ITALIANS AND MOODY’S SPOIL THE MOOD

By Ruma Dubey

Blame it all on the Italians!

The present sell off in the global markets is being blamed on the current political crisis in Italy. But it’s a political crisis, something which Italy is used to and it is not the existential crisis that it is being made out to be.

The 8^th largest economy in the world, held its general elections on 4^th March  and an extreme rightist alliance emerged victorious.  But neither a single party nor an alliance could win majority of seats and this has led to a hung assembly. There was no JDS + Congress like alliance forged and thus, everything now is uncertain and there is the possibility of a re-election in July.

Many have extrapolated and blown the situation out of proportion, voicing concern that Italy might get out of the Eurozone. The possibility of that happening is zilch. And as we said earlier, it is only a political crisis, which will get resolved; it not a situation where the country itself, due to its debt and fragile economy could get toppled. In short, Italy is not an Argentina or Turkey.

The Indian markets have apparently not reacted to this as we had our own worries of Moody’s cutting India’s GDP target for FY18 to 7.3% from 7.5%. It has kept the growth target for FY19 unchanged at 7.5%.  Moody’s has stated that higher oil prices and tighter financial conditions will weigh on the pace of acceleration. But again, the market did not exactly crash; it ended some 43 points down, meaning it did not give this all that much credence because Moody's lowering of etimate is that of a time which is over while its forecast for the future remains unchanged.

The Govt will declare the Q4FY18 GDP tomorrow evening and our growth will surpass China’s 6.8% for sure, making us once again the fastest growing economy in the world. But that might not cut too much ice with the market as macro issues continue to dog in current Q1. This along with Moody’s has kept the mood subdued.  And then of course, there is the all-important RBI meet next Thursday, 6^th June. With inflation picking up, the overall consensus is that RBI will tighten and there could be an interest rate hike.

We can work out a zillion reasons to explain the falling or rising market but the truth is that currently sentiments are somber and uncertain and that is reflected in the trading. It is also the end of the month, meaning volatility will be norm as F&O expiry nears.

Till 6^th June, RBI will remain the main issue and based on what the RBI does, the rest of the month will follow. 13^th June is again USA Federal Reserve meet and then that will dictate the moods. As we said earlier, what we feel, we see in the market…..we can only keep on finding reasons.