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Global market, economic data and corporate results to dictate trends : Business Today

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Global market, economic data and corporate

results to dictate trends
Mahesh Nayak

February 10, 2014

In the coming week too, like last week, the Indian equity market will take its cue from the
global markets. The US's employment related data has been below expectations for the
second consecutive month. This is being interpreted as a positive sign for emerging markets
like India, since it may pressure the US Federal Reserve to temporarily halt, at its next
meeting in March, the quantitative easing process it began at the beginning of the year. (The
US has reduced its monthly bond buying by $20 billion so far.)
Thus all ears will be glued to what the new Federal Reserve chief Janet Yellen says when
she appears before the US Congress on Tuesday, February 11 to get possible hints of the
future direction the Fed will take. Again, on Wednesday, February 12, European Central Bank
President Mario Draghi's may provide some insight into the kind of measures the bank will
take to prevent the euro's deflation - which too will have a bearing on emerging markets.
There will be domestic factors at work too. On Wednesday, industrial production data for the
month of December will be announced, as well as the consumer price index (CPI).rise for
January. On Friday, the government will declare the wholesale price index (WPI) inflation.
The market expects the index of industrial production to improve slightly, though it may
remain negative - around minus 1.5 per cent in December as compared to minus 2.1 in
November. Similarly it expects both CPI and WPI inflation to fall. The CPI is expected to be
close to 8 per cent and WPI below 6 per cent.
This week will also see the last lot of quarterly corporate results for the December 2013
quarter. Among those whose numbers are due are some closely watched blue chip
companies - Tata Motors, Tata Steel, Hindalco, Dr Reddy's Laboratories, Cipla, Coal India,
BPCL, ONGC, State Bank of India, Mahindra & Mahindra, DLF and Sun Pharma. Their
performance too will impact the equity market.
FII flows may have slowed during the last few market sessions, but overseas optimism about
India remains. Despite dismal growth, high inflation, high fiscal and current account deficits
and poor governance, India still managed a GDP growth of 4.5 to five per cent in recent
quarters. Looked at in isolation, this growth is below par, but compared with many other
emerging markets and the world overall, India is doing well and is expected to do even better.
This is the reason why among the BRICS nations' markets, India's is still doing better than
the others.
The Indian market continues to be liquidity-driven, and FIIs are its backbone. But this year
domestic institutional investors (DIIs) will also play a crucial role. In 2013, India saw record
selling by DIIs - net sales of $13 billion, which fortunately were offset by $20 billion worth of FII
buying. But DII selling is nearly at an end, mainly because insurance companies, which are
prominent among DIIs, will no longer face the redemption pressure they used to. In 2010, the
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Global market, economic data and corporate results to dictate trends : Business Today

insurance regulator changed the lock-in period for unit-linked insurance plans from three
years to five years, which means many policies which would otherwise have been redeemed
this year will now remain locked in for a longer period. For 12 to 15 months beginning March,
major sell-offs by insurance companies are unlikely. On the other hand, fresh inflows are
likely from insurance companies and mutual funds. Mutual funds account for one-third of the
DII inflow.
However the pace of recovery will ultimately depend on the general election. A stable
government at the centre after the election will be a key catalyst for the resurgence of the
market. The Indian market may remain volatile until the elections but that gives an opportunity
to build a strong portfolio.
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