STOCK-SPECIFIC MARKET LIKELY

Sentiments play an important part in markets and sentiments change in no time. In the preceding fortnight, the markets were soaring on the back of FII inflows and positive macro data on the global front. However, when everything was looking hunky dory, there has been a sudden change in sentiments. Equity indices globally witnessed a decline amid high amount of volatility. Volatility has increased significantly of late, especially after the US FOMC meet on July 30, 2014. Along with the macroeconomic factors, the re-emergence of geopolitical risks has added to the worries.

While the global indices remained volatile, the Indian equity indices too were no exception. Leading benchmark indices witnessed profit booking pressure, especially on the expiry of July month F&O contract. While many expected profit booking to end on July F&O expiry, markets proved them wrong as profit booking continued even after the expiry. What added to the worries was the increase in trading volumes along with the decline.

If we take a look at the trading pattern, the fall was mainly triggered due to the FIIs turning net sellers after a long time. Just to put the figures in perspective, FIIs which were consistent buyers of Indian equities on YTD basis started the month of August on a negative note. Since July 31, 2014, the FIIs have been net sellers to the tune of Rs 2,900 crore.

There is a combination of factors behind the FIIs suddenly turning into sellers. First and the foremost being the fact that since the benchmark indices had witnessed a sharp upmove, valuations were running ahead of other emerging markets. It is true that the financial performance of India Inc has been in line with street estimates and there were no big positive surprises on that front. The second factor is the geo-political risk from Ukraine re-emerged, spooking the equity markets globally. No wonder, the FIIs may take the flight back to safe haven. Last, but not the least, the US macro data indicates that the US Fed may raise the interest rates ahead of street expectations. We feel that in anticipation of the same some of the investors have been taking out money from the emerging markets.

Coming back to the domestic markets, the RBI as expected maintained a status quo at its policy meet held last week. It was on expected lines as the headline inflation is still above the comfort level of the RBI. Apart from that, there was good improvement on core sector growth and the IIP. We feel considering the current situation, the RBI is unlikely to tinker with repo rates, at least in the medium term.

Going ahead, there are hardly any triggers for the market. However, there are likely to be some triggers like the IIP announcement and a few important pending bills getting cleared. Till then, the markets are expected to remain uncertain. Rather, we feel that it is going to be a stock specific market for some time.