Domestic markets to get a flat-to-cautious start, may lose some strength in early trade

The Indian markets went for a rally in last session after five straight sessions of plunge, lots of shorts were covered and traders went for bottom fishing, positive signals from the global markets, helped the domestic indices to bounce back in a style. Today, the euphoria might not continue and the markets are likely to get a flat-to-cautious start, as the Asian peers are not in good shape. Some profit booking may appear in sectors like banking, metal and technology after the huge surge in Wednesday’s bounce back. Traders will be eyeing the movement of rupee which has continued its depreciation and will also look for weekly inflation numbers. There will be some jitters in IT stocks as, a bipartisan bill has been tabled in the US House of Representatives to make companies that move call centres overseas ineligible for grants or guaranteed loans from the federal government. Though, the IT industry body Nasscom has protested, saying the proposed US Call Centre Bill would restrict free trade and establish discriminatory trade practices. However, there is good news for the banking sector, Reserve Bank of India has allowed banks greater flexibility to borrow more funds from the marginal standing facility, or MSF, which will help them reduce costs. Banks can now borrow funds up to 1% below the statutory liquidity ratio, or SLR, limits twice under the marginal standing facility.

The US markets managed to make a flat closing with a positive bias on Wednesday, though the start was pretty week for the markets as after a disappointing earnings report from Oracle Corp., also there was uncertainty looming over whether Washington will extend a tax cut and surprisingly large loans by the European Central Bank to boost the region's banks. However the late hour pull back helped the markets recover and closed with positive bias. Meanwhile the Asian markets have snapped the rally mood and most of the indices are trading with modest cuts after the report that lenders sought more cash from the European Central Bank.

Back home, after five straight sessions of horrendous performances, Indian benchmark equity indices finally showed some enthusiasm as market bulls eagerly waited for some significant upside triggers to cover the huge pile of short positions that got build up in the recent past. The frontline indices registered colossal gains of around three and half a percent amid tentative improvement in risk appetite of investors who resorted to hefty bottom fishing after the recent brutal risk aversion. The important psychological 4,600 (Nifty) and 15,400 (Sensex) levels proved as strong supports for the key gauges as the indices spurted in the dying hours of trade from those levels and even re-conquered the 4,700 (Nifty) and 15,700 (Sensex) bastions for a brief period. The unexpectedly encouraging US housing market report coupled with easing Euro-zone debt woes boosted sentiments across the globe as most Asian equity indices exhibited optimistic trends while the European markets surged for a third day, as the ECB provided more support to euro-area lenders in long-term loans than economists had predicted. Investors globally rejoiced on getting encouraging economic reports from both sides of Atlantic, as on one hand US housing starts unexpectedly jumped in November while on the other the German business confidence improved in December, alleviating worries of a global economic slowdown. Back home, reports that Moody's reaffirmed India's local and foreign currency bond ratings at Baa3 with a stable outlook, underpinned sentiments. The agency also said that India’s rating being considered for an upgrade provided Indian government finances improve, investment climate enhances and infrastructure bottlenecks reduce. However, market-men remained skeptical that the markets may not be able to sustain the optimism as nothing much has changed fundamentally on the domestic front and this might impact local bourses once the global euphoria subsides. Earlier on Dalal Street, the benchmark got off to a gap-up opening following supportive leads from Asian markets as sentiments in the region got buttressed on the back of jubilant global leads. The frontline indices carried forward the optimistic momentum and kept oscillating in a narrow range through most part of the session. The frontline gauges hit intraday lows in early afternoon trades after which the key gauges witnessed sudden spurt in sentiments which helped the indices to capitalize on the impetus and settle around the highest point of the day, halting the five session declining streak. Eventually, the NSE’s 50-share broadly followed index - Nifty garnered a massive around three and half a percentage points to settle at sub 4,700 levels while Bombay Stock Exchange’s Sensitive Index - Sensex amassed whopping over five hundred points and closed below the psychological 15,700 mark. Moreover, the broader markets failed to match the fervor with which their larger peers rallied and only managed gains of about a percent. On the BSE sectoral space, there appeared absolutely no laggards while the beaten down rate sensitive Banking counter remained the top gainer in the space with close to five percent gains while the Oil & Gas pocket too made its presence felt by surging about four percent. Finally, the BSE Sensex garnered 510.13 points or 3.36% to settle at 15,685.21, while the S&P CNX Nifty amassed by 148.95 points or 3.28% to close 4,693.15.

The US markets made a mixed closing on Wednesday, sending the Standard & Poor’s 500 Index higher for a second day, on late-breaking reports about Yahoo Inc. and Bank of America Corp. The markets spent most of the session in the red following the European Central Bank’s offer to lend a record amount to euro-area banks. Hope that came with the ECB’s loan plan faded on worries that it would not increase lending between banks nor will reduce the huge debt burdens of European governments. The ECB loaned 489 billion euros, or $639 billion, to 523 banks for three years - the biggest such injection into the banking system in the 13-year history of the region’s shared currency. Earlier, the market turned lower and tech stocks led the decliners after Oracle made cautious statement on large sales. In addition, the existing homes sales were also revised lower to 14% between the period 2007 and 2010 and raised serious questions about the reliability of the data from the industry association.

However, the market trimmed its losses in the last hour of trade as both Bank of America Corp. and Yahoo Inc. made a sharp recovery. The Justice Department announced a $335 million settlement with Bank of America over alleged discriminatory lending practices by its Countrywide Financial Corp. unit, putting an end to one legal issue hanging over the company. While, Yahoo was discussing a plan to cut its stake in Alibaba Group Holding to about 15% from 40%.

The Dow Jones industrial average gained 4.16 points, or 0.03 percent, to 12,107.70. The Standard and Poor’s 500 closed higher by 2.42 points, or 0.19 percent, to 1,243.72, while the Nasdaq composite lost 25.76 points, or 0.99 percent, to 2,577.97.

Crude oil prices extended the gaining momentum for the third straight session on Wednesday as investors showed buying interests in the commodity after reports of larger than expected plunge in US crude inventories. The US EIA data showed that crude inventories declined by 10.6 million barrels last week to their lowest levels since the week to Dec. 26, 2008. The oil prices also drew some support from lingering concerns that potential sanctions over Iran's nuclear program will disrupt supplies from the world's fourth largest oil producer.

Benchmark crude for February delivery surged $1.43, or 1.47% to settle at $98.67 a barrel, after trading as high as $99.23 on the New York Mercantile Exchange. In London, ICE February Brent crude gained $1, or 0.93%, at $106.73 a barrel.