Correction Continues

DOMESTIC MARKETS WITNESS OUTFLOW

The domestic markets are not in a mood to show some cheer, and continue to correct further. The Indian markets are predominantly driven by foreign institutional investors (FIIs) and they seem to be increasingly disappointed with the current scenario, thus withdrawing a good amount of money. This considerable outflow is hindering and creating southward movements for both the broader market indices and the rupee. The FIIs’ disappointment is primarily due to taxation on their capital gain and poor corporate earnings coupled with uncertainty about the monsoon this year.

The FIIs were continuously seen selling for the last seven trading sessions and unburdened more than Rs 9,150 crore worth of Indian equity during the same period. While the FIIs were bearish over the last couple of weeks, the DIIs were consistently accumulating Indian equity and bought Rs 9,887 crore worth Indian equities during the last fortnight. This very fact created considerable volatility in the domestic markets. However, the market seems to be taking some breather at these levels and has shown just more than 1 per cent correction during the period.

RELIEF OVER MAT ISSUE

There was some relief for FIIs on the Minimum Alternate Tax (MAT) issue during the last fortnight. The Central Board of Direct Taxes (CBDT) would be holding off from issuing fresh demands of MAT from FIIs and has advised the Income Tax Department not to take strict action on demands already made as a government-appointed committee will review the issue and advise accordingly. The CBDT stance created some kind of bullishness in the markets.

MACRO ECONOMIC DATA IMPROVES

On the domestic economy front, the macro economic data continues to improve. The Consumer Price Index (CPI) inflation for the month of April came out lower at 4.87 per cent as against 5.2 per cent during the last month. However, manufacturing activity seems to be slowing down this month. The Index of Industrial Production for March was lower at 2.1 per cent as against 5 per cent in the previous month. The easing in inflationary pressure and slowing down in manufacturing activity created some hope for a rate cut by the Reserve Bank of India (RBI) in its bi-monthly review meeting.

NO GLOBAL SURPRISES

On the global front there were no surprises and the markets remained almost flat with negative bias during the last fortnight. The euro zone economy grew at its fastest rate for nearly two years during the first quarter of 2015 over a sharp fall in oil prices. The 19-country bloc showed 0.4 per cent quarterly increase in economic output against 0.3 per cent recorded in the previous quarter.  The US economy too showed some mixed bag economic data and the US markets did not move much during the fortnight. Meanwhile, the Chinese investment growth rate tanked to its lowest in nearly 15 years as the country was losing momentum. To give boost to the economy, the Chinese central bank is expected to cut interest rate with more stimuli in the coming months. The Chinese market was down by more than 3.5 per cent during the same period.

BUY DURING DIPS

As mentioned in our last issue, the market will see a good amount of volatility till the corporate earnings improve. However, smart investors should accumulate equities at every dip rather than run away from the markets.