Volatility And Uncertainty Of The Indian Markets

Volatility and uncertainty are two factors that make the investors fraternity un-comfortable. And currently the scenario is such that, not only the domestic markets even the global markets are volatile and uncertain.  This has made the investors nervous and no wonder that the equity indices globally witnessed a southward movement.  The change in the sentiments has been sudden and surprising. The important question here is, what is the prime reason behind such a drastic change in the scenario. 

If investors could recollect, in our preceding market view we had stated that all eyes will be on policy decision. The way, in which both the central banks (India and US) have surprised every investor on the street, the decline in the equities was bound to occur. While the RBI increased the Repo Rate by 25 basis points, Ben Bernanke cut the bond buying by USD 10 billion at the second consecutive policy meet. The consensus estimates were about RBI maintaining a status quo and Bernanke hardly making any taper at his last policy meet. 

Both announcements made a negative impact on the global equities. While the hike in repo rate raised the question marks on the GDP growth on domestic front, the increase pace of cut in bond buying (cut of USD 10 billion to USD 65 billion per month) raised fears of FII flying away from the riskier asset class like emerging markets with India being no exception.  In the last week Indian markets witnessed some glimpse of it as the FIIs sold heavily (See Figure – FII Investment). In addition the contracting manufacturing PMI data for China and the ISM manufacturing data for US also added to the woes.  As a result the equity indices witnessed a decline.  

Apart from that there was good amount of volatility in the currencies. With the FIIs taking out money from the emerging markets, the USD strengthened against the respective currencies.  One noticeable factor is, INR remained less volatile as compared to the other peers. Thanks to the RBI policy which has been consistently focusing on making the currency less vulnerable to the global factors. 

Other major event has been the December quarterly results. Again there was hardly any positive surprise as the results season was quite muted.   But one positive factor that emerged is the good response to the Telecom 2G auctions. The Government has managed to mop up Rs 13000 crore on the first day. It is a positive factor as it would help the government provide some amount of solace on the Fiscal Deficit front as the experts are expecting around Rs 42092 crore to be raised.

For the coming fortnight we are expecting the markets to remain volatile as the markets would dance to the tune of global cues. The outflow of FIIs will still remain an event to be looked into. Further the data from Chinese markets as it opened after the long holiday needs to be followed keenly. Apart from that the announcement of IIP number and inflation data would be the factors to be seen on the domestic front.