GEO-POLITICS TO TAKE CENTRE STAGE!

It was quite an eventful week for the global equity markets. While on one hand consistent inflow of macroeconomic data kept the investors busy, on the other hand geo-political tensions in Iraq kept most of the indices under check. As a result most of the equity indices remained range bound over fortnight.

If we take a look at the global events, consistent violence in Iraq and some minor incidents in Ukraine affected sentiments in market. With militant groups gradually gaining ground in Iraq and consistent disruption resulted in spurt in crude oil prices. With India being a net importer of oil and crude a major raw material for many of the manufacturers, it was no wonder equity indices in India also remained under pressure along with global equities. Till now, there are no indications about these geo-political worries receding and hence the issue is likely to keep the investors on toes in short term.

 Another major event was FOMC federal policy where the announcement was very much on the expected lines. As expected by most on the street, there was a cut in bond buying to the tune of USD 10 billion keeping monthly bond buying at USD 35 billion. While taper was on expected line, there were few positives that emerged from the speech. US federal expressed confidence that the economic recovery is on track and hinted at a slightly more aggressive pace of interest rate increase, starting next year. Apart from this, there was moderate increase in the housing spends. This provides an indication that macro data is improving. We are of the opinion that, if the US Fed continues its stance and pace of cut in bond buying, FOMC meet in the month of October will be an important one, as it would be a time when bond buying may stop completely. While this was on the US front, PMI data was announced for China (50.8), Europe (53.50), USA (57.50) and India (51.40). PMI Data was much better than the estimates, however it could not lift the sentiments as geo-political factors overshadowed these better macro numbers. On the domestic front also there were certain positive factors. First booster came in from SEBI as it gave a shot in arm for IPO markets by removing some of the roadblocks. With SEBI lending its arm and secondary markets witnessing a good run up, IPO markets are likely to gain some momentum. The best part is, PSU companies are likely to come with FPOs to meet a limit of 25 per cent public holding in next three years.

 As on the liquidity front, we expect the FII inflows to continue going ahead also. However the markets are likely to remain range bound till first week of July as the budget will be presented on July 1, 2014. Till then expect the markets to consolidate further as geo-political factors would take a front seat.