It looks like a fairly good day in the making for the markets today. With a pretty strong open, you could see yourself trading in a positively biased environment backed by the optimism fuelled by the lower CAD numbers. Please remember the central caveat of holding on to your nerves in the best as well as the worst trading patterns that you will witness in the market over the next few months. All else seems well to enter the weekend mode.
It’s official. While one war ends the bugle fort the other has been sounded out. Russia pulled out its forces from Ukraine propelling markets up over the past two days and now India will vote between the 7th of April and 15th of May 2014 to elect its next government. Already dubbed as the world’s biggest electoral battle by many, this is one event on which a lot of the country’s future hinges. Never in the history of independent India has a general election been looked upon as a make or break event from the nation’s point of view. But this time it certainly looks different.
Primarily being fought with economic development and progress as the focal point, a lot including good and clean governance has assumed significance, particularly over the past five years (the second term of the incumbent government). The economy in general and the market in particular has been waiting with baited breath for this big event to unravel. And, as it finally does, the environment is bound to get exciting and may be euphoric beyond what is really warranted.
A pre-election rally seems to already be underway. The sustainability of it is however suspect. Volatility can have a killing effect on your portfolio and returns. Hence a word of caution for investors, right in the beginning of this democratic drama, would be, to remain balanced and maintain composure even as you witness those sporadic bouts of adrenaline rush through the markets nerves. There is no better weapon than holding on to your senses in such high stakes events when your money is at stake.
While that seems to be a two to three months programme, here is some more macro data which the markets will be surely riding on in the immediate future. The biggest trigger comes from the trade data for the December quarter which was announced yesterday. Amid rising exports and a moderation in imports, the Current Account Deficit (CAD) came in at a level which looks quite surprising.
The CAD for the December quarter stood at USD 4.2 billion approximating to 0.9% of the GDP. This is way below the USD 31.9 billion that was reported in the year ago period. Bloomberg reports this number to be lowest since 2010. From an initial expectation of containing the CAD at around USD 75 billion for the full year, it looks like we are close to achieving a level close to half of it at around USD 35 billion now. That should spell enough cheer for the markets this morning.
While the data is interesting and positive, decisions which are an offshoot of it is what should be bothering us. The ecstasy of a lower CAD may result in the government easing curbs on gold imports. It is those curbs placed on gold imports which have in fact been instrumental in bringing down the CAD. An immediate reversal of the curbs could once again trigger a massive import rush for the yellow metal. This can in turn lead to a reversal of all the good things that have come with it.
It would be prudent enough for the government and the RBI to continue with the curbs until the economy settles down at a comfortable level with its finances. There is nothing to be lost in not allowing gold to be imported freely and cheaply. After all, the country’s Balance Sheet matters for more than anything else, at least in the present circumstances.
Meanwhile in overnight developments, the US markets ended lower yesterday, though they made an effort to ignore some disappointing economic reports. A lot of these reports have been brushed aside by investors in the US attributing the negatives to the bad weather. Benchmark indices did try to hold their heads above water but ended down in a volatile trade. Europe on the other hand weighed the US data to end the day below the dotted line. European stocks have seen one of their biggest rallies in the past eight months but are now awaiting the outcome of the ECB meeting to be held today.
Asian markets are trading well this morning. Except for China and Korea, all others are up. The Shanghai Composite is currently down one per cent, while the Seoul Composite is trading on the fringes with a negative bias. Japan is up almost half a percent followed by Taiwan and Hong Kong. The Nikkei is up 58 points while the Taiwan Weighted is trading up 0.45% and the Hang Seng is up 0.38% as of now. Indonesia, Malaysia and Singapore are trading an average 0.35% up from their yesterday’s close.
It looks like a fairly good day in the making for the markets today. With a pretty strong open, you could see yourself trading in a positively biased environment backed by the optimism fuelled by the lower CAD numbers. Please remember the central caveat of holding on to your nerves in the best as well as the worst trading patterns that you will witness in the market over the next few months. All else seems well to enter the weekend mode.
