Lull in markets after US debt storm

All eyes on Q2 earnings, October RBI policy review

Indian stock markets saw a muted reaction as the US government resolved a deadlock on the country’s borrowing limit and ended a 16-day government shutdown. Early Thursday morning, the US government signed a Bill into law which ended the 16-day shutdown and raised the $16.7-trillion borrowing limit of the US government. While relief at the resolution was expressed by world leaders, stock markets seemed to have a much more subdued reaction to the news.

The fact that the deal is only a temporary resolution to the issue, as well as an earlier anticipation the crises would be averted within the deadline,  contributed to the tepid reaction on Thursday, according to experts.

Most markets across Asia ended the day up but largely remained flat. Indian shares opened flat on Thursday morning, up 0.2 per cent but ended the day in the red for the second consecutive trading session. The BSE Sensex closed at 20,415, down 0.6 per cent as technology shares’ counters saw profit-booking. The NSE Nifty closed down 0.7 per cent at 6,045.

“To a great extent, markets had factored in that a resolution would be arrived at. While a crisis has been averted, there is no euphoria surrounding the event. The resolution is temporary and markets are aware the issue would rise again in February,” said Sudip Bandyopadhyay, managing director and chief executive, Destimoney Securities.

Also, markets globally had seen an impact on Wednesday. In the US, the S&P 500 and Dow Jones index rose 1.4 per cent on Wednesday.

“Markets were not unduly concerned as the consensus was this was going to happen. Part of the reaction was seen yesterday (Wednesday) as markets in the US, Latin America gained,” said Nick Paulson-Ellis, country head of Espirito Santo Securities.  Indian markets were shut on Wednesday on a holiday.

Three of the five laggards among the Sensex stocks were from the technology sector. Tata Consultancy Services was the worst performer, down five per cent. Wipro and Infosys were down three and 2.3 per cent, respectively.

The ongoing September-quarter results announcements and the RBI policy review meeting on October 29 was likely to guide market movement analysts said.

Stocks have already started factoring in a 25 basis points hike in the key policy rate at the same time expecting a further reduction in the short-term marginal borrowing facility. “Given the liquidity pressures, there could be further tightening of liquidity. We expect the head-line repo-rate to be raised while the short-term rate would be reduced,” said Paulson-Ellis.

Foreign flows, for now, are expected to continue in the same vein and no immediate increase in the quantum of the flows is likely, said market participants.  They added that the quantum could gradually increase as a tapering in the QE3 stimulus package seems to have been put to bed, owing to the US debt ceiling issue.

On Thursday, foreign institutional investors were net buyers at Rs 1,136 crore, while DIIs were net sellers at Rs 1,035 crore.