Market in New Year

The movement of leading India equity indices in year 2011 can’t be considered in a proper way. SENSEX itself corrected around 6.95% in the first 6 business days of New Year. As per the current market scenario it won’t be wrong to say the SENSEX & NIFTY may slide further before market enter into some established position. Other than the fear of inflation there are other factors also which are causing this decline. The developed economies especially US and EURO zone are still not in good shape and as per the latest available figures they don’t seem improving condition. Once they (those developed economies) will start improving themselves then it might be possible that their investment fund managers will shift their concentration towards those developed market rather than emerging markets like India. So again this activity will result in terms of reduced FII activities in to the markets like India so definitely then the Indian paradigm will be less volatile.

Now another factor can be considered are anticipation of hike in the policy rates by RBI in coming rate review meeting (Jan 25). Food inflation touched 18.8% (Dec. 2010) may give a chance to regulators to hike key policy rates and ultimately this hike in policy rates will result in terms of surge in the interest rates in the country. If every thing happens as per the anticipation then it’s sure that this increased interest rate will become a reason to influence G-Sec markets. On Monday the yield of largest traded 10 year GOI bond was recorded 8.25% (4bps up compare to Friday close and highest since liquidity crisis of 2008). Second most traded GOI bond was 8.08%, 2022 which also closed high 3bps compare to Friday close and it was 8.21%.

Increasing oil prices are also not missing their part to strengthen USD which inversely impact on domestic FX market. In the stock market, sectors which are more sensitive to interest rates, like real estate, consumer durables, banking and auto, witnessed strong selling.