Nothing unexpectedly earthshaking has happened in recent times but the bulls are feeling the earth move below their feet. FIIs seem to be increasing their withdrawals after pumping in a record US$29bn last year.
The only thing that seems to be adding up is fears of inflation. After taking a pause in December, the RBI is most likely to push up policy rates at its Jan. 25 meeting. None of the above two reasons should surprise the markets but the undertone has been marred by the continuity and enormity of the selloff.
The silver lining is that the main indices appear to be a bit oversold. Some sort of a technical pull-back is always on the cards. It’s not yet time to take a directional call though. We see a cautious opening but like Monday one might see an extension of the previous session’s fall before a recovery, if any.
While the medium- to long-term prospects remain upbeat for India, the markets will have to negotiate a few near-term headwinds.
