Markets may remain volatile ahead of Fed decision

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Markets may remain volatile ahead of Fed decision
Friday witnessed carnage across the markets, in which the Sensex had its biggest fall in 4 years. Fears that the Federal Reserve may taper off QE3 in the month of September saw markets go into a tailspin. Capital control measures initiated by the RBI also spooked markets.

On Friday, FIIs net sold in Indian equities to the tune of Rs 563 crores. It was not a huge net selling figure by FIIs as was largely anticipated. In fact, domestic institutions net bought to the tune of Rs 732 crores, largely offsetting the net sales by foreign funds.

Despite this, the markets collapsed, clearly hinting that there could be huge short positions in the market.
Going ahead, the real fears are those of QE3 tapering, which, if happens, could see some selling pressure by FIIs. Analysts are warning investors to stay away from stocks that have large foreign fund holdings. These include names like HDFC Bank, HDFC, IDFC, IndusInd Bank and Infosys among others.

The depreciating rupee is another cause for concern for the markets along with QE3 tapering. No matter what the government and the RBI do, it fails to have an impact on the rupee. The only thing that has helped the rupee from falling is when the RBI starts selling dollars. However, this can have disastrous long term consequences as they tend to deplete forex reserves.

Inflation data that came out this week was also a cause for concern as the WPI increased for the month of July. This along with falling IIP numbers completed the cocktail of bad news.

Clearly, it's a difficult phase for the markets at the moment, and investment decisions are fraught with risks. Investors are advised to stay cautious given the impending decision over QE3 tapering.

Read more about: sensex, nifty
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