An Uncertain Week Will Close In Anxiety

Its been three days in a row that the market kicks off on a flat to negative note and advances towards the end. The beauty about markets is, even though you are involved in on a day to day basis, you realize its actions only in hindsight. That definitely does not help. Benchmark indices have closed at an high time level yesterday. But the way markets have been behaving over the past week, none for sure would have seen this slow march to the top. Now that there will be sudden realization about the climb to the top having slipped out of their hands, investors will scramble to get into the market. That has been the very character of the market for years or probably even decades.

Times are such that anything could be possible in the markets over the short to medium term. This could mean a period of 15 days to 3 months. A bullish euphoria could suddenly spring up and take markets up to dizzying levels from here on. Or, in a reverse, the markets could give away all that they have gained so far in the year based on the slightest hint of some negative here and there.

Governance, policy making and a stable polity are the factors that are currently in the drivers seat. Unless things improve on this front, nothing else can help in creating a strong foundation for a formidable charge of the bulls to the top. Our policy makers seem to have suddenly come alive on the need to project India as a good investment destination. After the Finance Minister’s hard selling at Davos, it was the turn of the Commerce & Industry Minister, Anand Sharma. According to him, India will create close to 10 million jobs in the manufacturing sector by raising its share in the GDP from the present 15% to 25%. That is a good way to project the country’s future growth prospects.

Somehow all these measures, announcements and in turn the intentions of our supreme executive body seem to be coming in too late and will yield too little. Even if they do, it would be incumbent upon the new government that will assume office in May 2014 to take this entire underlined agenda ahead in a meaningful manner. Point that needs to be considered here is that, investors need to listen to the right kind of noise and not react to blanket statements while building their investing psyche at least over the short term.

In between this entire melee, Dr Raghuram Rajan is one man who has been making the right kind of noise. Having handled the monetary policy proactively ever since he took charge, his suggestions and decisions seem to be most pragmatic, if the Indian economy has to come out of the rut that it is stuck in.

From breaking tradition on policy dates in order to preempt any global factor from hurting our policy decisions, to coming out with a radical yet practical idea on flushing out black money from the system, this man seems to be working more like the executive than the regulator. In some more actions that could be read as positive for the economy and hence the markets, the RBI has allowed Asset Reconstruction Companies to convert debt into equity. That should take care of a lot of pain in the Balance Sheets of debt laden companies which are in trouble. The governor has gone a mile ahead in suggesting faster clearances of projects that get stuck in environmental issues.  We hope our policy makers are listening to all this.

Meanwhile, China spooked global markets yesterday. Weaker than expected economic data from the Asian dragon led to a sell off in equities. While most Asian markets were reeling under that pressure even Europe traded weak and closed in the red yesterday following the same set of data. The story in the US too wasn’t really different. Benchmark indices there too bore the Chinese brunt. An across the board sell off in resource stocks and a flight to bonds and gold saw markets close in the red yesterday.

Asian markets are carrying over what happened yesterday. A sell off in the US markets has prompted weak opening and negative trades for Asia even today. Surprisingly, China is trading positive with the Shanghai Composite up 0.15% in early trades. Except for that, none of the other markets have been able to raise their head above water. Japan is the worst performer as of now with the Nikkei trading down almost a percent and a half. Indonesia, Korea, Singapore and Hong Kong are trading down an average 0.60% while Malaysia and Taiwan are down an average 0.20%.

Once again, the overall global environment isn’t looking good. Global markets are feeling the squeeze of the Chinese data for a second straight day. The Indian markets had shrugged this worry aside yesterday. The situation is nothing different today. Markets will once again open on a flat note and continue to trade volatile with a slightly negative bias. That negative bias comes in as a result of the anxiety building up in anticipation of the RBI policy meet slated for next week. Play safe and avoid taking unnecessary risks as the week draws to a close.