on the negative side following the renewed fears of a taper that have caught up since the past couple of days. But investors could do well to remember that Indian policymakers have been sounding quite confident of their ability to handle the taper if and when it happens. However, for today be ready for a volatile and pressured trading session.