The drag continues

They are not free who drag their chains after them - French Proverb. UPA II’s governance deficit continues to be a drag on the markets. The "coal-gate" remains a major overhang. With the economy on a downward spiral, lack of meaningful progress on market-friendly reforms will further dent investor sentiment. Then there is the looming threat of a debt downgrade, which may add to the long list of macro-economic woes. Today’s start is likely to be muted as global investors have chosen to move on to the sidelines ahead of a crucial ECB policy meeting later today. The odds of ECB president Mario Draghi announcing a bond-buying programme have been rising. One has to see if Draghi obliges the markets or disappoints by deferring the call on fresh monetary stimulus. Meanwhile, the RBI is unlikely to budge on its monetary stance unless it sees material signs on fiscal reforms. Essentially, the situation is unlikely to change much in the foreseeable future for the Indian or for that matter world markets. That calls for a measured approach in the near term. Avoid needless adventures and stick to a stock-centric strategy. A few economists expect the ECB to cut its main lending rate to 0.5% from 0.75%. Attention, however, is focused on bond-buying measures. Any ECB action will be linked to political developments. Plus, there are worries that Germany may turn out to be a party-pooper as far ECB’s bond-purchase plan is concerned. The next six days of major event risks could potentially make or break the markets. The Indian markets drifted lower on Thursday on the back of weak global cues, with the Nifty closing below 5250 levels. However, the Nifty held on the support of rising gap at 5220 on a closing basis. So far, there has not been any sign of bottoming out and a move below 5200 could see the Nifty test the 200 DMA (5120). Trend in FII flows: The FIIs were net sellers of Rs 1.88bn in the cash segment on Wednesday while the domestic institutional investors (DIIs) were net sellers of Rs 1.66bn, as per the provisional figures released by the NSE. The FIIs were net sellers of Rs 4.65bn in the F&O segment on Wednesday, according to the provisional NSE data. The foreign funds were net buyers of Rs 3.02bn in the cash segment on Tuesday and the mutual funds were net sellers of Rs 635mn in the cash segment on the same day, according to the SEBI figures. Global Data Watch today: Japan Foreign Bond Investment (Aug 31), Foreign Investment in Japan Stocks (Aug 31), US Democratic National Convention, Australia Unemployment Rate (Aug), Australia Unemployment Change (Aug), Bank of Japan’s Governor Shirakawa speech, France ILO Unemployment (Q2), UK Halifax House Prices (Aug), Italy Trade Balance non-EU (Jul), France 10-year Bond Auction, Spain 2,3,4 - year Bond Auction, EU GDP (Q2), Greece Unemployment Rate (Jun), Germany Factory Orders (Jul), UK BoE Interest Rate Decision (Sep 6), UK BoE Asset Purchase Facility (Sep), US Challenger Job Cuts (Aug), EU ECB Interest Rate Decision (Sep 6), EU Rajoy-Merkel Meeting, US ADP Employment Change (Aug), EU ECB Monetary Policy Statement and Press Conference, US Initial Jobless Claims (Sep 1), US Continuing Jobless Claims (Aug 25), US ISM Non-Manufacturing PMI (Aug).