Since the last few years, markets care two hoots to economic data points, which should actually never be the case.
All markets today care is about QE 3 tapering. QE or quantitative easing is the purchase of assets by the US Federal Reserve each month. Currently, the Federal Reserve is making purchases of assets to the tune of $85 billion. This is done to push more money into the US economy and increase economic growth and reduce unemployment. However, this money finds its way into assets like equities around the globe. Even Indian markets are recipient of this money and this has pushed Indian markets to record highs in Nov.
What is interesting, however, is that the meteoric rise in stock prices is largely on account of large scale purchases by FIIs, which have abundance of money following QE3 and easy monetary policy from central banks around the globe.
Since the beginning of the year economic fundamentals of India have deteriorated, while the stock indices have hit record highs on the back of foreign money. Total foreign investment in the stock market has reached Rs 96,461 crore so far in 2013. That is a staggering sum.
In fact, until late last week foreign funds had made net purchases for 32 straight days in the cash market.
Fundamentals no longer seem dictate market momentum
India's economic growth rate has slumped, consumer price inflation is in double digits and fiscal deficit may exceed the figure projected in the budget. Yet, the markets are rising on the back of easy liquidity from programmes like QE3. Even a slight threat of QE3 tapering sends markets tumbling.
Clearly, economic data points like GDP, inflation etc., have little significance. The only news that can drive stock prices is the threats of tapering-off of QE3. At the moment it seems only withdrawal of liquidity can push markets lower and not economic data points.