Get Ready For Some Gloom

It’s been a rather good start to a holiday shortened week. The markets have been riding on global cues to close in the green for two consecutive days. A tight ranged market is sometimes quite boring to play. The upside may not be capped but the downside too isn’t really visible, and can be dangerous. Getting complacent in a market like this can lead to great pain, especially for the retail investor. However, the breed of market players called the retail investor has remained elusive from the markets for quite some time now. The little of whom are still trying to make the best from whatever the market has to offer will be the ones who will ride the boom, once a conclusive trend comes back.

For now, macro data is ruling the roost. Globally, various economic data points have shaped the direction of the markets and the same applies to India too. Right at the beginning of the week, it was quite clear that trading would be shaped by expectations of what the GDP growth number would be like for the December quarter. The official announcement is just a couple of days away. What is baffling, is the way estimates are being thrown at us.

It seems as though every person with an howsoever remote connection to the markets and numbers is trying to project GDP growth. After Moody’s came up with a sub 5% growth number a couple of days back, it was the turn of a lesser known research firm Zyfin to throw a contradictory picture for the  markets to savor. According to this firm, the Indian economy is expected to expand by 5.5% in the third quarter.

Well, this reinforces the point about why you should not be reading too much into these estimates. Just to put things in perspective, no way can institutions, working on the same broader parameters and looking at the same fundamentals can vary in their estimates so widely. And hence it is better to leave these estimates out of the purview of investment decision making until the official numbers are out.

On the contrary it would be much better to properly read the signals emanating from the quarters which more practically matter to the markets. Whether you call it a conflict of understanding or a clash of egos, either ways, it certainly matters to the future of the markets. The obvious reference here is to Finance Ministry and the RBI. In a latest, both these nerve centres of economic decision making are debating on the nature of constitution of the Monetary Policy Committee. The Dr Urjit Patel Committee has suggested that the members to the MPC should be elected from within the RBI, on the other hand, the Finance Ministry is of the opinion that a majority of them should be from outside.

The basic problem with the Indian economy has been not its fundamentals. Those have remained quite strong through and through. But the power centres have been a major cause of concern. The need for a concerted and synchronized approach to growth or for that matter any matter has for long been the nemesis of the Indian economy. The tussle between the RBI and the Finance Ministry at a time when both these institutions ought to be working in tandem to address matters affecting economic growth is not surprising but out right outrageous.

Dr Rajan and his team have acted quite well in addressing the monetary policy issues that have helped in a lot of ways. From the stabilization of the Rupee in a reasonable belt against the Dollar to controlling inflation and taking some bold steps with reference to interest rates, actions of the RBI under Dr Rajan have been exemplarily beneficial in arresting the decay for the markets. The need to recognize this fact devoid of egos and fall on a dependable team to shape India’s monetary policy is very essential in the present economic circumstances. Our only hope is good sense prevails.

Coming back to what can be expected of the markets today, here is what the global scene has been like until now. European stocks declined yesterday, primarily pushed down by mining stocks. This brought down benchmark indices and stocks closed below their six year highs registered a day before. In the US, some good corporate results helped moderate the dull sentiment which set in as a result of a disappointing consumer confidence report. The Dow closed down 0.17% while the S&P 500 was down 0.13%.

The day doesn’t seem to have opened on a very good note today. Asian markets are trading with a negative bias with all except for Hong Kong and Taiwan trading in the green. The Japanese Nikkei is down nearly half a percent as of now, while the Shanghai Composite in China is trading down near to a quarter percent. Korea, Singapore, Malaysia and Indonesia are all trading weak, with the Indonesian markets being the worst with a 1% drop so far. One very surprising element of the markets is that the nerve centre of worries always plays contrarian to its peers. Chinese macros have been the focal point in the Asian context for a very long time, but while other markets catch cold even if China sneezes, its own market will always be found to be trading in the opposite direction.

Global cues aren’t looking good to begin the day. The SGX Nifty is trading down, though only marginally as of now. With Thursday being a holiday for the markets, F&O expiry happens today. This should provide an added dose of volatility to the Indian markets. Indications are, the markets will open on the lower side and trade with a negative bias remaining volatile throughout the day. Friday again will be a day of high drama and anxiety as we await the official GDP growth data for the third quarter.