Iraq spooked the market and they have turned extremely volatile. A sharp rally on Tuesday was neutralised by a sharp fall on Wednesday. Markets ended weak and the SENSEX was down 0.49% and NIFTY down 0.41%. The week ahead sees June futures expire on Thursday. At the current close of 7,511 points, NIFTY is up 3.81% for the series with bulls enjoying the upper hand so far.

The US FED has continued with tapering of 10 billion dollars and it was no surprise. USA and Iran are waiting for the political situation to unfold in Iraq before they step in jointly or singly. In the interim oil prices are on rising and have touched $ 115. It appears that until intervention happens prices may continue to remain heated and keep global markets guessing.

Railway passenger fares have been increased across classes by 14.2% while freight rates have been raised by 6.5%. While reducing subsidy and cross subsidy is good for the economy, politicians and commuters are agitating. It would be interesting to see whether any roll backs happen or not. Historically in India during the coalition regime this was the norm. Now with a simple majority the ruling BJP led NDA need not bow to any allies pressure and needs to send strong signals if they need to bring strong reforms going forward.

The country needs to drastically cut subsidies and ensure that just the needy are looked after and not that under the name of subsidy just about everyone benefits.

The markets would be driven by cues from Iraq and the reaction to protests on the fare hike. In all probability the timing of the railway hike of roughly three weeks before the budget is significant as it allows the government and the people to digest the tough measures.

Markets are now finding the going tough and it looks like the ongoing correction would continue. The driver could be Iraq and any resolution could see sharp rally as shorts have also started happening.

When in doubt stay away and buy on dips PSU stocks other than the PSU banks.