To begin with let's examine the domestic issues that are weighing the markets down. First, it has to be the rupee which is playing a spoilsport. India's weakening fundamentals including a rising current account and fiscal deficit are seeing a sharp drop in the rupee. Going forward, analysts believe that the rupee will breach the 54 level.
A rupee drop does not augur well for the markets, as it tends to reduce foreign fund flows and weakens India's current account deficit. Oil too keeps getting expensive which adds to the already ballooning fiscal deficit.
Another factor that is affecting the markets is the lack of clarity on GAAR provisions. To compound problems Minister of State for Finance, S.S. Palanimanickam, has said that India would review its tax treaty with Mauritius. Now, bulk of the foreign funds are routed through Mauritius and a review of the treaty with Mauritius is likely to spread more panic among foreign funds.
Internationally too things are getting worse. Wall Street ended last week with the highest losses in 2012.
France and Greece go to polls and the prospects of Hollande winning in France is unlikely to go down well with the markets. Hollande is not inclined to continue austerity measures that Sarkozy and Merkel worked out to get Europe out of the economic mess. This has now caused news headaches on how Hollande will work with German Chancellor Angela Merkel to solve Europe's problems, in case he is elected. In fact, the chances of him defeating Sarkozy are extremely bright.
Spain and Greece continue to a cause for worry, though issues in Greece seem to be subdued at least for the moment. Both the countries are now a thorn in the flesh for the markets.
Clearly, as we head into the next week, things do not look too encouraging. It's likely that the markets may continue to drift lower and a steady to negative outlook is possible.