Market watch | Calm before the storm

None | ByUdayan Mukherjee
Sep 12, 2007 09:03 PM IST

Just a few days to go for the US FOMC meeting and markets don't seem to want to move significantly before the event, writes Udayan Mukherjee.

Just a few days to go for the US FOMC meeting and markets don't seem to want to move significantly before the event.

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HT Image

Globally, there is a palpable pause. Opinion is still sharply divided on what the Fed will actually deliver, though a 25 bps rate cut is what has been priced in already. In India and other emerging markets, it doesn't appear to be a very nervous pause either.

If the market were really nervous or apprehensive about the outcome of the Fed meeting it would have corrected a bit before that date. The fact that it isn't correcting despite the occasional US sell-off indicates a reluctance to cruise ahead keeping the event risk in mind, more than anything else. It's almost as if the market just wants this event to get out of the way before moving ahead. Such pauses often find release once the event plays out. The primary trend of this market has been up and it would take an adverse development to break this trend, else the market may simply resume its basic trend after the consolidation.

This is for the near term only, as investors seem completely fixated on the FOMC meeting as a 'make or break' pivot for global equity markets. That may not be the case. If the US Fed does indicate that it is embarking on a major cycle of rate cuts again then emerging markets have reason to celebrate, but a mere 25 or 50 bps is not such a crucial thing in the medium term. At best, it will spark off a relief rally or a short sell-off on a disappointment. It won’t signal the end of uncertainty nor will it herald the end of the world if rates are not cut. The key acts of the global drama are yet to unfold in the next 3-6 months.

Closer home, the Industrial production numbers that came in yesterday were disappointing. Sure, they were expected to slow down but even so, a cut below. The interest rate spikes are beginning to bite. It will be important to see to what extent this slowdown shows up in the reported earnings of India Inc in the next two quarters. Some slowdown is inevitable; hopefully it will not be a very sharp compression. Equally important would be the RBI's stance: At what stage it will say enough and start the interest rate slashing cycle, to pump up growth again.

(The writer is Executive Editor, CNBC-TV 18)

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