One step forward and two steps back would be the apt way to describe markets these days.
Multiple worries: Investors watching a screen of falling stock prices at the Bombay Stock Exchange on 8 July, when the Sensex slipped by 475 points. The Sensex closed at 13,469.85 on Friday, down 456 points
The sentiment on the bourses is very negative with bad news amplified while any positive news—there is some of that—is getting overlooked. It is just the opposite of what it has been like in recent months when signs of trouble were being ignored.
This phenomenon is not just limited to India. There is no doubt that soaring crude prices and fresh concerns over the stability of Fannie Mae and Freddie Mac, the US government-sponsored home finance companies, have the capacity to drown markets in a sea of despair.
However, let’s not forget that the earnings season has also started and major results so far in the US, including that of Alcoa Inc. and General Electric Co. have been good. The results of Alcoa exceeded market expectations by a wide margin while GE’s results were in line with estimates.
Even Infosys Technologies Ltd’s numbers and revenue guidance were slightly good—though in dollar terms the outlook was muted.
This week, we have big numbers in the US from the likes of Citigroup Inc., Google Inc., Intel Corp. and Microsoft Corp. to name a few, which will have a bearing on market sentiments. Anything positive from these companies will improve market sentiment. It would be wise to follow the US markets for leads on Indian bourses as there is a lot of US action that, indirectly, will get reflected in Mumbai markets as well.
The major concern this week will still be be the financial health of the big two US mortgage firms. Fannie Mae and Freddie Mac, considered pillars of the US housing sector with assets of $843 billion (Rs36 trillion) and $802 billion, respectively, as of March, are in neck-deep trouble.
There are wide-spread rumours in the market on bailout plans for Fannie Mae and and Freddie Mac. US treasury secretary Henry Paulson offered no hint of any imminent government bailout, simply saying on Friday that his major aim was to back Fannie Mae and Freddie Mac “in their current form”. However, later, there were reports that the US government was considering taking over the two if their funding problems get worse. Markets will keenly watch any development on the two companies. And, a bailout plan may become the most crucial news for the markets this week.