As expected, the market was in a corrective phase last week, which saw
the Sensex drop nearly three per cent (573 points) to end below the
21,000 mark at 20,666.15. A weak rupee and rising crude oil prices also
contributed to the fall. The slowdown in foreign inflows saw players
booking profits. Prior to last week's fall, the Sensex had touched an
all-time high of 21,321 on Diwali day.
In terms of fundamentals the Indian equity market does not have the strength to inch higher. It's on a support system, propped up by global liquidity. As long as money continues to flow into the market, the Sensex will hold up. Many are hoping for positive triggers on the domestic front as well which could help the Sensex maintain its upward momentum, but these are unlikely ahead of the general election slated in May 2014.
A silver lining for Indian markets is that rating agencies will not be changing India's rating till next year. This means India will continue to enjoy investment grade rating. The other positive is the continuing weakness in the Eurozone. The latest developments are the downgrading of France by Standard & Poor's which lowered its rating from AA+ to AA, and the rate cut by the European Central Bank (ECB) last week from 0.5 per cent to 0.25 per cent on concerns of deflationary risk. As a result more money may flow from European economies to safe haven like India.
As against this, fears of an early tapering off of quantitative easing by the US Federal Reserve have again surfaced, and may affect market sentiment. Though 'tapering' is bound to start sooner or later, it will not be the end of quantitative easing, it will just slow down the pace of fund infusion into the US economy. Since 2008, when the global downturn struck, the US Federal Reserve has pumped $3.85 trillion into the economy.
Ultimately, as noted earlier, in the near-term, liquidity and only liquidity will dictate the future course of market movement. If money flow continues, fundamentals will take a backseat and the Sensex will inch higher. But if India hopes to rank among the most favoured markets by global investors, the economy will need to improve to the level where gross domestic product growth is in the seven to eight per cent range. At present, that remains a distant dream.
Once growth momentum returns so will liquidity and fresh investment. On the contrary, if the current low growth environment continues, there will be growing stress, some of which is already evident from the September ended quarterly results of many companies.
In the coming week, apart from global trends, domestic economic indicators such as the October trade deficit numbers - which will be announced on Monday - the September industrial output data - expected on Tuesday - and October inflation data - due on Friday - will dictate Sensex movement. Currently it seems the movement is likely to be range bound with a downward bias.
In terms of fundamentals the Indian equity market does not have the strength to inch higher. It's on a support system, propped up by global liquidity. As long as money continues to flow into the market, the Sensex will hold up. Many are hoping for positive triggers on the domestic front as well which could help the Sensex maintain its upward momentum, but these are unlikely ahead of the general election slated in May 2014.
A silver lining for Indian markets is that rating agencies will not be changing India's rating till next year. This means India will continue to enjoy investment grade rating. The other positive is the continuing weakness in the Eurozone. The latest developments are the downgrading of France by Standard & Poor's which lowered its rating from AA+ to AA, and the rate cut by the European Central Bank (ECB) last week from 0.5 per cent to 0.25 per cent on concerns of deflationary risk. As a result more money may flow from European economies to safe haven like India.
As against this, fears of an early tapering off of quantitative easing by the US Federal Reserve have again surfaced, and may affect market sentiment. Though 'tapering' is bound to start sooner or later, it will not be the end of quantitative easing, it will just slow down the pace of fund infusion into the US economy. Since 2008, when the global downturn struck, the US Federal Reserve has pumped $3.85 trillion into the economy.
Ultimately, as noted earlier, in the near-term, liquidity and only liquidity will dictate the future course of market movement. If money flow continues, fundamentals will take a backseat and the Sensex will inch higher. But if India hopes to rank among the most favoured markets by global investors, the economy will need to improve to the level where gross domestic product growth is in the seven to eight per cent range. At present, that remains a distant dream.
Once growth momentum returns so will liquidity and fresh investment. On the contrary, if the current low growth environment continues, there will be growing stress, some of which is already evident from the September ended quarterly results of many companies.
In the coming week, apart from global trends, domestic economic indicators such as the October trade deficit numbers - which will be announced on Monday - the September industrial output data - expected on Tuesday - and October inflation data - due on Friday - will dictate Sensex movement. Currently it seems the movement is likely to be range bound with a downward bias.
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