Yesterday's gone, and market rally may have gone too

Yesterday’s gains in Mumbai may be hard to sustain today, going by early cues from global markets.

Across the Asia-Pacific region this morning, indices are down on lingering concerns about the global economy.

As at 7 am, Japan’s Nikkei and Australia’s ASX index are trading flat, but Hong Kong opened weak, giving up all of yesterday’s gains.

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Overnight, Wall Street too finished flat, reversing strong mid-session gains. Later today, a key meeting of the US Federal Reserve Board is expected to announce what’s called Operation Twist, a form of monetary easing that is intended to keep long-term interest rates down. But opinion is divided over exactly what it will achieve.

Also overnight, the IMF marginally lowered its growth forecasts for India and China, citing weaker demand in the other global economies.

India’s growth forecast has been scaled back to 7.8 percent in 2011 and 7.5 percent in 2012, down from 8.2 percent and 7.8 percent respectively. China’s revised growth projection is now pegged at 9.5 percent in 2011 and 9 percent in 2012

All this will weigh on the minds of investors in Mumbai when the markets open today. Investors are also unnerved by the rupee’s fall in recent days, and the risk that in the event of bad news in Europe, foreign institutional investors will sell India.

But in fact, that risk is higher in other Asian markets - principally ASEAN markets -that have appreciated sharply in recent weeks. The Indian market, which witnessed one of the sharpest falls in recent times, actually has upside potential, considering that when the interest rate cycle turns, there’s plenty of scope for rate cuts in India, where the RBI has been the most aggressive in hiking rates to tame inflation.