A ‘RED’ BEGINNING TO SECOND HALF OF 2018

By Ruma Dubey

It was a red Monday all across – not just in India but across Europe and Asia. Despite Trump and his unleashing of a trade war, the dollar remained strong as a safe haven as political risks pulled down the Euro and pound. The deepening tensions in the German coalition and Brexit entering another important decision making week, the overall mood remained weak and that percolated down to the Indian markets.

The big worry is that trade war could get worse and this could increase turmoil – a protracted period of uncertainty, especially in emerging markets has sent the jitters – the main reason why emerging markets showed signs of a slowdown. Of course data from China for June was also not encouraging with weaker-than-expected manufacturing PMI for June. The yuan weakened, resuming its sharpest drop since China’s August 2015 devaluation.

All these developments have made the FIIs antsy, who as such were selling as India’s enters an Election year. We all know that FIIs have largely been net sellers but did you know that after 2008,  H1CY18 has been the second time since they have sold so much. Data shows – they have withdrawn around Rs 47,800 crore in H1 CY18 of which nearly Rs 41,400 crore is from debt securities and Rs 6,400 crore is from equity markets.

The only silver lining today was the recovery in rupee and steep fall of oil prices. In fact crude dropped after a Tweet from Trump which said that Saudi Arabia had agreed to lift oil production by “maybe up to 2,000,000 barrels”.

This is currently just the mood of the markets. Tomorrow too the very same reasons could exist and yet the markets will move up. Lack of any positive trigger at the moment and an overall loss of business confidence is at the root cause.

Also as we mentioned earlier, this is an election year and now till the voting ends and we get the results, the sentiment will remain rocky; there will be no persistent bull run.

This week is expected to remain somber – today evening we will get data on the US PMI index for June  and with markets there closed for 4^th July on account of Independence Day, there will be some unwinding. More significantly, on Friday, USA is scheduled to impose tariffs of $34 billion on Chinese goods and China has said that it will retaliate – every reaction has an equal and opposite reaction. So once again the sense of foreboding of where this will lead will stay like a cloud on the markets.  In India, the major economic data for this month is the IIP and CPI on 12^th July.

Thus hold on to what you have and watch the indices move like a yo-yo. If you are an investor, you really have nothing to worry but a trader needs to tread with caution.