Editorial

Markets On The Tenterhooks – Could Swing Either Way!

Indian stock market bears effectively countered the fight given by the bulls while trying to push the indices to the peaks during the second half of August 2018. Reversal in the high weighted index stocks and further dip in the remaining stocks speedily dragged the markets down. The rupee making new all-time lows daily to 72.92 amid sharp bounce-back in the global oil prices above USD 79.50/barrel, nearing 2018 high of 80.50 and the feverish dollar buying by the bankers and importers led to weakness in the markets. The robust US jobs data signalling positive economic outlook, but the ongoing tariff war concerns have pulled the dollar up against other major currencies, resulting in correction in the markets. Donald Trump's statement on levying tariffs on almost all imports from China weakened the sentiments in the US too. The resulting negative economic environment has led to fears of another rate hike by the US Fed and, in fact, the Fed officials are mulling two hikes before the end of the financial year 2018.

We have ECB monetary policy announcement on the cards. Trade war worries, sudden chaos in the emerging markets and cautiousness ahead of the Italian budget would shape the ECB decision. The Bank of England (BOE) is expected to keep the rates steady after the 25 bps hike in August. The discussions on Brexit and the governor's tenure would be the key triggers for the markets to react.

Domestic macro data, which have been saviours of the markets all-through the tough times in 2018, too succumbed in September leading to the sell-off in the markets. As stated earlier, apart from the mixed auto sales numbers and the easing of manufacturing and service data, all eyes of the investors were on the IIP, WPI and majorly the CPI data. In the previous month, the decrease in inflation due to food prices falling more than 50% and the simultaneous surge in the IIP had kept the markets going. The escalating fuel prices and the expected bounce-back in food prices amid deficient rains in the states of Jharkhand, Haryana, West Bengal, Gujarat, Punjab and Bihar, which account for 34% of the entire foodgrain production in the kharif season, impacted the markets. That apart, China's production data would be crucial for the RBI to decide on a further rate hike in the repo rate which, for now, appears to be a likely possibility.

All-in-all, we are in September and the markets were expected to stay volatile to negative; but whether the current retreat in the markets is profit-booking or trend reversal is yet to be decided. May be the bears will take charge of the markets till the festive season, as later the state elections followed by the Union budget and Lok Sabha elections will drive the markets till the end of the financial year.

The correction, which was essential, is happening now; the only concern is whether the correction is for a bigger push upside or for a downward slide. Investors holding fundamentally strong growth stocks can continue holding them, otherwise it is better to book full or partial profits on the remaining holdings. Traders need to trade cautiously, specifically the intra-day traders, as the markets are simultaneously witnessing lacklustre moves in the stocks and sharp plunge in the indices.



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