Dalal Street ended November on a promising note with two back to back triple ton sessions for Sensex. The euphoria in the Indian Markets was primarily because of more support to the government’s reform process from its allies and positive global cues.
December started on pleasing note in terms of events, the UPA secured victory in their battle of Retail FDI in both houses of parliament. The IIP numbers for the month of October 2012 painted a rosy picture as it stood at 8.2%, a 16 month high. WPI Inflation eased to 7.24% in November as against 7.45% for Oct 2012. CPI inflation climbed to a three month high at 9.90% but still quoted below 10%.
Markets were not at all impressed with the series of these events and failed to maintain the zeal and enthusiasm as was visible in November end. The key benchmarks struggle to find any direction and continue to face headwinds in the upside amidst weak global cues.
In the U.S, the economy is apprehensive of the “Fiscal Cliff” problem. Fiscal Cliff is a challenge that the U.S. government will face at the midnight of 31 December, 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.
As per the article in about.com, “the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, a rollback of the "Bush tax cuts" from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect”.
This problem in U.S did not emerge in a day, it was open for discussion since more than a year but no breakthrough has been achieved till date. Republicans prefer a cut in spending instead of raising taxes while Democrats want a balancing act of spending cuts and increase in taxes as well.
Global Markets are keenly eyeing the developments on the Fiscal cliff story and the possible breakthrough, if and when it happens. The structure of the possible solution will govern how it impacts the U.S economy as a whole and the world markets as well.
Indian markets have performed reasonably in 2012 despite the fact India Inc. was suffering from policy paralysis and political logjam for the major portion of the year. Mint Street has eased the interest rates earlier in the year but the key rates are still close to their peaks. The inflation numbers are still looking scary.
On the flip side, when we closely look at the impressive performance in 2012, all this has come from a lower base and good economic fundamentals. The condition of Indian economy is far weaker now than what it was a year ago. The weakness is reflected in the GDP numbers, manufacturing stats which continue to suffer and last but not the least, inflation which has still not reached in the safe territory.
December has been generally a progressive month for the markets if we look at the historical numbers. Out of 12 occasions, benchmarks faltered on only 3 instances in the Christmas month.
December 2012, has been a sedate month till date. Overlooking all the positive events and worried over the global cues specifically the Fiscal Cliff, the markets have been clueless on finding the right direction.
Markets pundits forecasted as darling December but it has turned to be a dreary December till date. With just one more trading day in this month, any miraculous movement in the markets either way will solely depend on a solution or no solution to the Fiscal Cliff puzzle.
