The Hindu Business Line : Crucial news flows to set the market direction

Is the Indian equity market nearing the end of its downward corrective phase? The jury is out. Yet there are indications of short-term swing possibilities either way.

This financial year’s first quarter GDP growth numbers of 7.9 per cent against 8.8 per cent recorded in the fourth quarter of the previous fiscal is not unexpected in the backdrop of high inflation and crude oil price levels and RBI’s credit squeeze measures.

However, the alarmist projection that the first quarter growth could be the highest among all quarters this fiscal may be too speculative at this point in time.

Global crude oil spikes and availability of money have largely influenced inflation and interest rates this year. However, crude prices and surplus money in the system have gone down significantly.

Hurricane Gustav

If hurricane Gustav this week does not hit the US oil installations in the Gulf of Mexico and refineries on the coastline as apprehended then oil prices are likely to sink to lower levels. US oil and gas platforms and pipelines are concentrated in the waters south of Louisiana and east of Texas, which are on the hit line of Gustav and supposed to reach the area on September 2. Offshore fields in the Gulf accounted for roughly 26 per cent of total US crude production and 12 per cent of natural gas output.

At home, firming up in interest rates has taken a toll on the demand. The 120 bps sequential deceleration in service sector growth in the Q1 and deceleration in cement consumption growth and fall in capacity utilisation to around 91 per cent in July from more than 100 per cent utilisation in the fourth quarter of the last fiscal are confirmation of a slowdown already witnessed.

Eyes on inflation figures

Despite sharp drop in weighted average rainfall last week, things may start looking up from September, as the RBI is unlikely to come out with further liquidity mop up measures this month if a declining trend in inflation growth sets in. The forthcoming festive season may also add to the cheer of the market.

This week, a number of events, may, however, would determine how things would pan out in the next few weeks. A decision to extend Dr Y.V. Reddy’s tenure, which expires this week, as the Governor of the RBI, would ensure continued close watch on the inflation front, according to market observers.

The results of the two-day Nuclear Suppliers Group meeting would definitely be watched keenly and any untoward outcome could affect market sentiment.

Dalal Street may open weak taking cues from the overseas markets (in response to concerns over Hurricane Gustav, the electronics trading at the derivatives exchange CME Group to remain open on Sunday for NYMEX energy products). Wall Street, however, will remain closed on Monday for Labour Day.

If the news flows remain positive, then Dalal Street may move to an extended range.

(Responses may be sent to jayanta_mallick@thehindu.co.in)