A Flat Opening And Sluggish Trades To Follow

It’s raining macros on the street and that is keeping it on its toes. Janet Yellen’s talk of a gradual tapering depending on the economic growth recovery and maintaining interest rates at near zero levels at least for some time to come provided a great amount of relief for global markets including us. That along with a host of other macro data that has been emerging over the past couple of days have left the markets in a mixed mood.

While trade data showed some encouraging signs in terms of a reduced deficit, inflation too is further easing out. According to data released yesterday, Consumer Price Inflation stood at 8.79% in January from 9.87% in December of 2013. Now that should give the RBI a further room for thinking on the interest rate front. Of late, CPI has been the prime focus area of the Central banker. It has been very categorical in its approach towards interest rate management wherein the CPI has been made the central figure. The coming down of this number means a lot and will shape the way forward for the monetary policy. A continued lowering of the CPI could soon see the RBI come closer to acting on the interest rate front, bringing them down, and thereby helping growth.

While that was the good side of things, industrial production continued to disappoint. Contracting for the third straight month, the IIP fell 0.6% in the month of December compared to the 1.3% fall it had reported in the month of November of 2013. This clearly points toward the fact that the economy is still a far cry away from the recovery path.

Well, industrial production works on a combination of various factors. The most important is the willingness of businesses to plough back what they earn in order to enhance capacities. Enhancing capacities in turn depends on the off take of goods and services. While the demand side could or could not be a problem, the willingness or rather the unwillingness to deploy funds in enhancing capacities and increasing production is surely because of reasons which are more political than economic.

All plans are rightly on hold as the businesses try to figure out the future course of the political formations more than anything else. The wait for a change in leadership is costing the economy a big amount. The sooner it happens, the better it would be. With the nature of Indian politics, all that you can say or hope for is the best to happen. Speculating about any outcome about the political turnaround at this stage could make anyone look like a fool going forward.

For now, global markets seem to be soaking up the December quarter results and macro data emerging from various quarters. Healthy Chinese exports have been a major source of rejuvenation for global markets, which were reeling under pressures of this Asian dragon failing to meet expectations and faltering on the growth front. European stocks ended higher yesterday tracking mostly global cues, more so from China. In the US, investors took to some breathing after a furious rally the day before. Stocks came off their highs with the markets ending almost flat.

Asian markets have opened weak this morning. there is no specific global cue to it but individually there seem to be reasons for investors dumping stocks. Except for Singapore every other market is trading in the red as of now. The Japanese Nikkei is down almost a percent while all others are trading down an average quarter percent. The Straits Times in Singapore is trading up 0.20% as of now while the SGX Nifty is also trading up 10 points.

Indian markets are likely to track macros that came in after market hours yesterday to seek direction today. From what can be seen, it could be a flat opening with a slightly positive bias riding on the back of lower inflationary numbers and a lower contraction in the IIP as compared to what had happened last month. No surprises, at least for now.