F&O Expiry + Holiday Season = Flat Open + Volatile Trading

Lets begin with season’s greetings to all our subscribers! Hope you’ve had a wonderful Christmas and are surely awaiting a big bang New Years bash. Well, its that time of the year when most of us want to forget the worries that have plagued us during the past year and look forward to some exciting times to come in the New Year. The least to say, markets have been rather tumultuous during the whole of 2013, marked with a huge dose of volatility and uncertainty.

Investors across the world have waited with a baited breadth for a turnaround in the economic fortunes of countries. From the US which seemingly drives the world economy even today to more strategically important nations like Iran have played a vital role in shaping the way markets have behaved throughout the year. European economies continued to give the occasional jitters, but most of the times were found tracking the US economy seeking direction.

But as they say, all is well that ends well. And, this is as much applicable to world markets today, than it ever was. The year seems to be headed for quite a positive ending, at least psychologically. The US economy is seen to be really turning corners and Europe looks to be fairly calmer than one could have expected it to be one year before. On the domestic front, the scenario has drastically changed, post elections in the four vital states of Madhya Pradesh, Rajasthan, Delhi and Chattisgarh.

Expectations of a decisive leadership taking over the reins of the country which can drive it to the next level of growth are looking more realistic today. Five months down the line those expectations will turn into reality. But remember, five months is almost half a year and it means a lot from an investor’s perspective. It can make or break a portfolio, with returns, in some cases, swinging from one end to the other in a matter of days, forget the months.

So the next few days, weeks, and, in sum, months will be very critical from a longer term perspective of investment returns, particularly in the equity markets. The reason why there is a very specific mention of the equity markets is that all other asset classes will also see a visible shift in their perception with investors over the next few months. But equity as an asset class is definitely on the cusp of a major change. But as mentioned earlier, investors would do good by not harbouring any irrational expectations on the returns front at least for the first half of next year. Once elections are through and the results out, the economy and hence the market will be all set for the next big leg up.

While there is a far greater visibility over the longer term market action, it is the shorter periods which ultimately culminate into what happens in the longer term. So, as far as the shorter term is expected here is how the markets are looking today. Post Christmas, Asian markets have opened on a positive note with all markets except China trading in the green. The Shanghai Composite is the only benchmark which is presently trading in the negative (down by almost a quarter percent). Japan is trading quite strong with the Nikkei up 0.80% until now followed by Korea and Singapore where the benchmarks are trading up an average quarter percent. Taiwan and Malaysia are up an average 0.10% but the strongest among the pack today is Hong Kong where the Hang Seng is trading up by more than one percent as of now. The SGX Nifty is currently trading 9 points down.

Today marks the F&O expiry for the month of December. That along with global cues is suggesting that the markets are expected to remain volatile as participants will look at churning their positions by rolling over some and curtailing some until the dawn of the New Year. FII activity will surely be at a minimal with the ongoing holiday season and domestic institutional investors are not likely to be as active in the absence of their foreign counterparts either All in all, the next few days until early next week (before the New Year dawns) are likely to be characterized by lower trades and an insipid market action. Bottomline for today is, it looks like we are in for a flat open with a negative bias and a dull but volatile trading day today.