Global sell-off…lack of conviction

You must stick to your conviction, but be ready to abandon your assumptions. - Denis Waitley.

Mounting evidence of an economic slowdown have resulted in a short supply of confidence and conviction. If the GDP data was not enough, reports now show weakness in the core sector and manufacturing. Auto sales have not been spectacular either. It remains to be seen how the RBI reacts to these data points on June 16. Before that we will have to contend with the EGoM on fuel prices on June 9, unless it gets postponed again. April IIP data will be out on June 10 and May inflation will be announced on June 14.



For today, we expect a weak start on the back of a worldwide sell-off in equities and drop in commodities. Hopefully, there might be some relief later in the day, especially if offshore markets recover. FII flows have been positive but trading volumes have been tepid. Weekly food inflation data will be on the radar of market players amid worries about inflation.

US stocks slumped in the wake of grim data on factory output and private payrolls. Manufacturing PMI reports from other parts of the world have been anything but inspiring. Greece has seen its debt rating slashed by Moody’s as trepidation continues over its precarious fiscal health. Friday’s US jobs report will now be closely watched.

Back home, the Indian markets traded in the range of 5560-5600 on Wednesday with the key indices closing near the upper band of resistance at 5592. The peak of 5605 made during 13th May could prove to be a problem area. Any move above it could lift the Nifty towards 5700. We advocate caution at current levels with immediate support likely around 5520. The Nifty could encounter resistance around 5640 and 5750. On the way down, the key level to watch out for is 5350. A break below this level might set the stage for re-testing of the 2011 lows. However, that is still some distance away. In the near term, the market could hold steady if FII flows remain positive.

FIIs were net buyers of Rs 4.45bn in the cash segment on Wednesday, according to the provisional NSE data. The domestic institutional institutions (DIIs) were net sellers at Rs 1.42bn on the same day. In the F&O segment, the foreign funds were net buyers at Rs 15.46bn. The foreign funds were net buyers of Rs 12.61bn in the cash segment on Tuesday, as per SEBI web site. Mutual funds were net buyers of Rs 821mn on the same day.

Globally, things aren't looking great. World markets have been jittery on signs of moderation in the US economy and persistent eurozone debt problems. And with the QE2 coming to an end this month, there is anxiety about future prospects for the US economy sans the monetary stimulus. If economic statistics continue to be downbeat in the days to come, there is a remote chance of Mr. Ben S. Bernanke launching a QE3. But, its just speculation as of now. Whether it will actually happen or not is anybody's guess. Let's keep our fingers crossed. Eurozone is another space to keep a close eye on with Greece at the center of the sovereign debt crisis in that region.