It’s a Normal Trading Day

As expected the Indian equity markets are dancing to tune of their global counterparts. After an insipid opening session, markets turned around late evening to close with reasonably good gains. Benchmark indices which had been hovering in a tight range sprang to life and closed more than half a percent up from their previous close.

The US markets have been leading almost all global markets over the recent past. Europe is distinctively following cues emanating out of the US, so much so that it has been actually ignoring the noise over problems in China. Stocks in Europe hit a six year high yesterday and that is proof enough of the degree of optimism being far greater than that of pessimism out there.

The US on the other hand has been gaining momentum following the humungous deals being struck on the M&A side. Benchmark indices in the US had a field day yesterday. The S&P 500 registered a rise of more than half a percent and is very close to touching a record high. The Dow too registered solid gains of more than a 100 points to end up almost 0.70%.

The talk about triggers for the markets to seek further direction is getting rather repetitive. One point to consider when you look at the markets on a daily basis is that, fundamental factors do not change over a day or two. The impact of any change in the fundamentals of the economy will always be felt with a lag of time. So, the present focus on the growth prospects of the economy are rather assumptions than conclusions. Though the obvious reference goes to growth while explaining this, it is applicable to almost all macro indicators.

It is a way of discounting the future outcomes or events well ahead of their happening that keeps the markets ticking. Growth projections of the Indian economy by various institutions are a case in point. The latest in the race to put a number on what Indian economic growth will be like has come from Moody’s. Moody’s expects the Indian economy to grow at a sub 5% mark this fiscal. To put the precise number on record, it expects the Indian economy to grow at 4.8% in the third quarter of the ongoing fiscal. This is the same rate at which the economy had expanded during the second quarter. An earlier estimate released by the IMF too had pegged the Indian economic growth to come around 4.6% for the fiscal.

These estimates are below what our own Central Statistical Organisation has projected. According to the CSO the Indian economy is likely to register a growth of 4.9% this fiscal. The Finance Minster too has been pretty confident about the economy’s growth capability. In fact, brushing aside the CSO’s estimates, the FM expects the economy to grow at more than 5%.

Herein lies the irony of projections. All these institutions which are trying to put a number on what the Indian economic growth would look like for this fiscal are relying on the same set of indicators. The fundamentals that they are studying are the same for all. There is no reason why the estimates of each of these should be different. And hence, there is no reason why these estimates should make a difference. However, markets in their very own nature are trigger dependent and anything said or done always evokes a response. The next few days will be spent speculating on how much of growth the Indian economy is likely to clock for the third quarter. The official numbers will be out on Friday but until them the game of speculation will keep the markets very much live and kicking.

Meanwhile, Asian markets have begun the day well with all except for Malaysia trading in the green. The KLSE Composite is trading down, though only marginally having lost 0.07% so far. Rising home prices in China are spooking markets to some extent. Fears of a monetary tightening to rein in the fast expanding property prices is coming back to haunt Asian markets. However, as of now all of them are trading positive. Japan is leading the way for the Asian markets with the Nikkei up 1.21% as of now. The Shanghai Composite too has gained more than half a percent in morning trades and look comfortably placed this morning. The Korean market (Seoul Composite up 0.74%) is trading strongly, while Singapore, Taiwan, Indonesia and Hong Kong are in the green zone with benchmark indices up an average quarter percent as of now.

Global cues point to a clear open on the up side for the Indian markets this morning.  Speculative worries about growth numbers that are to be declared on Friday will keep the markets quite volatile. With no fresh triggers and F&O expiry well in sight, a tight range trading will be the norm over the next couple of days. Stock specific news driven action will keep counters in focus rather than blanket factors that could impact the overall psyche of the markets.