Weak global cues, tension in Gulf will add to pressure

The stock market is likely to remain under selling pressure this week due to weak global cues, particularly from the US and Europe. Geo-political tension in the Gulf region will also aggravate the sentiment.

Besides, the sudden sell-off on Friday on Dalal Street has shaken the confidence of some market participants. A few analysts, who were predicting an ambitious year-end target for the Sensex and Nifty, are slowly expressing their doubts on the current rally.

The US fiscal cliff continues to be the hot topic among global fund managers. Though the initial negotiations between the US President Barack Obama and Congressional leaders brought some optimism to investment fraternity, fund managers are still doubtful of a quick fix solution to it.

Fiscal cliff refers to about $600 billion of automatic budget cuts and tax increases unless the US reaches a deal before the year-end deadline. Global markets will dither as long as the problem prolongs. Former Federal Reserve Chairman Alan Greenspan told Bloomberg Televisions: “The markets will crater if we run into any evidence that we can’t solve this problem”.

Euro Zone Finance Ministers are meeting on Tuesday to decide on the next tranche of bailout money to Greece, which has passed a new round of spending cuts. Spain is also facing similar fate. Already both the countries are witnessing street protests against the austerity measures and reports of suicides.

The conflict between Israel and Hamas continued to intensify along the Gaza strip for the fifth straight day. Crude oil rose on concern that this clash will escalate into a wider conflict that would endanger West Asia crude oil shipments. Brent Crude, which Indian refiners consider as benchmark, is nearing $110 a barrel. This is not good news for the Union Government, which is facing the humongous task of containing the fiscal deficit. Its 2G auction fetched less than half of targeted amount. .

Investors will also be keenly watching the Winter Session of Parliament, which will decide the fate of FDI in retail and other key reform measures initiated recently by the Government. Though the Government is confident of its numbers in Parliament to pass these Bills, analysts are sceptical and are advising investors to book profits.

Another worry for the Indian market is foreign institutional investments. Though FIIs were so far net buyers and pumped in over $18 billion into Indian equities, impending profit booking even by a small amount ahead of year-end will push the market further down.

badrinarayanan.ks@thehindu.co.in

(This article was published on November 18, 2012)
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