It Looks Optimistic, At Least For Now

The inflationary trend was expected to be like a silver lining amidst the gloom that had surrounded the market in recent times. But it has actually turned out to be a complete climate changer of sorts. With both, the CPI as well as the WPI coming in much lower than what was even expected, markets have been in no mood to look back over the past couple of days. Benchmark indices have moved up decisively over the past two days shrugging off corporate results to some extent. Not that there were any significant ones that came in though.

All eyes will now be fixated on what Dr Rajan and his team will come up with. Now that the main shield which policymakers have been using for not being able to bring down key interest rates is actually behind their back, it could well be the turn of the RBI to deliver something that is being expected for quite some time now. Higher interest rates have been looked upon as the most critical factor hampering growth. Corporate results that have come in so far too are pointing towards the same. With the factors more in place now than they ever were for him, Dr Rajan should rather cut rates in the ensuing policy meet than wait for another month or quarter to do so.

Optimism about India’s growth is on the rise. The Finance Minister has been reported to have gone on record with his optimism for India’s growth over the next three years. Even international agencies are drumming the same beat. The World Bank has pegged India’s growth expectations for FY15 at around 6.2%. This should help perk up the market sentiment even further.

If North Block is to be believed, the fiscal position is somewhat returning to normalcy. The cash situation of the government is looking to be comfortable (it has reportedly deferred the Rs 15000 crore bond auctions) and hence deficits are expected to remain well under the designated levels for the financial year. This could clearly be the result of the huge dividend that the government has arm twisted state-owned companies like CIL into paying. CIL announced a dividend which will fetch the government Rs 16486 crore for its 90% ownership in the company. There are more to follow. The point of how practical it is for the government to be emptying the coffers of its cash rich corporations like CIL without allowing them to reinvest for growth is a completely separate and largely debatable issue.

But do keep in mind that, there is no point in blindly believing blanket statements from the corridors of power. The actual situation on the ground needs to be assessed before one could jump to any conclusion about growth. As pointed out repeatedly, there is no possibility of growth coming in, unless the investment cycle picks up. Corporate India has been holding itself from making any big ticket capital investments. The higher interest rate regime that is presently in force is one of the key reasons why the investment cycle is lacking the pace that could propel the next round of economic growth. So going back to what has been stated earlier, it will now depend on the monetary policy stance to change the situation.

Another important reason for this is, the fluid political situation and the emergence of newer equations on that front. The bet is clearly in favour of a stable government with a decisive leadership to take charge at the centre. The shadows of doubt which are being cast on that scenario, particularly after the state elections that happened recently, have somehow managed to mar market sentiment. With macro factors returning to centre stage that has changed a bit at least for now.

In overnight developments, the US markets have done pretty well yesterday riding on the strong belief that the economy was definitely rebounding from its lows and getting out of the rut. Benchmark indices there, continued to surge with the S&P 500 hitting a record high yesterday. Data points with reference to manufacturing were released yesterday which came in well above or at least in line with expectations pushing the markets up. Europe too surged quite well, with the World Bank having hinted that 2014 could turn out to be a good year for the economies in the region. This pushed up stocks in the region to a six year high yesterday.

The cues emerging from the World Bank report are keeping markets in a good state today. On the Asian side, except for Singapore and China, all other markets are trading strong this morning.  The Japanese Nikkei is currently trading almost a quarter percent up while Hong Kong, Korea, Indonesia and Malaysia are up an average 0.30%. The Shanghai Composite is trading down 0.40% as against the Taiwan Weighted which is currently up almost 0.70%. The Singapore Straits Times is trading on the fringes while the SGX Nifty is currently trading up 25 points.

All looked at, it seems like a positive day in the making for the Indian markets. The overall optimism of the higher economic growth painted by the World Bank, backed by evidence emerging from the data points being released is helping markets globally. We could open positive this morning and trade with a upward bias. The focus will certainly also remain on companies declaring their results for the December quarter, making it more or less a stock specific play today.