Hope Floats Across The Atlantic

The first fortnight of the new year has been a good one. The global markets have reacted positively to a face-saving agreement on the US fiscal cliff, says Saikat Mitra.

The new year 2013 started off on a happy note indeed. On the last day of the previous year, in a marathon late night meeting, the US lawmakers were able to reach a deal to avert falling off the fiscal cliff. This has ushered in some real positive vibes across the globe.

These developments have not failed to touch the Indian markets. In the last fortnight, the Indian markets closed on a positive note, with the Nifty crossing the psychological mark of 6000.

On January 2, 2013, HSBC came out with the world PMI data for Dec 2012, which showed signs of strength. HSBC’s world PMI data for the month have witnessed an improvement and expanded to 50.2 after coming in at 49.6 in the month of November 2012, which marked a contraction. The bank’s India Services Business Activity PMI for the month of December 2012 stood at 55.6, which was much higher than that of 52.1 in November 2012. This sharp rise in services activity by the private sector is at its highest in 10 months. This growth in the numbers can be attributed to growth in new orders.

On the global front, as already mentioned, the US lawmakers’ deal to avoid the fiscal cliff was the major stimulus. The deal was approved by a vote of 257 to 167. If this agreement was not reached, the situation would be perilous not only for the US economy but also for the world economy, as the situation in the Euro zone is not that encouraging either. The US economy moving into a recessionary phase could have pulled down global economic growth too. Of course, with respect to the spending cuts, the deal has only delayed the measures. It is expected that in next two months, when the US economy would approach its debt ceiling limit, it will again open a new window of volatility. There are some important data like the Mortgage Application, Jobless Claims and Consumer Credit due in the next fortnight, will be watched closely.

Coming back to the domestic front, most of the indices in the broader market have closed the fortnight in the green. The BSE Mid-Cap and the BSE Small-Cap indices ended higher, with a gain of more than three per cent. On a sectoral basis, 10 out of the 13 indices have closed positive. The BSE Oil & Gas index has secured the top spot with a gain of more than six per cent. BSE PSU (+5.52 per cent) and BSE Realty (+4.44 per cent) were the other top gainers. The main draggers in the last fortnight were the BSE FMCG index (-2.27 per cent) and BSE Capital Goods index (-1.49 per cent).

The money inflows remained strong in the last fortnight, with FIIs pumping in an astounding Rs 6765 crore in equities since the start of the new year. DIIs ended in the red, selling off equities worth Rs 357 crore. The results season has begun, and we believe that this will be the major driver for the markets.