Markets likely to get a positive start on European optimism

The Indian equity markets remained in consolidation mood for the fourth straight day and decline marginally in the previous session. Power sector remained buzzing, as the private power producers are pushing for priority in natural gas supply. Today, the start is likely to be in green, as the optimism regarding solution to European debt crisis is giving positive cues. The power sector may remain in jubilant mood again ahead of the meeting of an empowered group of ministers (eGoM) later this month. Gas-based power projects with a generation capacity of about 4,000 Mw are ready to commence operations by March 31 and are awaiting allocation by the eGoM. While, the rate sensitive sectors will be buzzing, as it is widely expected that the Reserve Bank of India (RBI) will bring down the cash reserve ratio (CRR) requirement for banks in its upcoming monetary policy review on January 24. A rapid slowdown in food inflation in December has raised hopes of a reversal in its monetary tightening cycle. Meanwhile the RBI has said that the fiscal deficit target of 4.6 per cent of GDP in 2011-12 could be missed and this will have serious implications on inflation.

The US markets managed a close of slight gains to start the earning season, European debt concerns though continued weighing and, after meeting in Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy warned Greece it will get no more bailout funds until it agrees with creditor. Most of the Asian markets have made a positive start and are trading higher by half to over a percent, ahead of the European leaders’ summit to increase efforts to tackle the debt crisis.

Back home, Indian stock markets have prolonged the lull for fourth straight day and snapped the session on a dull note, marginally below the neutral line as investors at large remained reluctant to build on long positions ahead of official start of the third quarter earnings season with Infosys’ result and also monthly industrial production data. The session largely remained characterized by choppiness as the aimless indices moved only slowly creeping towards the previous closing levels after the early decline. The downside risks for the frontline indices was limited by reports that foreign institutional investors (FIIs) invested nearly Rs 6,500 crore into the Indian market, including stocks and bonds, in the first week of the January 2012 ahead of the quarterly earnings season as they expected that most of the headwinds have been factored in by the markets and that the companies will report encouraging earnings for the third quarter. Meanwhile, Indian Prime Minister avowed that with its strong economic fundamentals and robust constitutional processes, India is expected to register an economy growth rate of around 7% in this fiscal year ending March, 2012. The affirmation came a day after the Union Finance Minister Pranab Mukherjee said that Indian GDP would grow by 7.5% in 2011-12. Earlier on Dalal Street, the benchmark got off to a pessimistic start following the Asian peers as sentiments got pressured by resurfacing worries over the European debt crisis which outweighed encouraging US Jobs data. After the subdued opening, the key gauges plunged to lowest point in the day on sharp across the board sell-off. Thereafter started the road to recovery for the bourses which kept slowly but steadily moving towards the neutral line. The frontline indices even managed to break into the positive terrain in mid noon trades but only for a brief period, tracking the leads from European counterparts. But some final hour profit booking followed by mild short covering ensured that the key gauges extend the consolidation period for fourth straight session. Moreover, broader markets showed some resilience by outclassing their larger peers by a big margin as investors carried forward their value hunting in beaten down shares from the midcap and small cap space. On the BSE sectoral space, Power counter remained the top gainer in the space with over one and half a percent gains followed by the high beta-Realty index which ended with similar gains. On the other hand, the Oil & Gas index slipped by over half a percent followed by the rate sensitive Auto and TECk counters which too settled with close to half a percent losses. Finally, the BSE Sensex lost 34.08 points or 0.22% to settle at 15,814.72, while the S&P CNX Nifty declined by 4.10 points or 0.09% to close at 4,742.80.

The US markets edged higher on Monday, as investors bet on the corporate earnings season, kicked off after the close of trade by Alcoa Inc., would bolster recent data pointing to an improving US economy. Alcoa released fourth-quarter results that matched analysts’ estimates. However, banks were in focus as fourth quarter earnings are expected to be the worst in the last six quarters on weak trading and ongoing housing market turmoil. In Europe, Germany sold €3.9 billion of short term debt at negative yield and Italy and Spain are set to sell more in the week. German Chancellor Angela Merkel and French President Nicolas Sarkozy, in comments to reporters after meeting in Berlin stated that they have made progress toward implementing tougher budget rules across the euro zone and that would aim to foster stronger growth and job creation.

The Dow Jones Industrial Average closed higher by 32.77 points, or 0.27 percent, at 12,392.70. The S&P 500 was up by 2.89 points, or 0.23 percent, at 1,280.70, while the Nasdaq closed up 2.34 points, or 0.09 percent, at 2,676.56.

Crude oil prices extended the downtrend for third straight session on Monday after investors squared off positions amid worries that oil demand will take a hit as disappointing German industrial production numbers deepened worries that the European economy is drifting into recession. The firmer American greenback against a basket of currencies too dented sentiments as it made the commodity more expensive for overseas investors.

Meanwhile, concerns over supply disruptions too got alleviated to some extent as the chances of Iran blocking the Strait of Hormuz - a key exit route from the oil-rich Gulf, were low while Saudi Arabia mulled to raise oil output.

Benchmark crude for February delivery slipped $0.25, or 0.3% to settle at $101.31 a barrel on the New York Mercantile Exchange. In London, February Brent crude declined $0.61 or 0.5% to end at $112.45 a barrel after trading in the range of $111.80 to $113.88 on the ICE.