The Hindu Business Line : Indices may start well

This week Indian equities may open strong, but tend to follow the cues from other financial markets after FOMC’ call on US rate on September 18. Markets appear to have already priced in a 0.25 percentage point cut in the US benchmark rate. The actual move, whether downwards or keeping rate unchanged, would swing the market either way. If the cut is just as expected, markets may tend to move sideways.

Major global equity funds, despite heightened risk aversion, have recently been reposing a faith, albeit to a relatively lesser extent, in Asian ex-Japan assets as a result of an emerging consensus that a macro economic and financial decoupling with the US may take place over a medium to long term.

Bullish on growth

Consensus growth projections were upgraded for most of the Asian economies including India at a time when global market corrections were under way.

However, market economists feel the unfolding decoupling trend is still tentative. China and India are directly and indirectly dependent, in varying degrees though, on the international trade as of now.

But many contend that in case of a serious US slowdown, these two economies may largely buck the trend on account of the strength of their domestic markets and intra-regional trade and investments.

India and China also seem to stand out among many in the world in financial decoupling with the US. Staying clear of sub-prime markets abroad, Indian banks have done even better than its Chinese counterparts. Such exposures for Bank of China ($ 9.7 billion) and China Construction Bank ($ 1.1 billion) have not, however, dented their profitability so far. Indian currency has also remained unaffected in the turmoil and the capital inflow resumed after a brief pause.

The forthcoming quarterly results and guidance of the IT sector companies would be pointers to how India Inc is readjusting to changing realities.

Slow-down

Last week, portfolio investment flow to Dalal Street from abroad was distinctly weaker than the previous week as anticipated in these columns.

On two days, FIIs were net negative in their investment figures. Mutual funds and domestic institutions too were chary of making fresh large commitments in the cash market.

Rise in crude oil prices, including that of the basket of imported by the country, have been firm to cause worry. More indications were also available fall in consumer goods demand in the recent months, particularly in automobile and cement.

Infrastructure and agriculture sectors continue to be drag on the growth. However, analysts still seem to pin their hope the forthcoming festive season and the after effect of a reasonable good monsoon for the earnings growth ahead.

Higher valuation

The benchmark index, now marginally lower than its life-time high, is fetching many of its 30 components price-to-earnings multiples among the highest in the world.

Invest strategists are currently focussing more on identifying new stocks. In the short run, the market broadly may drift within a range.

In the next couple of weeks, apart from corporate results, the stock market would keenly watch the economic and political news flow to firm up the medium term investment tactic.

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