MARKET IGNORES ALL GOOD NEWS - FIXATED ON ECB TAPERING?

By Ruma Dubey

Bloomberg published a report, apparently after getting an ‘off the record” tip-off that the European Central Bank (ECB) might be winding up its quantitative easing (QE) or stimulus very soon. The news is that the ECB is looking at gradually tapering the asset purchases – it is currently at 80 billion Euros or $90 billion per month. It is likely to slowly and gradually bring it down to 10 billion Euros a month.

This is the reason picked by our markets, following the global cues, for the slump on the bourses today. It is actually lackluster, with no real will – neither to go up nor to go down. Is it that we are finding reasons for a profit booking session, blaming it on ECB when the truth is that after the RBI rate cut yesterday, we really do not any immediate trigger this week?

The ECB meet, where they decide on the interest rate is scheduled for 20^th Oct; so we are really jumping the gun here.

Yes, we have the IIP data coming in next week , 10^th Oct to be precise but it might have really no impact as it is after market closure (5.30pm) and the two days following this, 11^th and 12^th, the markets will be closed.

If the underlying mood was for buying and ECB spoilt the mood then the tweet of the ECB media officer should have propelled the stocks back into the green. The tweet said that ECB’s decision-making body has not discussed reducing the pace of its monthly bond buying. Clearly, this has cut no ice with the market as the stocks continue to meander about without any zeal or enthusiasm.

Looking ahead, the market will once again focus on macro data – IIP, CPI and WPI and then the Q2FY17 results. All eyes will obviously be on the banking sector – are they out of the woods yet or are we going to see more pain, both in private as well as public sector banks. NPAs will be the most closely watched numbers. Thus quarterly results will provide the trigger.

And strangely enough, so fixated is the market on this ECB news that it ignored some very good news. The IMF stated that the Indian economy is recovering strongly and projected Asia’s third largest economy to expand 7.6% in current fiscal of FY17, upping it from the earlier projection of 7.4%. This news has no relevance for us, when it is actually about us but we choose to look at the ECB only. Makes no sense at all.

In fact another good news is that banks have promised that they will be soon passing on this rate cut to the consumers, ahead of the Diwali festival. If this does happen, where there is a good rate cut and not just a token 5 bps rate cut which does not translate into anything substantial, demand will go up. But do the banks have the will for a generous rate cut transmission?

Really, there was no ‘real’ reason for the markets to be in this state of fugue; it is just that the market has built up for yesterday RBI event; now that has happened; that’s all.