Markets Await Monetary Policy Meet

After the Union Budget 2013 failed to provide a major trigger to the markets, the next expectation lies on the monetary meet scheduled for March 19, says Saikat Mitra.

The last fortnight witnessed what is considered to be a major trigger for the markets – the Union Budget 2013. The expectations were high as there were a slew of reforms that were unleashed before the budget, after P Chidambaram assumed the office of the Finance Ministry in the month of August 2012. But to everyone’s disappointment, the budget has truly been a non-event. The displeasure with the budget can be seen clearly in the markets. In the fortnight ended March 6, 2013, the Sensex and Nifty went down by 1.99 per cent and 2.09 per cent respectively.

There has been a contradiction about the state of the markets and what the rating agencies are saying. What needs to be highlighted is that although there is nothing encouraging in the budget, there is nothing bad in it either. Therefore, the rating agencies and leading industry leaders have given the budget a thumbs-up. 

There are concerns over certain issues that the market players are still finding answer to. The FM has spoken about containing the fiscal deficit to 4.8 per cent in FY14 as against 5.2 per cent for FY13. The question is whether this is a realistic figure. Also, the FM intends to spend Rs 1665297 crore but the source of funding is not clear yet. The construction of 3000 km of roads in the first six months of FY14 looks quite unachievable when only 600 kms have been completed during the period from April to October 2013.

Another important piece of data that arrived last fortnight is the GDP growth for the third quarter of the current fiscal. The Ministry of Statistics and Programme Implementation (MOSPI) has come up with a disappointing set of Q3FY13 GDP numbers, at a meagre 4.5 per cent. The GDP for Q1FY13 stood at 5.5 per cent, while that for Q2FY13 had come in at 5.3 per cent. The CSO had previously estimated the GDP at 5 per cent while the RBI was cautiously optimistic and expected the growth to be at 5.5 per cent for FY2013. Whatever be the case, after looking at the Q3FY13 numbers, it is quite clear that the country is struggling for growth and the Indian economy is going through a pretty rough phase.

With respect to the broader markets, almost all of the indices have closed on a negative note in the last fortnight. The BSE Mid-Cap and the BSE Small-Cap closed in red declining by 4.58 per cent and 6.53 per cent respectively. 

On a sectoral basis, 10 out of the 13 indices have closed in the negative zone. On the gainers front, the BSE IT index has secured the top spot with a gain of more than five per cent. The BSE Teck index (+4.46 per cent) and BSE Consumer Durables index (+1.15 per cent) were the other two gainers. The main draggers in the last fortnight were the BSE PSU index (-6.37 per cent) and BSE Metal index (-6.08 per cent).

Now taking a look at the global front, the United States (US) recently came up with a couple of major announcements. The first one was its GDP numbers for the December 2012 quarter, while the other one was about beginning the sequester (compulsory spending cuts) from March 1, 2013. The country’s GDP grew by 0.1 per cent in the December 2012 quarter, well below the Wall Street’s expectations of around one per cent for the quarter. However, Dow Jones hit a four and half year high after improved US service-industry data.

On the flip side, the global economy has shown a slight decline in growth in February 2013. The JP Morgan Global Manufacturing & Services PMI has hit a four-month low of 53 in the month, down from 53.2 in January 2013 this year. The average reading of 53.1 so far in the first quarter of the calendar year is marginally up against the same in Q4 of the last calendar year at 52.9.

The money inflows remained strong with the FIIs pumping in Rs 45283 crore in equities for the current calendar year. However, the DIIs continue to remain in a selling mood and sold off equities worth Rs 6119 crore for CY13. Going forward, the only distant trigger that the markets can take a cue from is the RBI monetary policy meet scheduled for March 19. It is, therefore, over to the RBI now for providing a direction to the markets.