In what will be a rather thin trading day, overseas cues will weigh on the markets, which have seen a good move on the upside yesterday. These worries may set in some amount of profit booking today. There is really no conclusive conviction that the markets may follow their global peers and open on the lower side but the pressure will always be there. Expect a neutral to positive open and a volatile trading session.
If one factor goes in favour of it, there will always be some other countervailing factor which will come to pull it down. That in simple words is what we refer to as volatility of the markets. The December CPI numbers came in quite favourable yesterday. After a long time, food prices have cooled off considerably, leading to a decline in the consumer price inflation. This will be the most important factor for the markets in the coming days.
The RBI has been trying to fight inflation by keeping interest rates higher for quite some time now. But if you look at it very objectively, higher interest rates have not at all helped in controlling inflation. Food prices have come off due to better winter supplies and not because of the interest rate hikes that were put into effect with a view to bring down prices. The argument of a correlation between inflation and interest rates has more or less fallen flat on its face over the past year or so.
Whether that is accepted by our policymakers or not may be a point that can be taken up for discussion some other time. Right now, the focus will be on will the RBI ride the lower inflation phase to its advantage and shape the monetary policy that can enable growth to take off. The first expectation that the market is probably discounting today is the probability of interest rates heading south.
Lets assume for a moment that even if other macro factors do not really favour the bringing down of interest rates, one thing that is crystal clear is that it will certainly help Dr Rajan and his team to hold on to the rates at where they are. That itself is a good trigger for the markets right now. The response that can be expected from the markets is quite visible in its actions yesterday itself.
But, as pointed out in the very beginning, there will always be a countervailing factor to mitigate the favourable ones. That mitigating factors are the global cues that are emerging in the western markets and sweeping across Asia too. Taper is once again on the minds of the markets. A weaker than expected jobs report is said to have shaken up the US markets.
This is every interesting. There have been times, when a weaker jobs report has actually led to a belief that a taper may not be in the offing. The US administration has been categorically saying that unless employment numbers are at a comfortable level, the stimulus being provided by the Fed through its bond buying exercise will not be withdrawn.
Suddenly you hear both these voices converge. On one hand the jobs report is being looked upon as weak and on the other comments are being read out about how a Fed officer is talking about further tapering. The US administrators themselves seem to be at a loss of direction. The result is, benchmark indices have had a bad day yesterday. European stocks which are very closely following US cues were seen trading positive yesterday. Some domestic measures on the banking side kept stocks in the green by day end.
Asian markets are trending in line with their western counterparts today. Except for Korea none have been able to hold their heads above water. Japan which opened up after an extended weekend is bleeding with the Nikkei down 2.36% as of now. China and Taiwan are trading on the brinks with a negative bias and the Hang Seng is down almost 0.80% on domestic riot worries. Near to home, Singapore is down almost half a percent and the SGX Nifty is trading down 33 points as of now.
In what will be a rather thin trading day, overseas cues will weigh on the markets, which have seen a good move on the upside yesterday. These worries may set in some amount of profit booking today. There is really no conclusive conviction that the markets may follow their global peers and open on the lower side but the pressure will always be there. Expect a neutral to positive open and a volatile trading session.
