Expert Zone

Straight from the Specialists

Indian markets at risk but elections could spell change

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

It’s been an eventful September so far for India. The Indian parliament cleared key economic legislation in its extended session. The Reserve Bank of India saw a new governor taking charge. FII flows reversed trend to turn positive in equity and debt markets. Volatility in the currency market subsided and the rupee staged a recovery from historic lows. Near-term bond yields shrank and the August trade deficit came in lower as exports climbed. The Syrian crisis seems to have abated. Does this mean that the worst is behind us and things will start improving?

As discussed in my previous column, some of these actions from the Indian government and the central bank seem like quick fixes to set right deteriorating macroeconomic numbers. India’s Q1 GDP is now at 4.4 percent, much lower than expected, and FY14 GDP growth is expected to be below 5 percent. The rise in interest rates on account of the central bank’s measures to lessen currency volatility will definitely affect GDP growth in the remaining three quarters. Monthly IIP and PMI numbers are not encouraging either. Both WPI and CPI inflation are not yet stable. Headline inflation soared to a six-month high in August. Input costs for the consumer staples basket are set to rise due to currency depreciation, which could have an impact on consumption volumes. On the oil subsidy front, rupee depreciation has again increased per unit under-recovery on diesel, kerosene and cooking gas. The urgent need for a substantial increase in diesel prices could eventually have a dampening impact on growth.

The equity market volatility index has risen despite markets moving up and may indicate that near-term volatility will continue. Before the end of September, there would be more information on the probable withdrawal of QE measures by the U.S. Federal Reserve.

With the monsoon session of parliament over, the political focus would shift to state elections this year that would set the stage for general elections due in 2014. Government spending, which has been curtailed so far to reduce the fiscal deficit, may see resurgence. This could give some support to sagging GDP growth in the second half of FY14. The markets may not cherish any populist announcements ahead of the elections.

India Market Weekahead – Volatility expected ahead of RBI policy review

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After a rally of 500 points on the Nifty, markets consolidated at slightly higher levels to close at 5850 this week. It’s evident that hope keeps the market ticking — this time it was various measures by the new RBI governor, Raghuram Rajan,that cheered the markets.

But expectations, at times unrealistic, could lead to disappointment. Though Rajan made the right moves, it would be interesting to see how he uses the limited manoeuvrability he currently has. The monetary policy review on September 20 would be closely watched.

India Markets Weekahead: Cash is king

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Around mid-week, the Indian markets seemed akin to a sinking ship which saw unabated selling with Nifty hitting a low of 5,168 on Wednesday, before recovering sharply to close the week at 5,471 on the hopes of concrete action by the government to shore up the sentiments and the Reserve Bank of India’s moves to save the rupee.

The street expected structural reforms from the government to tackle this crisis whereas the textbook solutions of the RBI and the government backfired. The rupee cracked to touch 69/dollar, but recovered to close the week at 66.55.

The rupee on a crash course

(Any opinions expressed here are those of the author and not of Thomson Reuters)

Given the kind of volatility in financial products and asset classes that we have seen in India and some emerging markets over the last few weeks, it’s likely to be a long winter for the Indian economy.

The rupee is at an all-time low against the dollar, FIIs are big sellers in Indian debt and equity markets, the Sensex is falling and bond yields have risen. Adding to India’s misery, there’s no sign of inflation easing or interest rates coming down in a hurry. The twin deficits – fiscal and current account – are at levels that could expose the economy to a potential rating downgrade.

India Markets Weekahead – An opportunity for investors

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Indian markets were down for a third consecutive week with the Nifty closing 2 percent lower at 5565 on weak economic signals and disappointing corporate results.

The rupee held on at 60.67 to the dollar.

The appointment of Raghuram Rajan as the next governor of the Reserve Bank of India (RBI) brought the market some cheer. Rajan, a former chief economist at the IMF, is seen as a pro-growth policymaker.

India Markets Weekahead: Prudent to hold cash

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Indian markets ended steady on Friday after rising to its highest intraday level in nearly two months. The Nifty closed up 0.33 percent at 6029, marking its fourth weekly gain.

A weakening rupee led to intervention by the Reserve Bank of India (RBI), which tightened liquidity and lifted short-term interest rates on Monday. Though the central bank’s stance against currency speculation has made it all the more difficult for speculators, it also sent bond yields soaring and led to concerns that an increased cost to borrowers would curtail growth that is already limping at 5 percent. Bond portfolios recorded losses, wiping out gains over the last few months.

India Markets Weekahead: Volatility to continue in results season

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After a spirited rally the previous week, the Nifty moved in a band of 150 points between 5750 and 5900, ending with modest gains of 0.53 percent at 5868. It may seem small but the extreme volatility within this band caught traders on the wrong foot.

Time and again, markets prove that predicting them in the short run is hazardous. Investors welcomed the government’s bold decision to increase gas prices but reacted negatively to its ordinance on the food security bill. The already weak rupee cracked further to 60.35 against the dollar as the election gimmick could cost the state exchequer over $20 billion.

India Markets Weekahead: A spirited rally may be a distant dream

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The week began with the Reserve Bank of India (RBI) maintaining status quo on rates as expected at its mid-quarter monetary policy review. The trade deficit widened to $20.14 billion, a seven-month high and up 13.18 percent over the previous month. Gold seems to be the culprit again and government restrictions don’t seem to deter Indians from buying gold.

The markets held on to hopes that U.S. Federal Reserve chief Ben Bernanke could bring cheer but the indication of a roadmap for a QE3 pullback saw the dollar rally against most currencies. The rupee was among the worst performers, falling close to 60 against the dollar.

India Markets Weekahead – Volatility seen as RBI policy review in focus

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Volatility is here to stay and trying to predict the markets on a daily basis is a futile exercise. It’s no better than tossing a coin.

Monsoon rains are early and heavier then normal, raising the hopes of green shoots in the next few months. Macro numbers were showing signs of bottoming out but the rupee slide has thrown calculations awry. A feeble request by the finance minister urging people to shun gold won’t do much good in a country enamoured by gold.

India Market Weekahead – Inflation, FII inflows to be key

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The bulls are back and their four-week winning streak saw the Nifty close at a 29-month high of 6107 on Friday, up about 2.75 percent for the week. Liquidity flows remain robust, fuelling the momentum despite political heat in New Delhi.

The Congress win in Karnataka boosted positive sentiment, followed by industrial output data that was marginally better than expectations. The overall earnings season has been favourable and along with the global rally provided the right environment for the markets to cross the psychological barrier of 6100 in the Nifty and 20000 on the Sensex. The only thing missing is euphoria on the street and broader participation by investors.

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