Aug 06, 2013, 09.40 AM IST | Source: CNBC-TV18

Weak macros, more correction in EMs to drag Nifty lower

According to Udayan Mukherje, services data is ringing a lot of alarm bells on where GDP growth will breakdown to during the course of the next few quarters. Things do not look too good to him.

The market was flat on Monday but today might be a bit more troublesome for the market. Global markets are not looking good, Asia is looking bad and Monday’s services data surely would have knocked off the macro stuffing, says CNBC-TV18’s Udayan Mukherjee.

“The manufacturing was weak but the services data is ringing a lot of alarm bells on where gross domestic product (GDP) growth will break down to during the course of the next few quarters. So, things do not look good,” he adds.

Also Read: Why emerging markets could sell off again

The SGX Nifty indicates that the Indian market will start the day around a percentage point lower and then take it from there.

Below is the edited transcript of Udayan Mukherjee's market analysis on CNBC-TV18


On global cues

Global markets are flat and last night volumes have been very weak in the US. So, it is almost like they have hit a new high and they are pausing not quite knowing what the next course of action is there in the US. But the bigger worry is the cracks which are appearing in the emerging markets over the last few days; Japan has been weak for the last 72 hours, today the way Hong Kong, Taiwan even China’s trading is not very good.

The debate on quantitative easing (QE) whether in September or not is brewing at one level but emerging markets are just not getting any money these days. If you look at the data points; flows have dried up considerably.

Monday was flat; there was some pullback in the beaten down names and the downside momentum seemed to have got arrested a bit but today could be another blow for the market.

It has shown signs of breaking down, it had paused after the first breach of 5,750 on the way down but now with the kind of intensification of the negative data points, it is a matter of time before we go back or knock on that important level of 5,500 again. The market is looking quite shaky and scary. So, the best you can do is to keep fingers crossed and hope it will not get too bad.


On GDP growth

The services data is scary. In the last few weeks a lot of economists and policy makers said that things will improve because rains have been good but it is services and manufacturing that drive Indian gross domestic product (GDP) and Indian economy. This is not 1970 where agriculture has a major role to play. So the first signs of this were evident.

In banking credit growth, in some of the consumption related sectors, hotels, the micro data points or the anecdotal experience things are not exactly looking good and this sharp contraction in services Purchasing Managers' Index (PMI) which is the largest component of the GDP in any case should be very scary.

We will probably find in the next few days a lot of GDP downgrades happening again. Two weeks back there was one round of downgrades after the RBI action. Most people brought down their GDP expectations to between 5-5.5 percent. Today you have already seen a couple of people talk about sub 5 percent number, Religare has brought it down to 4.5 percent and therefore, 6 percent looks like a dream.

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