The Equity indices of various countries in the world had recently seen a roller coaster in the past month. The United States and European nations have witnessed an impact of debt crisis in its equity markets and that also impacted other countries. Many developed and developing nations are finding it difficult to control the fiscal deficit despite all efforts already taken. China reeling due to economic slowdown, India struggling with inflation and instability in south-east Asia were some added concern for the financial world. Any bad news in the developed economy could easily disrupt the equity market scene of developing nation, which is otherwise showing some strength. Gold, Crude and Semi Precious metals prices are some other factors that can trigger a market movement in either direction. The appreciating dollar against other global currencies has spoiled the growth of many economies, whereas China has artificially kept Yuan strong, hence another economic bubble cannot be ruled out. Following are some important triggers to watch in coming days:
RBI rate review on 25th Oct 2011: An increase in repo rate by 25 basis point is possible. Inflation is not expected to cool down in this festive season at least; hence RBI could increase the repo rate by another 25 basis point.
(IMPACT: Negative for Equity Market)
Inflation Data: Now it's a regular threat to an economy as it keeps struggling with Inflation. The Inflation is expected to increase in coming days with a festive season on the verge. The increases in commodities prices all over the world have kept inflation in sky for quite some time.
(IMPACT: Negative for Equity Market)
Problems in Banking System: While banks are facing slow-down in credit growth rate, on the other hand, it is also fighting with bad debts. Capital funding is another serious concern for the banking system. If we look at the recent statements by the Indian Finance Minister, then we can sense the willingness of government to infuse more capital into its system, though time and procedure for it is not clear yet. The banks would be relieved with the capital pressure if any step is taken by the government.
(IMPACT: Positive for Equity Market)
Energy Concern: Most part of India is suffering from the power problem due to short supply of Coal. Many CCL(Central Coalfields Limited) mines have halted operations due to heavy rain. Furthermore, roads in the mining area are washed away due to rain, so coal transportation has slowed down. With the end of monsoon, it is expected that coal supply will improve and sufficient power would be available to the industries.
(IMPACT: Positive for Equity Market)
Crude Oil Price: In MCX, Crude oil has jumped from a low of Rs 3837 to a high of 4385 from 1 Oct onwards. If the price increases more from here, then it will put pressure on the margin of manufacturing company, which is already facing major slow down. We must check forex rate also while evaluating the impact of Crude on the equity market. The hint of a slowdown in China and European crisis can bring crude oil rate down in coming days.
(IMPACT: Positive for Equity Market)
Credit Rating Risk on France: The credit-rating agency Moody has warned France for a risk on its AAA rating as Greeks began a strike to protest the plan to avert default. The European leaders meeting on 23rd Oct for overcoming the regions debt crisis has a lot of potential to change the market's mood. There are very little options left in the hand to find a concrete plan for this crisis.
(IMPACT: Negative for Equity Market)
Overall if we recollect this article, the market has some big corrective triggers ahead in the coming days. Though many other events can influence the market, but the sentiment seems low and a sustained recovery is unclear at the moment. It is advised to trade cautiously while taking a long position.
Amit Sethi is an MBA (Fin) graduate. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com
