Equity indices reacted to domestic issues rather than global issues with Indian and Chinese equity indices closing negative week on week. Markets in US, Europe and Japan closed positive week on week on positive news emanating from these regions.
Indian equities reacted negatively to RBI policy and government budget and the Rupee trended down in sympathy with negative equity market trends. RBI refrained from reducing key policy rates of the repo in its March 15th policy review, citing latent inflationary pressures due to administered prices in the economy. Markets read this as no rate cuts in the near future leading to fall in equities.
The union budget for 2012-13 did not enthuse markets, which were expecting some sorts of reforms on subsidies. The higher excise duty and higher service tax that the budget delivered was felt to be inflationary by the markets. The government overshot its fiscal deficit estimates for 2011-12 by 1.3%, which spooked the markets. Government finances have been a mess and markets are wondering if the government will be able to stick to its budget estimates of 5.1% of GDP for 2012-13.
On the derivative side, markets are not showing signs of undue volatility with Nifty index futures open interest marginally higher while Nifty index option volatility down week on week. This week will see markets stabilizing at current levels while the Rupee may look up on the back of stable equity markets.
On the global front, US markets reacted well to positive employment and retail sales numbers. The US Federal Reserve held its pledge to maintain accommodative policy well into 2014 and this added to market sentiments. The success of the Greek debt swap helped European markets while a weakening Yen pushed up Japanese equities.
China equities closed negative week on week on the back of the Chinese government maintaining its intent to keep property prices in check.