Three Factors To Look At In Current Volatile Markets

Sentiments do not take much time to change and the way markets have behaved in the past few trading sessions it stands vindicated. Equity indices globally have shown weakness as the macro economic factors have provided a negative set back. After witnessing a shocker from the US Fed in terms of cut in bond buying, the PMI manufacturing data in China as well as ISM of US has been lower than the street estimates. It was no surprise that the indices globally witnessed a southward move. While the cut in bond buying triggered the fears of FIIs flowing back to safety, the contraction of PMI signalled towards a possible threat to growth in emerging markets.

In such a scenario the investors are quite confused as there are few positive aspects like growth in developed markets, improvement of domestic macro environment and last but not the least Indian markets are inching towards the general elections.

In current volatile and uncertain situation, here are three factors investors are seeking to get clarity on.

First factor is corporate earnings for the December 2013 quarter. If we take a look at the financial performance of India Inc, it is in-line with the street estimates. With hardly any positive surprises, the results are quite dull and tepid. However the export oriented sectors (like Pharma and IT) have performed well on the back of depreciating INR against the USD. Apart from these sectors one can look at the other exporters like auto ancillary companies and textile companies.  A few like Bharat Forge and Motherson Sumi have put in a strong performance. In textile sector also there are a few companies that have turned profitable after long time. However the corporate results are not encouraging.

Second factor is the Inflation and IIP data.  The data would be announced next week and provide a direction to the markets. Till date the Inflation has remained above the tolerance level of RBI, adding to that, the RBI increased the repo rates also. But going ahead we expect the inflation to decline as fruits and vegetable prices are likely to witness some contraction. The IIP however seems to remain under pressure as the corporates we are in touch with are indicating towards the lukewarm production activity. If the inflation contracts we expect the markets to witness some recovery.

Last but not the least is the expected movement of INR against the USD. In the recent past the outflow of funds from the emerging markets has resulted in high amount of volatility in the respective currencies. But the positive factor is, INR has remained stable and seems less vulnerable to the developments. We have to provide credit to the RBI governor as his prudent policies have helped the INR sustain its range. Going ahead, we are not expecting any volatile movement in INR.

So in nut shell apart from the corporate results the other two factors seem to be positive for the markets. This may provide some solace to the investors. However unless and until clarity emerges on inflation, interest rates and IIP, the markets are likely to remain volatile.