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BW Businessworld

Global Events To Set Terms

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This week, stock markets will gyrate, perhaps more than they have in the last two. Here are three things: one, how the markets read the October 23 meeting of the European Union. So far the news looks bad. Two, what the Reserve Bank Of India will do about interest rate hikes: pause or continue. Opinion is divided about which way the central bank will go. But more importantly, look for what it says about the economic outlook for the financial year.  Lastly, the tenor of corporate quarterly results. Here, pay more attention to the half year, not just the quarter. That will tell you how much catching up companies will have to do.

Last week, as expected, the market reacted to the disappointing corporate results reported by blue-chip companies.  The Indian markets lost 2 per cent with players offloading their stocks ahead of the crucial European Union (EU) nations meeting on 23 October 2011 that will meet to discuss the bailout of Greece and other heavily indebted European nations. "We will have to wait to see if the bailout package is for short-term or the long-term. It doesn't make sense if it's a 3-4 month stop gap arrangement," says Ambareesh Baliga, COO at Way2Wealth, a financial services firm.

These are uncertain times and across the globe players are waiting to see what measures the European government takes to recapitalize the banking systems. The underlying fears of banking sector contagion still continuous to pose threats and the market aren't prepared for anymore failing of banks. There are doubts over the financial soundness of the banks because they lack confidence in the valuation of banking assets such as sovereign debt.

While Monday morning Indian markets will follow its Asian counter parts, the coming week players will also key an eye on the Reserve Bank of India (RBI) monetary policy on 25 October 2011. Though the market has discounted a quarter per cent hike in rates, players are waiting to see RBI governor's future stance on inflation and rate hikes.

Last week Brazil has cut its rates by a half per cent to spark growth and many feel India and other nations like China will soon follow. In India, expectations are if not a cut at least RBI would indicate of no more hikes following the slowdown in economic activity.

Meanwhile, in the week ended 21 October 2011, the Bombay Stock Exchange (BSE) Sensitive Index (Sensex) ended with a loss of 297 points at 16,785.64. The disappointing results from index heavyweights — RIL, TCS and L&T were responsible for pulling the index lower which remained on a flip-flop mode for most of the week. "There is hardly any activity in the market. Players are holding on to their position and aren't committing any fresh money into the market," says Baliga. He adds: "Though the Sensex is moving in a narrow band of 1000 points. There is a lot of volatility and therefore players aren't willing to enter the market." This has also impacted volumes in the market.

This month, on the BSE, the daily average turnover has dipped by 7 per cent to Rs 2,400 crore, compared to Rs 2,588 crore in September. The turnover is sharply down since January that used to record a daily average turnover of Rs 3,500 crore.

On the other hand, despite uncertainty prevailing in the market on account of global as well as domestic concerns, Ramit Bhasin, managing director & head-markets, India at RBS is bullish on the Indian equity market. "The Indian market has held on very nicely despite the volatility and from a 2 to 4 years stand point I am bullish on equities and we are buying at current levels on expectation that it could give a return of 20 per cent in the next 18 months," says Bhasin. One of the reasons why he is positive on the market is because he feels all the bad news is factored in the price and secondly he sees core inflation stabilizing. Core inflation measures using exclusion method that excludes volatile items like food and fuel. But core inflation is said to be stickier as it includes
prices of manufactured products which do not change very often.

Meanwhile Baliga is also positive on the market. "Today 30 per cent of my money is parked in equities. And if market tanks, and there is all the possibility that market can tank by 10-15 per cent, I will remove money from debt and invest in equities in the ratio of 40 per cent equities and 60 per cent debt." He adds, "In terms of valuation markets are attractive. One can't time the market and therefore one should start accumulating quality stocks."

Though experts feel that bad news is all discounted in the price and the clouds of uncertainty are getting lifted, a  clearer picture would emerge only after Sunday's Euro-zone meeting that could make or break the Indian market in the next week. 

Post Script: A Silver Lining?
On Monday, the sensex rose as much as 1.6 per cent early on Monday, with index heavyweight Reliance Industries and ICICI Bank leading the gains, as investors cheered renewed efforts to limit the euro zone debt crisis.

At 9:16 a.m. (0346 GMT), the 30-share BSE index was up 1.55 per cent at 17,045.03 points, with all its components rising.

The broader 50-share NSE index was up 1.54 per cent at 5,127.90.