Driven by sustained Foreign Institutional investment, and buoyed by election euphoria, we saw the markets touching all time high this year. The various steps taken by the Central Government and the new RBI regime in order to bring down CAD, support rupee, boost manufacturing and curb rising inflation has indeed sent out positive vibes, even though, such measures are yet to translate into growth numbers. Thus, as we usher in a new year, and as equity indices are near record peaks, market participants wonder, if we are at the cusp of a powerful rally, or a disappointing fall. Meanwhile, general elections scheduled for 2014, pose grave risk to year end projections.
QE impact factored in.
Federal Reserve has started to taper its bond buying program in a phased manner. In its last meeting of the year, it decided on cutting down the bond purchase to $75 billion from $85 billion. The Fed is likely to reduce its bond purchase in steps of $10 billion over the next seven meetings before winding up the QE3 program by end of 2014, meaning that there are less chances of this QE3 becoming QE infinity as has been wished some sections!. Or atleast until US economic data warrants a pause in such reductions or similar measures. But, what is evident now from market’s reaction to these news, is that the downsides of lesser easy-money may have been more or less priced in.
While there have been strong FII inflows to India in 2013, China is increasingly becoming more attractive with recent signs that the country will continue to develop its financial markets. According to reports, China-focused hedge funds managed USD12.9 billion in assets as of the end of September, exceeding levels before the global financial crisis. In September 2013, China had announced a basic plan for a newly established free-trade zone in Shanghai that would give foreign companies greater freedom in the country’s tightly regulated financial markets and the regulators are expected to promote oil derivatives and allow securities and futures companies in the zone to engage in over-the-counter trading in commodities and financial derivatives in the domestic market. Also there are reports that China has approved a new plan to allow US investors to indirectly access its stock markets which is seen as a major step towards opening up of their markets. So, a good part of the money that has already come to