A High Anxiety Start To The Week

The last of the biggest triggers for the markets this financial year comes in today. The Vote on Account will be presented by the Finance Minister in the parliament today, which obviously means it’s going to be a high anxiety day to begin the week. A pre-election year, generally means the absence of a pre-budget rally for the markets. But this year has been more than that. Not only has the pre-budget rally not happened, the markets have in fact lost considerably on account of weaker macros emerging not just on the domestic scene but also globally.

Though there is ought to be a lot of anxiety around the Vote on Account, there is no reason for that. The likelihood of anything surprising coming out of the short document that will be presented by P Chidambaram today is as good as nil. Two very striking and important reasons for this are, one, the financial compulsions of not announcing any populist measures are far more than the political compulsions of announcing them. Any big ticket spending (a Vote on Account normally is to sanction for the spending of the government for the short period preceding the elections) will see the FMs budget deficit target go awry. With fiscal prudence and economic growth at the centre of the election agendas today, there is no way that the FM would risk getting caught in this trap of fiscal imprudence by doling out anything to the voters.

The second most important factor that goes against any big spending announcements is the huge anti-incumbency factor. Historically, announcements of big ticket projects or spending has always gone in favour of those who would remain in power at the time of completion of these. Given the fluidity of the political situation in our country, though at this stage it is highly speculative to say that the incumbent government would not come back to power, it would certainly stay away from announcing those bigger projects which could tomorrow go in favour of the one who gets the seat of power.

Overall, the Vote on Account in the offing today could turn out to be a lackluster administrative exercise rather than anything close to ruffling feathers of the markets. However, it is always better to put a caveat on this. It would be prudent to not underestimate the power of our politicians to pull rabbits from their hats when nobody is expecting it from them. Given the fact that we are heading towards a make or break election this year, you could even see them pull out a robot from their hats.

Among other factors that could be shaping up the markets this week are global economic data points which seem to be in its favour. Europe is gradually moving out of the recession with growth in economies across the region picking up fast. Last week was pretty good for the markets out there, as they were seen moving up supported by internal as well as external factors. US markets too followed Janet Yellen’s remarks on the economy and will continue to soak them up as the minutes of the Fed meet get disclosed this Wednesday. Overall, the scene in the western world seems to be calm.

On the Asian front, markets are all green today rising an average half a percent across the board. China’s Shanghai Composite, the Taiwan Weighted and the Japanese Nikkei are up a quarter percent in early trades.  That’s a bit of surprise though. Weaker economic data (GDP growth came in lower than expected in Japan) has been shrugged aside by the Japanese markets to trade in the green after only a short blip. Other Asian markets are seen doing much better than these with Indonesia, Malaysia and Korea trading up in the range of 0.74% to 0.35%. Hong Kong is the best today where the Hang Seng is trading up by more than a per cent. Singapore is following closely; the Straits Times up 0.65% as of now. The SGX Nifty is up 25 points in morning trades.

Overall, it looks like the week will begin on a positive note and wait for cues until it decides its course. The first trigger (the Vote on Account) could turn out to be damp squib and the second (the release of Fed Minutes) is probably priced in. Volatility continues to be the base word for the markets from now until May. Prepare yourself for a safe roller-coaster ride.