Don’t Worry, The Losing Streak Is About To End

Right from the beginning of the year, it has been our firm belief that the political scene and policy making is going to be the one dominant theme which will be guiding the markets in 2014. The first week has turned out exactly on the lines of what we have been saying. Five consecutive days of a market decline after a supposedly euphoric end to the preceding year seems to be something like an anticlimax of the high expectation build up.

But there is little to be surprised about this. The conundrum lies not in anything else, but lack of economic growth. Right now the focus is entirely populist and this makes it irrational to think that there could be some good moves to spur growth. The bigger projects which have been stalled for months together due to lack of clearances are yet to take off. There has been enough of noise created about how the government is trying to take these off the ground and into the implementation stage but none seem to be moving ahead.

Big talk and actual growth are poles apart. To reiterate a point made umpteen times earlier, there is little hope on the growth front, unless a change at the helm of affairs happens. That is obviously five to six months away. The first week of trading reflects exactly this sentiment. FIIs which drove the markets for a better part of the year in 2013 have turned negative in the beginning of this year. It isn’t that they would not be keen to invest in India, but caution is what they are exercising right now.

The political theater which is at the centre stage of the markets is turning out to be a complete disappointment. Even the newbie’s which were perceived by some to be capable of ushering in a change are turning out to be surprisingly dumb in economic decision making. In fact they too have learnt the knack of holding on to power by getting into populist and class-based policy making rather than focusing on rational economic thinking.

All this has seen the market sentiment move from one full of positive energy in the beginning of the year to one so skeptical about the future that benchmark indices have slipped below critical levels and are badly staring at a long drawn southern journey. The most immediate trigger for the markets is the December quarter results which will soon begin trickling in. But on that front too, there seems to be little hope of any big surprise to come in and lift the sentiment. The way the economy has been trudging along, you could in fact experience some nasty surprises on the down side rather than the other way round.

As far as cues for today are concerned, globally markets were rather calm yesterday. Europe remained flat riding on some amount of positive sentiment change. This was primarily the result of Ireland’s good show at the bond sale, a first one after it exited an international bailout. US stocks too were seen trading positive and the market ended in the green, thanks to some encouraging trade data. The FOMC minutes are to be released soon and investors will certainly wait to take cues from it.

After a long winding move on the down side, Asian markets are looking good today. All without exception are trading in the green with Japan leading the way. The Japanese Nikkei is currently trading up by almost a percent followed by Taiwan and Hong Kong. The Taiwan Weighted is up 0.78% while the Hang Seng is currently up 0.77%. Indonesia Malaysia and China are following the leaders with the Shanghai Composite, the Jakarata Composite and the KLSE Composite trading up an average 0.30%. Singapore is trading up almost half a percent and the SGX Nifty is up this morning trading 20 points above its previous close.

The day seems set for a positive open and some good trading activity after five days of a continuous slide. As mentioned earlier, all focus now shifts to corporate results for the December quarter as they start coming in later this week. Expecting too much on that front could lead to some disappointment but there will certainly be some pointers towards where the financial year end is headed to. Remain cautious just like the foreign institutional investors are right now.