The global equity markets have remained range bound in the first financial quarter of the calendar year 2010. Deleveraging and lack of lending by banks in the western economies have kept the equity markets within a range. The steps taken by the central banks of countries faced with high intransigent inflation have pulled out some liquidity from the equity markets in emerging economies. The stock markets in India and other countries could see ranged movement in the weeks and months ahead. This could also be interpreted as peaking in emerging equity markets.
The specter of sovereign defaults is not completely out of the psyche of the equity traders across the world and hence those fears are expected to cause significant volatility in the global equity markets as politicians dither about bailing out countries with sovereign debt crises. The effects would be most pronounced in the equity markets of the EU. The equity markets in the US are expected to be range bound in a tug of war between a contracting private sector and an expanding public sector.
The movements in the Indian equity markets could follow those in other emerging markets as the local factors such as the budget are now priced in. Inflation in the domestic economy remains a wild card. Albeit gradual tightening of monetary policy by the RBI is priced into the market any surprise moves by the central bank to tame rampant inflation could lead to a significant correction in the equity markets that are already considered pricey when compared to Brazil, China and Russia.
The upward movement in the BRIC markets in the last 3 months has been due to the net infusion of capital by FIIs into the emerging markets. This phenomenon could reverse and the FIIS could run to the safety of the US dollar on news emanating from Europe.