Market Grapples For Direction

In stock markets the sentiments change very quickly and the way Indian equities have been behaving in the last two weeks it really seems so. In the past two week the markets remained volatile as while few of the macro factors helped the leading benchmark indices surged, profit booking on the street kept the indices under check. Rather the F&O expiry in the month of July was one of the most negative closing in the past few months. While the expiry was negative, the next day was even worst as on Friday (last trading session of preceding week) the indices declined further. While the Sensex was down by more than 414 points to close at 25480 and Nifty declined 118 points to close at 7602.

With factors like stable government and its ability to bring the reforms on faster track, Indian indices surged significantly in the past few months. Apart from that the financial results of the company for the quarter ended June 2014 also took the markets to higher levels. But now it seems that he investors seem to have gone a worried about the higher valuations of markets. What one can say is, after a dream run on the bourses the bulls faces a reality check on the street. Even FIIs sold on the first trading session of august series which is a most negative factor for the markets.

The inflation sword is still hanging over the head as the food prices are yet to witness decline. And hence considering the data on the IIP and Core sector growth it is expected that RBI is likely to keep the Repo Rates unchanged on the policy meet scheduled on Tuesday August 5, 2014.

While this is the scenario on the domestic front, on the global front also there has been some amount of profit booking that happened in the preceding week. The US stock market finished a down week on a cautious note with small caps leading the retreat. The Russell 2000 lost 0.5%, widening its weekly decline to 2.6%, while the S&P 500 shed 0.3%. The benchmark index ended the week lower by 2.7%.

As about market movement on Friday, the market was provided a basis to rebound with the July employment report, which was just right for the policy doves. It was 209000 versus consensus of 220000. It showed payroll growth that was weaker than expected, average hourly earnings that were flat, and an uptick in the U6 unemployment rate to 2.2% from 12.1%. Despite the better than expected macro data the US indices witnessed a decline. This clearly indicates towards the fact that market participants are taking news on negative front. It was most negative week for Dow since 2012. As for the Asian indices, Nikkei is trading flat with marginal gains of 0.03 %. Hang Seng and Shanghai are however trading in positive zone with gains of 0.37% and 0.64 % respectively.

SGX Nifty however is trading in green with gains of 0.70%. It seems that after a good amount of profit booking, some amount of value buying that may happen at lower levels. However the upside does not seem to continue for long and as we move toward the end of trading session, indices may lose gains.