Inflation is at a high and expected to scale even higher. There is an unsure government basically trying to figure when to call an election and a poor international economic climate, and did we mention oil prices?so markets may fall not just this Monday or Tuesday but keep falling into a slump in the near future. Indices opened with a downward gap on Monday and have broken the important support levels of 4530 at the NSE. The immediate cue was the fall in Asian stocks, driving the benchmark index to a two-month low, on speculation that earnings will decline as credit-market losses widen and borrowing costs rise. While the Dow staged a modest rebound on Monday from Friday?s nearly 400-point drop, Tuesday has been equally downbeat in Mumbai. There is no point at this stage to argue that the economy is still growing at above 8%. Since the economy had stabilised for some years at the 8% plus stage, the overall direction finders are looking at 8% as a sign of relatively low growth and since expectations move the market, it has to be read as such.
The government may feel shortchanged that an unprecedented high growth rate is still not drawing appreciative response, but that is unavoidable. A key data to watch out for would be the index of industrial production figures for April, to be released on Thursday. If international markets see another round of oil price rise, market reaction will be interesting to watch, even if frightening for some punters. The lack of positive cues is visible in the climb in open interest positions at the BSE?this touched Rs 20,317 crore as on Monday. A declining market and rise in open interest means new short positions are being opened ?a firm indication of a persisting bearish trend. The Rs 19,850 crore withdrawn from the market by FIIs until last week cannot be made up by the Rs 6,750 crore that mutual funds have poured in. Incidentally, those worrying all these months about high inflows should pray that their fears now come true. And of course, there?s one market where there?s plenty of activity that India has shut itself out of by overregulation: commodity markets. Global capital is reportedly finding Latin America and even South Africa a better bet because of their deep commodity markets.