Keeping It Bouncing

It was a choppy fortnight for the equity markets globally and the Indian equity markets were no exception. Consistent negative macro economic data from the domestic as well as global front made the markets jittery with the leading benchmark indices witnessing selling pressure. If we take a look at the events that shaped the markets in the preceding fortnight, first and the foremost is the International Monetary Fund (IMF) reducing the global GDP growth targets. IMF recently revised downwards the global GDP growth to 3.3 per cent from the earlier expectations of 3.4 per cent. For 2015 the growth target is being seen at 3.8 per cent. Economies of Japan, Germany and a few European countries are expected to be a drag. Naturally if the global growth targets are reduced there would be an impact on the equity markets as well.

What added to the woes was the expected hike in interest rates by the US government which is almost on the verge of closing its bond-buying program. Any hike in the interest rates sooner than expected would mean that the FIIs would take a flight back to safety and hence trigger some amount of selling in the emerging markets. As expected, some amount of selling occurred with month of September 2014 witnessing the lowest FII inflow since March 2014 and October witnessing net selling figures. In the meantime the FOMC minutes were released where the Fed provided a dovish stance as against the hawkish undertone seen at the time of the meeting. This provided some sort of relief to the markets with the equity indices witnessing some upward movement. However, the joy remained shortlived as the leading equity indices erased all of these gains in the very next trading session. All in all the global markets remained highly volatile due o disappointing macro economic data.

A lot of announcements happened on the domestic level as well. First was the announcement of the August 2014 IIP growth data which was much below street estimates at just 0.40 per cent. This was the second month in a row where the IIP numbers were weak as even July 2014 witnessed a meagre growth of 0.40 per cent (revised downwards from the early announcement of 0.50 per cent). We feel that if the IIP numbers disappoint in September the GDP growth parameters may be revised downwards. Despite all odds though, the IMF has increased the Indian GDP growth for FY14 to 5.6 per cent. This provides some solace.

A positive factor that emerged was about inflation witnessing some decline. The CPI for the month of September stood at 6.46 per cent (as compared to 7.80 per cent in August 2014). Even the WPI declined to the level of 2.38 per cent, which is a 33-month low. We have been consistently saying that inflation is a major cause for concern and if addressed well the growth targets may remain intact. We feel that if inflation declines persistently, which may happen as crude prices have also declined, the RBI may go ahead with rate cuts. Another positive factor was that the quarterly results have started on a positive note with Infosys and even Reliance Industries posting better than street estimates.

As regards the markets, we expect the choppy trades to continue with stock-specific movement having been seen on account of results’ announcements.