Though things are looking brighter elsewhere, there is little to expect at home. The pressures of what the RBI could do tomorrow along with the Fed’s impending decision on the taper will keep traders and investors on the sidelines. Of course there is slim chance of the contrarian trading well into the markets and pushing it up. But overall, expect a subdued open and a pressured trading day today.
Uncertainty has a killing effect on the markets, but that does not in any way mean that certainty is always good. The current situation exemplifies just that. After consumer prices reached an all time high with the CPI coming in at 11.24% in the month of November, it was the turn of the wholesale prices yesterday. The WPI based inflation came in at 7.52% for the month of November from 7% in the previous month hitting a 14-month high. This essentially makes a repo-rate hike tomorrow as imminent as the rising of the sun. Dr Rajan has been quite categorical in his approach as far as the monetary policy is concerned. The very clear message to the economy and hence to the markets has been that growth can wait until inflationary pressures persist. The priority of the RBI is crystal clear; first, arrest inflation and then chase growth.
The theory of why certainty may not always bode well for the markets gets further reinforced by global developments, especially those in the US. Economic data points emerging from the US have been very strong over the past week. The Empire State Manufacturing Index has shown a marked improvement in the month of December after a rather weak showing during the preceding month. But what is more interesting is that the Purchasing Managers’ Manufacturing index has expanded to 54.4 with industrial production jumping by 1.1% in the month of November. This is reportedly its biggest gain in a year surpassing the peak it scaled before the onset of the recession. All this points to one thing quite clearly; the Fed is likely to commence its tapering programme soon.
But the US markets along with other western markets seem to have begun looking at the brighter side of things rather than focus on the dark side of the taper. The turning around of the economy along with a good job creation is nothing but good news and the markets are reacting accordingly. After a four day losing streak, markets in the US rose yesterday focusing more on the positive data.
On the sidelines there is another reason why US markets are probably not worried too much on the taper front at least for now. We are at the end of the year and this is not time to spook the markets. The Fed officers certainly agree to this and hence there is a lesser likelihood that a taper may be announced today.
But markets will be markets. All said and done about our preparedness to handle the impact of the taper, it would certainly put some amount of pressure on the Indian markets. A reaction and discounting of all good and bad happens right before the events actually trigger out. The euphoria over the BJPs electoral win lasted only for a moment and we have caught up with reality rather soon. That is a good sign of maturity so to say. But the way the bulls have retracted after giving a feeling that they were out to maul the bears in their run to the top at least until the general elections happen in May 2014 is incredible. There is no point in blaming the bulls. With so much of certainty about all the negatives in place, you couldn’t expect anything different.
So, we are poised for another volatile trading day today. Cues from global markets are quite contrary to what could happen out here. Asian markets have opened and are trading quite positive riding the positive wave that has swept across the European and US markets. The Japanese Nikkei is up one percent while Taiwan, Korea and Singapore are up an average 0.75% as of now. Malaysia and Indonesia are doing well too. The KLSE Composite is up 0.41% while the Jakarta Composite is trading up 1.26% as of now. The Hang Seng is up a quarter percent and China is the only exception trading in the red, but only marginally.
To sum up, though things are looking brighter elsewhere, there is little to expect at home. The pressures of what the RBI could do tomorrow along with the Fed’s impending decision on the taper will keep traders and investors on the sidelines. Of course there is slim chance of the contrarian trading well into the markets and pushing it up. But overall, expect a subdued open and a pressured trading day today.
