Spooking Markets

What spooked the markets this week…?

The Nifty began the week with a show of confidence almost touching the 8400 mark. But the overall weakness took over and the pressure on the markets was pretty obvious. What exactly created this pressure on the market and what does it hold for the future of the Nifty and the Sensex?

Results were a mixed bag…

It would not be wrong to say that results were overall disappointing. There were pockets of outperformance from Reliance or an Axis Bank but the underlying concerns were palpable. For example, pharma companies were under severe pressure on their global business. IT was hit by cross currency headwinds. FMCG, on the other hand, saw margins squeezed as they had to pass on input cost benefits to consumers. Banks saw little improvement on the NPA front, as even an Axis Bank showed. Erstwhile favorites like cement stocks saw evident pressure on volumes and margins. In short it has been a quarter where the benefits of low input costs could do little to boost market sentiments.

China was the overhang…

China was never too far from the mind of the market players. The rate cut had clearly underlined the slowdown in China. Possibly, it indicated that the scenario in China was much worse that was being made out to be. That is a real cause for worry. Weak growth in China would mean weak demand for industrial commodities. That would throw a lot of economies from Australia to Canada to Brazil to Malaysia into a vortex of cheaper currencies and lower output.

A weak China also raises the specter of a weaker Yuan. We saw in August how a minor devaluation in the Yuan had its ripple effects. Markets have realized that with China slowing down and having adopted a loose monetary policy, Yuan devaluation was never too far off. That surely spooked markets.

FPI flows are a question mark…

That could be the biggest underlying worry for the markets. Firstly, the MSCI has decided to add Chinese and Hong Kong ADRs to the MSCI-EM index. That reduces India’s allocation by 30 bps. Secondly, China is now being seen by many global investors as attractively valued. That may induce many global investors to prefer China over India. Lastly, the language and commentary of the US Fed has been quite hawkish. A US rate hike is never good news for Indian markets!

In the midst of all these uncertainties, the outcome of the Bihar elections continues to keep markets on tenterhooks. Next month the NDA also completes 18 months in office. It may be high time to translate all the euphoria into visible action! ©

A US rate hike is never good news for Indian markets!

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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