Global Issues Will Direct The Markets, For Now
Indian markets looked depressed on the back of unabated selling in the early part of the week, and on Tuesday, the BSE Sensex scored the longest losing streak in eight years. The compass needle was on the pessimism side as the street suspected border tension to flare up as well as other concerns such as the rising crude oil prices and global growth were seen as key catalysts that kept the investors on the back foot. In such a gloom and doom scenario, it was a pressure cooker situation for the investors and the only question that popped up in their heads was ‘How much more fall could we seen from here?’ After the ninth successive day of correction, the markets had wiped out over Rs 6 lakh crore worth of investors' wealth. However, as it is said, there is light at the end of the tunnel, bulls came to life on Wednesday and staged a splendid rally. The surge can be attributed to short covering and bargain hunting as the trade-talk euphoria between the US and China was seen as the key positive catalyst. Also, in the midst of the gloomy scenario, the bullish wave came in the form of recapitalisation of the banks. The government announced recapitalisation to the tune of Rs 48,239 crore of 12 public sector banks during this fiscal. This decision was welcomed and quite fortunate as it came at a time when the NBFCs are facing liquidity crunch. More importantly, the capital will help the banks to come out of the PCA norms so that lending can pick up, which may lead to an increase in the market share of public sector banks, especially the recent banks that have exited PCA. Apart from recapitalisation, banks have recovered Rs 1 lakh crore under the Insolvency and Bankruptcy Code. The recovery is expected to scale up to Rs 1.8 lakh crore by March 2019 as some of the resolutions are at the final stage. In other developments, the 33 rd meeting of the GST Council under Arun Jaitley was adjourned to February 24 after some opposition-ruled states demanded that a meeting, where members are physically present, be set up for deciding on such a crucial issue such as a special scheme for the real estate sector and single rate tax on lottery.
On the Wall Street, the stocks continued their buoyancy as market participants tried to interpret a release from the Federal Reserve. The release indicated that the Fed would be patient on future rate hikes.
The yellow metal recently touched the level of $1344 per ounce, a level it had not seen since April 2018. The main impetus for the surge in the price is the change in approach by the Federal Reserve as it shifted its tone on the possible future changes in its monetary policy. Also, the US-China trade uncertainty and the difficulties of the Eurozone meant more negative interest rates and negative yields on bonds, which make gold look better than it would otherwise. Meanwhile, the US crude benchmark prices marked their highest finish in three months amid growing optimism that the US and China could strike a trade deal, as well as evidence of shrinking global supply because of OPEC-led production cuts. The big question now is: Is it a dead cat bounce after a sharp fall or will this rally sustain? A lot would depend on the cues from the global front as, in the coming week, there is no major trigger on the domestic front. So, all the more reason to pay attention to the talks between the world’s largest economies, i.e. the US and China, that are aimed at ending a trade war as the clock is ticking down at the deadline date of March 1 and also the crude oil prices. The landscape will remain favourable for the bulls only if the trade war issue is banished from the front page.
