Markets likely to get a gap-up start on encouraging global cues

Indian markets plunged for the fifth day in a row in the last session, led by losses in Reliance Industries and Larsen and Toubro, amid poor risk appetite and worries over government’s attempt to push forth populist measures. Shares dropped to fresh 28 month lows amid fears that sustained weakness in the rupee will gnaw into corporate earnings. Today, the markets are likely to halt the downtrend by getting a gap up opening, tailing global markets. All the sectoral gauges are likely to move higher with commodities, IT and technology taking the center stage. Banking stocks too are likely to remain in good fervor. However, nothing much has changed on the domestic front and this might impact the markets once the global euphoria ends. Government policy may once again take the centre stage after the Cabinet approved its own version of the landmark anti-corruption Lokpal bill. Stocks from the power sector may stay in focus after rating agency Fitch underscored that the sector may go through tough times citing reasons like rising cost of imported coal along with a depreciating rupee causing power companies to default on their payments. Apart from this there will be lots of scrip specific actions to keep the markets buzzing.

The US markets showed a shining performance on Tuesday following an unexpectedly strong US housing market report coupled with moderating Euro-zone bond yields, which triggered around three percent rally in equities. Worries about Europe's debt crisis eased to some extent after German business and consumer confidence rose unexpectedly in December, and the Spanish government pulled off a successful debt auction. Asian markets have opened on a sanguine note and most indices in the region are trading with strong gains in the range of 1-4% amid the tentative improvement in investors’ risk appetite on the back of encouraging global leads. The Taiwanese benchmark surged around 4% after government there said that it will use the state fund to contain recent steep losses in stock market.

Back home, it turned out to be a rollercoaster ride for the frontline indices which showed wild swings in the dying hours of trade not only to eventually quintuple the sorrow of closing in the negative terrain but also to sink below the levels last seen 28-months ago on August 21, 2009. The session was characterized by high amount of volatility as the indices tried hard to claw beyond the previous closing levels but it seemed like the bears had the last say as they stalled the resurgence of the benchmarks twice in the session and took profits off the table. The frontline gauges crashed suddenly in the last half hour of trade thanks to the relentless selling pressure in heavyweights including Reliance and Larsen & Toubro. The benchmarks’ gradually crawled below the psychological 4,550 (Nifty) and 15,200 (Sensex) levels by the end of trade and deposed around one and half a percentage points, making the negative close look shoddier was of the fact that major stock markets across Asia and Europe exhibited positive trends amid the tentative improvement in investors’ risk appetite. Jittery investors lacked conviction to build positions as worries over the outlook of markets intensified amid the gloomy domestic macro-economic headwinds and also amid heightened uncertainty over Europe’s future. Sentiments largely remained pessimistic in the domestic markets as concerns over widening fiscal deficit, swelling current account gap, high borrowing cost, depreciating rupee, slowing economy and lack of policy initiatives kept investors away from risky asset classes like equities. Meanwhile, investors also overlooked the encouraging reports from US, which suggested that the world’s largest economy is likely to expand between 2-2.5% next year. Earlier on Dalal Street, the benchmark got off to an optimistic opening following supportive leads from Asian markets as sentiments in the region got buttressed on hopes that the US economy will pick up pace. However, the optimism fizzled out sooner than later as the indices dipped into the red terrain and traded in a narrow range through the morning trades. The indices showed sharp moves in the afternoon trades as they slipped to lower levels only to bounce back into the green terrain for a brief period. But the key gauges suddenly witnessed a devastating U-turn in the last 30 minutes of trade, as hefty position squaring across the board ruthlessly dragged key indices to fresh 28-month lows. On the BSE sectoral front, the badly beaten down Capital Goods space continued to bear the brunt of hefty position squaring and plummeted by three and half a percent followed by the metal index which too sank with similar losses. On the other hand, only the defensive FMCG pocket managed to hold its head above the water to end with moderate gains. Finally, the BSE Sensex shaved off 204.26 points or 1.33% to settle at 15,175.08, while the S&P CNX Nifty sank by 68.90 points or 1.49% to close 4,544.20.

The US markets surged on Tuesday, recording the indexes’ best day so far this month, as sentiments about the global economy got a boost from a jump in the nation’s housing starts, improving German business data and a better Spanish bond auction. Investors reacted strongly after seasonally annual housing starts in November rose 9% from October as builders’ ramp up apartment housing. The apartment construction surged 30% in the month from a year ago as families prefer to rent than own. US builders broke ground in November on the most houses in over a year, a sign that the market is stabilizing heading into 2012.

Investors also got a burst of good news from Europe, where the heavy debt loads and surging borrowing costs of several euro-zone members have raised the prospect of a global recession. The Ifo Institute’s index of German business confidence edged higher in December, beating analysts’ expectations for the largest European economy. The Ifo institute’s business climate index was based on a survey of 7,000 executives which increased to 107.2 from 106.6 in November. Also, Spain was able to sell short-term debt at a far lower yield than in the prior month’s auction, and yields on its 10-year bonds trading in the secondary market also pulled back to just over 5%.

The Dow Jones industrial average gained 337.32 points, or 2.87 percent, to 12,103.60. The Standard and Poor’s 500 closed higher by 35.95 points, or 2.98 percent, to 1,241.30, while the Nasdaq composite gained 80.59 points, or 3.19 percent, to 2,603.73.

Crude oil prices staged a smart rally of over three percent on Tuesday, as investors piled up hefty positions amid growing concerns that geopolitical tension in Iran and Kazakhstan could hamper global supplies. The oil prices also got buttressed on the back of easing stress in Europe's bond markets while the encouraging US economic data coupled with the depreciation in US dollar too played their part in lifting sentiments.

Benchmark crude for January delivery expired after surging $3.34, or 3.3% to settle at $97.22 a barrel, after trading as high as $97.45 on the New York Mercantile Exchange, while February crude soared $3.19 to settle at $97.24. In London ICE February Brent crude jumped $3.09, or 2.98%, at $106.73 a barrel.