Sorry! Things Aren’t Good

The vulnerability of the markets to fanciful growth projections will be exposed today. After having danced to the tunes of various numbers thrown around it for almost a fortnight, the markets will suddenly find themselves facing the crude reality of where our economic fundamentals really stand. From a supposedly weaker 4.8% to absurdly higher 5.5%, various institutions were seen talking about how the Indian economy could look forward to a much better second half of the financial year.

What has come out is rather disappointing from all quarters. For regular followers of this newsletter, it certainly would have not been so surprising though. We have time and again warned our readers about the suspect nature of the projections. Relying on the same parameters and factors, the reason why different institutions should be coming up with different expectations is very baffling.

Moreover, nothing on the ground has changed so much as to warrant a decisive directional change in the fortunes of the economy. Whatever measures have been initiated so far, will yield results with a lag of time. This lag could well extend to anything beyond six to eight months. Also, one of the most important points to keep in mind is that we couldn’t just be looking at domestic factors. Global developments too are a major focal point today.

Actions of the US Federal Reserve, growth in the Euro zone, geopolitical developments in certain parts of the world and of course our neighbor China play a very critical role in shaping the market sentiment at least for now. None of the above stated factors are stable. The Fed is talking the markets into volatility by coming up with the tapering issue while Europe is battling its own problems of growth (though there is some clarity on what can be expected in that part of the world going forward).

China is fast coming to be a bigger worry on the economic front. Not all seems to be okay with that country. With the size that the Chinese economy is and its cross connectivity with various parts of the world, even a slight problem in that country could result in an economic catastrophe. Talk of its Banking system facing major problems is keeping markets across the globe on its toes. India is no exception and will certainly face jitters if anything of that sort really unfolds. Another major issue faced today is the geopolitical situation in the Russian subcontinent. Ukraine is just getting out of hand. It could result in an unprecedented situation with major forces involved in the drama. For now, lets just hope, things do fall in place calmly.

Back at home, the markets will begin the week tracking the GDP numbers that were announced late Friday. With a 4.7% growth you certainly don’t have to guess the kind of mood that will prevail in the markets today. More damaging is the restatement of numbers for the earlier quarters of the year (more about this to follow). All of it puts the high claims of the Indian economy getting back to growth sound gibberish. The only advice that comes to mind in a situation like this is, do not expect miracles at leas over the next three to four months. Investors will have to patiently wait out for the elections to complete and the first signs of a structural shift in economic fundamentals to happen before they can look at the markets more confidently.

The way the Asian markets have opened and are currently trading, you could see a weak opening with a decisively downward bias this morning for the Indian markets too. Except for China, where the Shanghai Composite is just about holding its head above water, all others are deep in the red. Japan is down a huge two percent, while Singapore is trading almost a percent below its previous close. Taiwan, Korea, Malaysia, Indonesia and Hong Kong are all down an average 0.70% as of now.

A disillusioned investor is still controllable when it comes to sidelining weaker economic data. But it gets fairly complicated when faced with a double whammy of dealing with a weak set of economic data as well as a dangerously poised geopolitical situation, especially when it involves a world power like Russia. The stage is all set for a deep cut in the benchmark indices as we enter a new week and of course a whole new month of trading.