Global Economic Data & Assembly Election Results To Guide Market Direction

The Indian markets ended the week flat. Sensex and Nifty closed with gains of mere 0.47% and 0.67% respectively. The GDP figure (4.8%) for Q2FY14 came in after market hours at the end of last week. Although, the figure was not, it did manage to better the street estimates and the markets reacted positively at opening on Monday, December 2.

The GDP number has encouraged many market experts to come out and say that we may see some recovery from here on. But does this really hold true? We, at DSIJ, feel that though the September 2013 quarter GDP growth has been better than expected, this should not be considered as an indication of immediate improvement in the second half of FY14. We opine that growth is unlikely to come in higher than 5% in the second half.

The other positive news is the dip in the CAD (current account deficit) this quarter to 1.2% of the GDP against 5% on a yearly basis. The CAD level for Q2FY14 fell to USD 5.2 billion against USD 21 billion during same quarter last year. The turnaround in exports and decline in gold imports helped to lower the deficit this quarter. Further, the trade deficit for Q2 was reported at USD 33.3 billion against USD 47.8 billion on a yearly basis. According to the RBI, there has been an improvement in exports of textiles, leather products and chemicals.

The week also saw the auto sales figures for the month of November 2013 coming in, which continued to be disappointing. For over a year now, the industry's performance on the volumes front has been hurt by an increase in input costs and the depreciating rupee, along with weak consumer sentiment and low industrial activity. High inflation and elevated interest rates also continue to plague its numbers. India's largest car manufacturer, Maruti Suzuki saw its sales dip by a 10.7%, selling a total of 92140 units in November 2013 against 103200 in November 2012. Tata Motors and Mahindra & Mahindra also reported a decline on a YoY basis. In two-wheelers, only Hero MotoCorp witnessed some rise in its sales, while the other two leading players, Bajaj Auto and TVS Motors, saw lower numbers.

As the week drew to a close, on December 5, the indices saw a massive rally as exit polls results showing that a BJP-led government is in the making in the four states that are awaiting Assembly election results. This was clearly a case of political cues overriding the negative global cues with the 'Modi Effect'. But whether this comes true or not is for the results to tell.

The markets are seen dismantling all the weaknesses that the economy is facing. Despite the rupee remaining above the 62 mark against the USD, the markets continued to receive record FII inflows. In the past one week, FIIs pumped in more than Rs 2500 crore in equities, though domestic institutions remained skeptical and continued with their selling spree.

Late today evening (December 6), the US month data on non-farm payrolls is scheduled to be announced. This will decide the future course of action on the global front, which can give direction to the emerging markets. Sunday will see the poll results being announced. If the exit polls are pointing in the right direction, we may see the markets trading with a positive bias in the coming week too.

The winter session of the Parliament has begun, but any major reform-oriented steps are unlikely at this point. It will be better to hold your horses and tread cautiously as the fundamentals are still not in place.