Will the volatile markets mark the start of correction phase for US markets?
The equity markets in United States continued their good run. With a better than expected results from the non-farm payroll data, the markets rallied to record highs in the first week. The market also took positive cues from the growing demand in the housing sector. There were lesser job cuts and fewer job losses. The second week remained subdued for the US markets. Though the major indices posted gains, the economic data and earnings reports failed to cheer the market. The economic data released during the third week of May propelled the markets. The US markets ended the week a positive note posting strong gains. US markets ended the fourth week on a negative note. The markets which were trading at historic highs over the past few weeks were hit by the stimulus news from Fed. Fed announced its plans to slow down the magnitude and momentum of stimulus packages. Markets were taking negative cues from the news and posted losses in the week. The ripple effect of the Fed’s announcement was observed in the last week of May as well. With looming uncertainties on the stimulus package, the markets ended the last week on a negative note. This could well be the beginning of market correction.
In India, with easing signs of inflation and slower growth rates, RBI implemented a 25bps rate cut on repo rate. Driven by the sentiments from positive cues from the global markets, Indian markets posted gains in the first week of the month. The potential for higher gains was curbed by the announcement from RBI which declared that the room for monetary easing in the current year is minimal. The Indian markets rallied higher in the second week of May. Sensex ended the week above 20,000 points and Nifty closed above 6,000. FIIs were the major buyers who aided the market sentiments. A special trading session conducted on Saturday of the week also posted good gains.
The Indian markets had a volatile week in the third week on May. Markets were headed southwards in the first two trading session of the week, before recovering from the losses and posting moderate gains in the week. The news about widening trade deficit raised concerns over the economic recovery and fears of a rating downgrade. The markets experienced huge sell offs in the first trading day of the week. However, with the positive news of inflation, markets trimmed the losses over the next few trading sessions. The whole sale price index was recorded at lower than expected rate. This triggered hopes around further interest rate cuts from the RBI. Markets welcomed the news and ended the week on a positive note.
US markets have observed a flow of funds from domestic markets to emerging markets. Foreign Institutional Investors remained net buyers in the Indian markets as well. However, the domestic investors remained net sellers in the Indian equity markets. Domestic investors favored debt markets over equity markets. The onset of monsoons, global cues and foreign investments would continue dominating sentiment driven Indian Markets.
Indian markets were also hit by global sentiments and Fed news in the fourth week of May. The earnings reports were also not satisfactory. Markets posted losses during the week. The last week remained highly volatile for the Indian markets. The GDP numbers were in line with the expectations but got a mixed response from the traders and investors.
Discipline in investment would play an important role for the Indian investors. The markets have been highly volatile. One can sense an investment opportunity at lower levels and profit booking at higher levels in the market. Over the last month, market has provided multiple entry and exit points for the investors. Staying invested by choosing the suitable investments would remain key for the sustained profits.