Events To Steer Markets

Dismal growth figures may prompt the RBI to go in for a further rate cut. This could have been an ideal boost for a sulking market, but seems to be already priced in. Expect volatile trading sessions and occasional rallies’ going forward says Saikat Mitra.

The movement of the market during the past fortnight has been quite encouraging. This is a major respite to investors who saw indices declining by 6.26 per cent in the month of May. During the last fortnight, the Sensex and the Nifty have witnessed a gain of 3.48 per cent and 3.45 per cent respectively.

Hoping that the Fed would announce a third round of stimulus measures to further boost growth in the world’s largest economy, most of the global markets were trading higher. However, both, the Federal Reserve and the European Central Bank, decided against any rate cut or a stimulus package. Ben Bernanke remained silent on the third round of quantitative easing (QE) and said that at present things were not in favour of a QE and that the Fed might consider it if the economic environment got worse from here on.

However, the problems on the European front do not seem to be abating. Fitch has cut Spain’s credit rating to BBB and left it two notches away from junk, citing the cost of recapitalizing the country’s banking industry and a lengthening recession. Further uncertainty about Greece exiting the Euro zone has added to investors’ woes. At present all eyes are on the results of the elections in Greece due on June 17th.

On the domestic front, in the last fortnight we saw a healthy rally in the markets where the Sensex went up by more than 600 points in a span of just three days. The rally came in despite a dismal GDP growth number of just 5.3 per cent for Q4FY12 which is at a nine year low on a quarterly basis. The IIP numbers too do not show any signs of improvement. The RBI will come out with its monetary policy on 18th June, when it is expected to cut the Repo rate and CRR in a range of 25 to 50 basis points keeping in mind the depressing growth scenario.

On the broader market front, the capital goods index has been the best performing index having closed with a gain of more than eight per cent during the past fortnight. It was followed by the banking and the realty indices. Mostly all the indices closed in the green barring the healthcare and the consumer durables indices which closed in the red down by more than one and half percentage points each.

On the global front, most of the markets ended on a negative note as clear cut solutions for the Euro zone crisis looked hazy. Going forward we believe the market to get some direction after the monetary policy. But as we are in a global village the ripple effect of negative happenings across the globe will certainly cast a shadow on our performance. A healthy rally on back of an anticipated rate cut seems unlikely as the hopes may have been already discounted by the markets. Volatile trade with some occasional rallies cannot be ruled out.