US Recovery Spurts Global Markets – India Unlikely To Be An Exception

It seems that as markets are heading towards the expiry of F&O contracts for the month of December 2013, the indices have become volatile, at least on the intraday basis. Yesterday the markets opened on a positive note and remained in the positive zone for most hours of trade. However the scenario changed suddenly as the Sensex and Nifty witnessed a sharp decline towards the fag end of trading session. This wiped out almost all gains and indices closed with minuscule gains.

So, what’s the road ahead for the markets with expiry on Thursday and Christmas holiday falling in between? With highly volatile markets and not many cues on the domestic front, the market players would surely look at the global cues.

There are two major factors to be looked at on the global Front. First is the China credit squeeze and secondly the improving macro economic data in USA. Let’s have a look at both the events in detail.

China’s benchmark short-term money rates reached a near six-month high of 10.0% at one stage as its credit squeeze continued. Rapid credit growth in the world’s second-biggest economy has worried Chinese authorities, who fear rising debt levels are fuelling asset bubbles. The People’s Bank of China injected more than 300 billion Yuan ($49.4 billion) into the interbank market on Friday in response to rising rates, but hinted that banks had work to do if they wanted to avoid a cash crunch. This was expected to create a negative impact on the global markets. However the positive news from US markets overshadowed the Chinese credit squeeze.

The equity markets globally witnessed an up-move mainly on account of International Monetary Fund (IMF) stating that the US Economy will grow at a better than expected pace. The News Agencies stated that “The IMF is raising its outlook for the U.S. economy, as a budget deal in Washington and the Fed’s plan to taper its bond buying ease doubts about the future”.  The IMF predicted in October that the world’s largest economy would expand 2.6 percent next year.

It was no surprise that the US Indices witnessed a new high. Asian stocks also gained after data showed the U.S. economic recovery gaining momentum with Japan’s Nikkei 225 rose above 16,000 for the first time in six years. Even Shanghai and Hang Seng are trading in positive with 0.20% and 0.59% gains respectively.

We feel these positive global cues would help the Sensex open on a positive note. However, as we are approaching expiry, there would be good amount of volatility in the markets.

The SGX Nifty is trading at 6309 up 6 points. We expect a similar marginally positive opening for the Indian indices. There is expected to be a range bound trade thereafter.