December Quarter Results To Drive The Markets

The year 2013 remained quite volatile and kept investors on their toes all along. Despite this volatility, the Indian equity indices closed in the green, with more than nine per cent gains. In our preceding issue, we had mentioned that the markets may remain range-bound on account of most of the international markets being closed for holidays and the overall lack of triggers. As expected, the volumes in the markets remained low. The news flows from the global markets also remained quite disappointing for the Services PMI. As a result, the year 2014, which is expected to be a promising one, started on a wrong foot as the first four trading sessions of the year ended in red.

Among the global markets, to start from China, the HSBC-Markit Services sector Purchasing Managers' Index (PMI) dropped to 50.9 in December 2013 from 52.5 in November. Apart From this, the HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI surveys, signalled overall growth of output across the global emerging markets in December 2013. But the EMI fell to 51.6 from 52.1 in November, signalling a weaker rate of expansion. All of this data was quite disappointing, and it was no wonder that the markets witnessed some sort of profit booking. The Shanghai index moved down by 2.34 per cent in the preceding two weeks. The only Asian index which gained significantly in the last fortnight was Nikkei.

As for the US markets, the year started on a negative note, with S&P taking a decline for the first four trading sessions. The Institute of Supply Management (ISM) Services data for December 2013 was below the street’s estimates. However, the markets managed to recoup some losses with the jobs data announced on January 8, 2014. To quantify, the 238000 increase in employment was the biggest since November 2012 and followed a revised 229000 gain in November that was stronger than initially estimated.

For domestic markets, manufacturing activity in India slowed in December 2013, according to the HSBC India Manufacturing Purchasing Managers’ Index. The index was 50.7, down from 51.3 in November. As a result, the leading indices declined by more than one percentage point. While the broader indices declined, the Mid- and Small-Cap indices made surprise up-moves, up 1.18 per cent and 3.48 per cent respectively. The rate sensitive indices declined, as the majority of investors are still expecting the RBI to tighten liquidity going ahead.

Moving into the next week, we expect trading activity to improve as the holiday season is over and FIIs would start fund allocation. Another factor that would keep the markets vibrant is the announcement of December 2013 quarter results. In the September 2013 quarter, analysts had stated that there were more EPS upgrades and hence expected the December quarter results to be good. Further, the markets would be also waiting for the US Fed meeting minutes to be announced on January 16, 2014. Till then, we expect the markets to remain range-bound, with stock-specific movement expected on the back of the quarterly results announcements.