There are no signs of global economic recovery; developed markets are in struggle cutting the capacity of emerging markets, leading to extended ZIRP (Zero Interest Rate Policy) in major economies from near ZGMC (Zero Growth Momentum Conditions); geo-political issues from Russia and extended tussle between ISIS and USA & allies are major risks in play to turn investors into risk-off mode over long period; all these factors lead to risk aversion on equities and safe-haven flow into Gilts, surprise being the loss of shine on the precious metals while weakness in Crude Oil and base metals is from lack of demand when supply in plenty!
The worry is from extended sluggish phase since 2008-2009 with no sight of light at end of the tunnel! US and India is seen to be relatively better (best among the worst?!) while Euro/UK zone, Russia, Japan and BRCS (India excluded) are under severe pressure on growth. The impact on the financial markets is severe; DJI struggle to retain recovery over 17000, 10Y US yield down from 2.65% to 2.40% despite FED preparedness for start of rate-hike cycle by mid 2015, Brent Crude down from over $115 into set reversal target at $85-95 and #DXY extended safe-haven rally over 86.25, driving Euro down into 1.25 and JPY into 110. The general risk-off mood is there to stay retaining bearish momentum on global equities, higher demand for low risk-safe haven Gilts, consolidation in commodity assets and firm DXY.
Impact on Indian markets:
India is better placed than most other economies retaining global investors appetite in India financial assets - equities and bonds with comfort on Rupee exchange rate. If Modi could shift gears from "talk to walk", time-lag from now to sovereign rating upgrade would be minimal; first benchmark target being FY15 GDP growth rate over 5.5% with follow-on policy guidelines to make the global investors walk on the red carpet!? Overall, despite external headwinds, impact on India financial assets may not be significant.
The near term outlook is marginally negative, seen as correction phase retaining short/medium term bullish momentum. All taken, see no major cues to review set short term focus on NIFTY at 7700/7850-8150/8300 but allowing correction not beyond 7700. Rupee is seen to be in sideways mode at 61-62/63 retaining end Mar'15 $ resistance at 63.85/64.00 with importer's interest at 63.00/63.15. Market dynamics is mixed on 10Y bond yield with strong resistance at 8.40% (fear of delay in rate cut not ruling out small hike) and strategic buy support at 8.50-8.65% (chasing easy liquidity and safe-haven appetite).
India is in an enviable position from Modi impact when the global markets are nervous and shaken!
Great feel indeed!
Moses Harding
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