Another Negative Day

A red mark on the charts after five days of consistent rise should not come as a surprise. With the benchmarks at their life time highs, let’s consider intermittent profit booking as an essential aspect of today’s markets. Also adding to the pressure were the trade numbers released yesterday. Exports have declined, but so have imports. The net result of this is a sharply lower trade deficit, which stands at its lowest level since March last year.

A lower trade deficit is helping the overall CAD situation. This in turn is holding up the rupee at respectable levels. The INR has finally come to levels which can now be seen as not just safe but good enough. A sub 50 level on the rupee to the dollar is certainly acting as a major booster for the markets. Factors certainly seem to have fallen well in place as far as the currency is concerned. At least one worry of the RBI is now at rest. As good as it sounds from the RBIs perspective, the situation should set some alarm bells ringing.

Consider it once again. We are talking of an overall improvement in the trade deficit. This improvement has come on the back of lower exports matched with a higher degree of decline in imports. What is actually helping the situation is a lowering of both factors in tandem. This could be an even worse situation. Manufacturing is already in the dumps. The trade numbers further fuel fears of deterioration in the manufacturing and industrial production numbers. So while the markets could remain focus on the lower trade and hence the current account deficits as much as they want, ignoring poor manufacturing and industrial production numbers will not help.  With these three core economic data points (manufacturing output, industrial production and CPI) to be released in the later part of the day today (post market), the focus will have to be entirely on those.

Every macro number that will come out will now be an important benchmark from the RBIs perspective. Slated to meet on the 1^st of April for its monetary policy review, the RBI will definitely be looking at all the numbers keenly to shape the future policy initiatives. This meet also assumes significance in the light of the fact that it is the last one before the general elections. What the mandarins of South Block cannot afford to disturb at the moment is the tempo of Dr Rajan and his team, which seems to be doing its job quite well until now. That disturbance could crop up with a change at the helm following the general elections. Of course, anything of that sort sounds premature at the moment.

For now the focus remains on the data points that will be released today. Meanwhile, US stocks took a breather and headed south yesterday on the back of some light economic data that was released. The China effect seems to be waning out gradually, but remained in focus with the European markets. Benchmarks in the region ended mixed in yesterday’s trades. Asia too is following up on the downbeat sentiment. All markets without exception are down today. The Japanese Nikkei is down a massive two percent as of now followed by the Hang Seng in Hong Kong and the Seoul Composite in Korea which are down 1.45% and 1.15% respectively. China, Indonesia, Malaysia, Taiwan and Singapore too are witnessing a good amount of selling pressure. The respective benchmarks are trading an average half a percent lower this morning.

All signals point to a lower open and a subdued trading day. Global cues, especially those emanating from the Asian region aren’t really worth talking about as of now. The SGX Nifty is trading 25 points below its previous close indicating the broader sentiment for the Indian markets. With inflation, manufacturing and industrial production numbers to be announced today, Indian markets will stay focused on them. Expecting too much from these data points will do no good. A surprise based on a lower base effect could help the markets stay in a positive frame of mind going forward.