A quite week as far as global macro data flows are concerned, India will be focussing on F&O expiry, Rupee, FII flows and the Q2 GDP growth data to be declared this week.
Given the political uncertainty in our system due to impending general elections approaching in May '14 and state assembly elections results to be declared on Dec. 8, I don't anticipate long rolls happening during the expiry week this time. Also the fundamentals tend to get ignored during F&O expiry week as the F&O dynamics take over and dictate the direction of the markets. From the kind of statements coming out of Fed officials it is almost certain that tapering would be discussed in the December meeting of the Fed a fact which has been discounted by the markets and getting reflected in a pretty benign movement in dollar index lately. However, dollar index is perceived to be in long term uptrend.
Also read: Nifty falls 1% on Fed woes; expiry eyed
Indian rupee may be also impacted by the month end demand of dollars by importers especially the oil marketing companies. The sweeping reforms in China along with political uncertainty in India will impact the FII flows into India as re-rating of China would attract more incremental flows into that country.
Also, lately the developed economies, especially Europe, are attracting lot of inflows and are on top of the radar of the global fund managers. And this is getting reflected, as according to EPFR data which defers from SEBI data on the flows by FII - some USD 633 million has flown into China last week while on a four week basis India has seen outflows of some USD 344 million. Also, the political uncertainty which will prevail in our country due to impending general elections may slow down the flows.
Along with this, to be kept in mind, lot of FII fund managers would be booking profits as the year end approaches and we may see accelerated outflows for next 3-4 weeks. The Q2FY14 GDP growth is expected to recover slightly from that of 4.4 percent Q1 due to rupee depreciation which has made our exports competitive and have spurred the manufacturing sector. This is also getting reflected in our trade numbers as we are seeing a credible growth in export figures.
(The writer is Founder & Investment Strategist, Mynte Advisors)
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