Markets likely to extend the weakness on final day of the weak

Indian markets extended their consolidation mood for the second day on Thursday; the last hour profit booking took the markets lower. While, the rate sensitives’ moved higher on sharp decline in weekly inflation numbers, oil & gas counterbalanced the gains. Today, the start is likely to be a bit soft-to-cautious, as the global cues remains sluggish. There is good news for India Inc. as the Reserve Bank of India has raised the overseas convertible bonds or FCCBs borrowing limit to $750mn under the automatic route. Companies can now raise FCCBs upto $750mn without RBI approval. The ailing airlines companies too are likely to get some respite as the Civil Aviation Minister Ajit Singh has promised to stand by the struggling aviation sector and not let any airline wind up due to financial difficulties or safety concerns. However, State Bank of India, has finally admitted that its outstanding Rs 500 crore loan to the Kingfisher Airline has been termed as non-performing asset and the airline has been given 90 days to repay back the loan in order to upgrade it to standard assets.

Meanwhile, Finance Minister Pranab Mukherjee has said that the government may face a shortfall of $300 billion in funding requirements for the infrastructure sector in the 12th five year plan, and financial institutions will have to make extra efforts to bridge the gap.

The US markets made a mixed closing on Thursday as investors remained concerned about the European debt crisis and overlooked the upbeat domestic economic reports. Pace of growth in US Service sector picked up slightly in December. Also the ADP reported that Private sector employer added 325000 jobs in December, much better than expected. While, banking stocks moved higher on speculation that the Obama administration could launch a new mortgage refinancing program. The Asian markets have made a weak start concerned about the deepening European debt crisis. Though, Taiwanese markets have started marginally in green rest of the markets in the region are in red, some are even down by around a percent.

Back home, Thursday’s session turned out to be a lackluster one for the Indian stock markets as the optimism that was evident in afternoon trade fizzled out completely by the end, leading the benchmark equity indices to a flat closing around the neutral line. The session was characterized by choppiness as the key indices gyrated in a tight range through the day. Investors lacked conviction to open fresh positions amid uncertainties surrounding the European region. The psychological 4,780 (Nifty) and 16,900 (Sensex) levels once again proved as tough ones to crack for the frontline indices despite repeated attempts to claw beyond those levels. Buying interests in the beaten down rate sensitive counters like Automobile and Capital Goods index prevented the benchmarks from sinking deeper into the negative terrain however, hefty position squaring from the heavyweight Oil & Gas and high beta Realty counters thwarted the upside chances for the key indices. The encouraging weekly food inflation numbers too propped up sentiments in the session as food inflation plunged to the negative terrain to -3.36% for the week ended Dec 24 after hovering in the double digits for nearly two long years. The sharp decline in food inflation is seen as a major trigger for the RBI to look at the option of easing interest rates sooner than later. However, the key indices capitulated by the end tracking the European counterparts amid worries that the Euro-zone governments and banks will struggle to raise funds as France prepares for bonds Auction. Earlier on Dalal Street, the benchmark got off to a positive start, in tandem with the cautiously optimistic sentiments prevailing in Asian markets. The frontline indices soon gathered momentum and touched intraday highs in early hours but trade remained range bound thereafter. But fresh bouts of selling pressure surfaced after weak European opening, post which the indices slipped into the negative territory and found it hard to rebound. On the BSE sectoral space, the Auto index remained the top gainer in the space with over a percent gains followed by the Capital Goods and rate sensitive Banking indices which ended with notable gains. On the other hand, the Oil & Gas index plummeted over one and half a percent followed by the high beta Realty counter that too settled with similar losses. Finally, the BSE Sensex lost 25.56 points or 0.16% to settle at 15,857.08, while the S&P CNX Nifty rose by 0.30 points or 0.01% to close at 4,749.95.

The US markets closed mixed on Thursday, as an improving labor market bolstered optimism in the economy curtailing concern about Europe. The markets gained after the release of jobs data but indices traded sideways in the late afternoon on the ongoing euro area debt worries with no end in sight. The US economic data out yesterday included ADP Employer Services reporting a 325,000 increase in private payrolls last month, an increase much better than anticipated. Also, figures from the Labor Department showed initial applications for jobless benefits claim falling 15,000 to 372,000 last week. The reports come ahead of Friday’s report on US nonfarm payrolls and the unemployment rate for December from the Labor Department. Another report showed that the Institute for Supply Management’s index of US non-manufacturing industries, which account for about 90 percent of the economy, rose to 52.6 in December from 52 a month earlier. 

Besides, speculation that the White House might unveil a new nationwide loan refinancing plan was also in play on reports that President Barack Obama might place a housing advocate at the Federal Housing Finance Agency which regulates Fannie Mae and Freddie Mac. Also, consumer price inflation in the OECD area eased in November. Consumer price inflation in the Organization for Economic Cooperation and Development area eased in November, reflecting mainly slower growth in energy prices, latest data showed. Annual inflation eased to 3.1% in November versus 3.2% in October. Inflation slowed for the second consecutive month. In Europe, Greece's Prime Minister Lucas Papademos warned at a meeting with union leaders that deeper cuts in incomes to reduce the country's debt are the only way for the country to remain in the euro currency zone and to secure further funding from international lenders. Greece will start negotiations with lenders on the €130 billion-second bailout package in mid-January.

The Dow Jones industrial average lost 2.72 points, or 0.02 percent, to 12,415.70. The Standard and Poor’s 500 closed higher by 3.76 points, or 0.29 percent, to 1,281.06, while the Nasdaq composite gained 21.50 points, or 0.81 percent, to 2,669.86.

Crude oil prices dived close to one and half a percent on Thursday after investors chose to square off positions amid fresh jitters over Euro-zone debt crisis while the higher than expected US EIA’s weekly inventory numbers too undermined sentiments. Investors remained worried over the unexpectedly higher US crude stockpiles data which indicated feeble demand in the world’s top oil consumer. The oil prices which spiked close to eight-month high in the previous session also got weighed down by the strength in US dollar, which made crude expensive for overseas investors.

Meanwhile, the downside for the oil was limited by lingering concerns over supply disruptions from Iran as the US and Europe tightened sanctions on the nation with nuclear ambitions. Iran has threatened to block the vital Strait of Hormuz waterway, which is the exit route from the oil-rich Gulf of 20% of the global daily oil consumption.

Benchmark crude for February delivery plunged $1.41, or 1.4% to settle at $101.81 a barrel on the New York Mercantile Exchange. In London, February Brent crude sank $0.96 to close at $112.74 a barrel on the ICE.