Last week, the Indian equity market ended at a three-month low of 27,438, erasing its entire calendar years' gains.
At the beginning of the year, the Sensex was at 27,499.42. It then surged to an all-time high of 30,024.74 on March 4, 2015.
Thereafter, after trading in a narrow range, the Sensex finally started to lose steam in the past two weeks to fall below the beginning-of-the-year levels. From the all-time high levels, the Sensex has lost nearly 9 per cent.
The news that income tax authorities have sent out notices to 68 FIIs for payment of dues totalling Rs 609 crore could bring some respite to the market, which should see some short being covered in the following week.
Despite the tax issues, however, FIIs haven't been selling. It is nice to hear from the finance minister that India is not a tax haven and FIIs have to pay. In the past, governments have gone back on their words when FIIs started selling.
FIIs don't mind paying tax, but they want clarity as they don't like to trade in a country that has an uncertain taxation policy. Concerns surrounding taxation on FII trades on a retrospective basis will continue to hurt market sentiments.
FIIs have been the lifeline for the Indian market, and till April 23, 2015 FIIs have invested close to $8.5 billion in the equity market.
The Sensex losing 9 per cent isn't as much of a worry as the uncertainty surrounding India and the Indian market that is slowly beginning to set in.
The Met department has predicted below normal monsoon, which could hit agriculture and impact food inflation.
It's all good to say government is loaded with food reserves and it will release its supplies to take care of the food. But despite the WPI index trading negative and global commodity rise on a decline, the food prices have not moderated at consumer levels.
Threat of a poor monsoon is likely to keep food prices firm and probably even rise higher in the coming days.
This will restrict the Reserve Bank of India's (RBI) ability to further cut rates. With the banking system facing liquidity tightness, it will be difficult for them to lower rates and it will have an impact on India Inc, which isn't spending. With global oil prices again inching north, it will also make things difficult for India to cut rates.
You can't blame corporate India for not spending. Half of them are struggling to clean their books and bring down the debt levels, while others aren't spending because they are operating at lower capacity. Until the economy gathers speed, they won't be spending to increase their capacities.
It all boils down to government spending and its initiatives to push growth. It's not that the government isn't doing anything, but its effort hasn't been sufficient and is not reflecting in the economy. It is high time the government pulled up its socks.
Meanwhile, corporate results will continue to be in focus. Some large companies will be announcing their results in this truncated week. (The financial market is closed on Friday, May 1, 2015 on account of Maharashtra Day.) Names include HDFC Bank, ICICI Bank, UltraTech Cement, Maruti, Bharti Airtel, Idea Cellular, Sesa Sterlite, Axis Bank, Ambuja Cements, IDFC and Grasim Industries.
This week the equity market will remain volatile and cautious ahead of the F&O expiry, which is scheduled for Thursday, April 30, 2015.
All eyes will be on the US Fed, which will review the US monetary policy on Tuesday and Wednesday, April 28 & 29, 2015, though not much is expected as the market feels the US will keep rates unchanged.
Everyone is interested to know when the Fed will increase rates in the US when the other major economies in the world are struggling for growth.
Coming back to the Indian market, lack of trigger has seen almost everyone becoming cautious and the week is expected to remain volatile.
As reiterated for the past few weeks, the current market is not one to experiment but stick to fundamentals. Waiting on the sidelines might be a better idea than venturing into a market surrounded by uncertainty.