When it comes to a bull party, only one factor is important – liquidity. And that must come from overseas investors.
Stock markets, almost across the globe, took a sudden u-turn last week, sending shivers down many an investor spine, on apprehensions that the flow of easy money may slow down to a trickle.
The fear was due to comments by the US Fed Chairman Ben Bernanke that he would consider winding down the central bank’s $85 billion-a-month stimulus plan “as the economic outlook improves.”
He further added: “A premature tightening of monetary policy could lead interest rates to rise temporarily but also would carry a substantial risk of slowing or ending the economic recovery.”
But marketmen fear that the US Fed actually may end the stimulus earlier than expected, as the Fed minutes revealed: “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.”
This is bad news for equities, particularly for countries such as India, which depends completely on fund supply from the developed world. Ever since the stimulus package was announced in 2008, foreign institutional investors have pumped over Rs 4 lakh crore into the Indian equity market.
Chidambaram’s confidence
Even Finance Minister P. Chidambaram’s statement confirmed that the fortunes of Indian stock markets depend on foreign institutional investors. He said: “We have been looking at what is happening in the market. We think that Mr Bernanke’s statement has been misunderstood or misinterpreted...If we read the statement carefully, he has clearly indicated that he will continue with quantitative easing in the foreseeable future at about $85 billion a month or so,” he said.
However, he expressed the confidence in domestic growth story and advised investors to keep faith. He said: “...there is no need for any kind of nervousness. I am looking forward to June and the second quarter with much greater confidence. I think the Indian market should read the situation correctly rather than being influenced by something which is happening elsewhere.
Will investors listen to Chidambaram’s advice? That is a billion-dollar question.
Domestic institutions such as LIC may resort to aggressive buying in the case of FIIs selling, but will that be enough to reassure common investors, who are already disappointed with various scams and inflation impacting the market?
Apart from liquidity concerns, this week the market is expected to remain volatile as May derivative contracts on the NSE are expiring on Thursday.
The GDP data for the March-quarter, which are expected towards the end of the week, will also be keenly watched by market participants.
Bhushan Steel, Jindal Saw, Nalco Ltd, UB Engineering and Wockhardt (Monday), Dredging Corporation, Havells India, Tata Global Beverages and Hindalco (Tuesday), BEML, BPCL, Canara Bank, Cipla, HDIL, Lanco Infra, MCX, NMDC, ONGC, Tata Motors and Trent (Wednesday), Aurobindo Pharma, DLF, EIH, Gujarat State Petronet Ltd, SAIL, Sun Pharma (Thursday) are some of the major companies scheduled to announce their March quarter results.