Expect A Cautious Trade Ahead Of Big Results

It was a choppy session for the Indian equity indices yesterday. The leading indices closed in red as markets moved into a consolidation phase after gaining in three out of four trading sessions this week. Steep losses in names like Bharti Airtel, HDFC Bank, Tata Motors and ITC weighed on the indices. At close, the Sensex was down 24 points at 21,265 and the Nifty was flat at 6,319. Earlier the markets started on a positive note tracking Asian cues, but quickly lost ground on profit taking at higher levels. 

While the markets remained under pressure there were few positive data points to be looked at. Amid widespread concerns till only a month ago that the government would not be able to maintain FY2013-14 fiscal deficit at its stated target of 4.8 percent of gross domestic product (GDP), it is now learnt that the deficit could come in lower, at 4.65 percent. In last year’s budget, Finance Minister P Chidambaram had outlined the government would clock a deficit of Rs. 5.42 trillion for the financial year, or 4.8 percent of GDP. But overspending, coupled with lower-than-expected tax revenues, meant the government had already reached a shortfall of Rs. 5.1 trillion (or 94 percent of the target) in the first eight months of the financial year.

According to media reports, full-year deficit is likely to come in lower as the government would make up for the shortfall in tax revenues with non-tax revenue sources. Part of the shortfall would be made up with a string of divestments the government has recently initiated. Throughout the last few months, the FM had repeatedly expressed confidence he would not cross the deficit “red line” of 4.8 percent of GDP even as rating agencies had warned a miss would likely be a credit-negative event for a country whose bonds are rated only a notch away from “junk” status. Even the Moody’s have stated that it is not expecting any downgrade for the India.

On the global front it was the speech of Fed Chairman Ben Bernanke which was keenly awaited. At a forum in Washington, he stated that quantitative easing had helped the U.S. economy and that there are no immediate signs of it creating a bubble in asset prices. This clearly indicates towards one factor that, US Government may not immediately stop the QE, despite many of its members raising questions about the marginal utility of the QE. He further stated that inflation is not really a significant risk of this policy. As for the markets the leading equity indices in US remained under pressure as the earnings of few companies disappointed the markets. Both the Dow Jones Industrial Average and S&P closed in negative zone with 0.39 % and 0.13% losses. Earlier even the European markets had closed in red with miniscule decline.

As for the Asian indices, the equity indices fell as U.S. bank earnings disappointed and investors waited for Chinese economic data due next week.  No one actually wants to take a bold step ahead of few important macroeconomic data points being announced in near future. While Shanghai is down by around a percentage point, Nikkei is down by around half a per cent. Even Hang Seng has lost some ground by about 0.40%.

SGX Nifty is trading in red with a loss of 13 points (down 0.21%). We expect Indian markets to open on a weak note. However some stock specific buying may happen as the companies announce December quarter results. Today Federal Bank, HDFC Bank and ITC are announcing results. The biggest announcement would be Reliance Industries (expected after market hours). All in all expect the markets to open gap down and a range bound trading in the initial hours of the trading session.