Taper Worries May Haunt Again- Profit Booking To Continue

The Indian markets have become highly predictable off late. While negative news on the global or domestic front on certain day takes the indices southward, next day the positive news takes it northwards.  Indian markets have witnessed the same in last few weeks keeping the investors and traders community on their toes. While few days back it was the QE tapering woes that haunted the investors, now it is the recently announced election results in four states that have kept the volatility in the markets alive.

While on Monday the markets shot up to the all time high as the BJP emerged as the single largest party in all four states, very next day the profit booking actually took the markets to the more realistic levels.

Now the moot question is where markets headed now after the indices have touched the new high level. We are of the opinion that with the market touching a new high the risk reward ratio has turned unfavorable for rewards. So though the under current is quite positive, not many on the street would be taking a bold step to take any heavy position in the markets. As a result we expect profit booking to happen on every rise. As regards the yesterdays fall the Chinese economic data has also resulted in Asian markets witnessing some decline.

As for the US markets, the leading indices witnessed a decline after the Standard & Poor’s 500 Index rose to a record, as investors watched budget negotiations in Washington and weighed the timing of any cuts to Federal Reserve stimulus. We are of the opinion that if the tapering happens, the markets are likely to witness a decline and other emerging markets would not be an exception to the same. The Federal Open Market Committee will probably begin reducing $85 billion-a-month bond buying program at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey.

There was other news on the US markets. House and Senate negotiators, in a rare bipartisan act, announced a budget agreement Tuesday designed to avert another economy-rattling government shutdown and to bring a dose of stability to Congress's fiscal policy-making over the next two years.  We expect a positive impact on the markets. One notification also suggested that, the US based Banks cannot carry risky trades on their own Money. U.S. banks will no longer be able to make big trading bets with their own money after regulators finalized the Volcker rule and shut down what was a hugely profitable business for Wall Street before the credit crisis. This resulted in many Leading banks shredding gains towards the end of trading session.  

As regards the Asian Markets, taking the cue from expected start of QE taper most of the Asian Indices have opened lower. The MSCI Asia Pacific Index lost 0.1 percent in Tokyo. It was a negative hangover from the Wall Street Which has captured the markets and overshadowed the news about the budget deal.

Apart from that, the US FDA has increased number of inspectors to inspect the pharmaceutical plants and products in China. We feel this would be a big negative for the Chinese markets. However some of Indian exporters like Dr. Reddy’s, Lupin and Sun Pharma may gain from it.

As for the SGX Nifty, it is trading in red with loss of more than 41 points (Down 0.65%). All these factors clearly indicate towards the factor that profit booking would continue even today on the street. We would not be surprised to see some gap down opening for the Indian markets.