Markets may continue to drop lower next week, as global cues have not been too encouraging. The stunning losses reported by JP Morgan Chase due to trading losses has soured sentiments for banking stocks globally. The election mess in Greece continues to be a cause for concern. The prospects of fresh elections and the return of parties that have an “anti austerity” stance might have a negative outcome on the global markets and hence on India.

Domestically, things are not looking any good. The IIP data of -3.5% stunned the markets and reconfirms the belief that industry is slowing down dramatically. However, there is a silver lining in the IIP data, which many believe will prompt the RBI to drop repo rates once again.

However, that is unlikely to happen unless inflation drops and the IIP data consistently continues to disappoint. Participation from foreign institutional investors seem to be low with data released by SEBI revealing very low, “net buy”, “net sell” figures. Mutual Funds continue to be net sellers.

Fundamentally, things are not looking good given that the rupee is very near its historic lows. Fiscal and current account deficits are getting worse, though falling oil prices may offer some comfort in the short term.

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