Green Shoots and Yellow Weeds

Markets continued to be indecisive and volatile during the last week also. Markets started the week with lot of negativism thanks to poor jobless claims data from US however ended with great optimism thanks to the record rise in homes sales in US and better than expected industrial data from the Western Europe.

As witnessed in the earlier weeks, our market continued to ignore the local happenings and was always looking for the direction from the west. For a change, markets are now looking east also particularly China which evoked great interest in the recent times, thanks to the “China Bubble and the its ripples in Asian markets.

Locally, Adani Power failed to impress with a lackluster debut on the bourses. There was no big premium on listing as expected by its IPO investors. However, it is a reminder for those, who do not want to leave any thing on the table for the IPO investors that such issues may not evoke great interest from the investors in future.

Coming week, NHPC’s listing will be viewed curiously as there are many government company issues lined up for IPO. In case of NHPC also, government has not left much on the table for IPO investors. Still, there are hopes in the market that the company may get listed with a decent premium. Any failure on the premium part may hurt the future IPO plans of government companies.

Going back to global scenario, Obama is expected to raise the projection for the fiscal deficit (US) for the next 10 years from $7.1 trillion to $9.0 trillion. Such projection may lead to the impression that the American government may continue to flood the markets with dollars for many more years to come.

As mentioned earlier, hopes of persistent dollar flooding and visibility of green shoots have been taken well across the board, currencies commodities, gold, oil and stock markets.

Euro strengthened against the US Dollar as the appetite for riskier assets went up due to the new found optimism for a quicker recovery in the global economy.

At the same time, it is notable that the INR failed to join the global rally against dollar and in fact, INR lost against USD in a big way. FIIs withdrawing their investments in India and higher import demand may be the reasons for such Rupee weakness.

Crude Oil was a stunner for the last week. It had a big rally and broke the crucial resistance of $72. Even though many analysts put expectation of higher demand rising from the global recovery as the reason for the surge in oil prices, personally I am not convinced. I feel that the dollars are now flowing towards the commodity markets particularly oil and gold as a new avenue of investment as stock markets are appearing as overvalued.

There are good chances for a big rally in oil and gold in the coming days provided that the economic data continues to be good.

In India, even while the largecap indices were struggling to make new highs, many stocks are started to make merry thanks to the renewed interest from the operators and small traders. Many stocks witnessed dramatic rallies in the last week.

To sum up, green shoots are more visible as of now but there are yellow weeds too. It is the duty of the governments and the central bankers to protect the green shoots and weed out bubbles. If they fail to do so, bubbles would impact the global economies badly.

Wishing you a great week ahead