Domestic markets likely to take a breather with a flat start

The Indian markets went for an unpredictably huge rally taking the benchmarks past the crucial psychological levels. There was across the board buying after many days on supportive global cues and on expectations that easing inflation pressure will pave the way for the central bank to begin unwinding tight monetary policy this month. Today, the start is likely to be flat-to-cautious and some profit booking too can be expected after the report that RBI has ruled out the possibility of a cut in the cash reserve ratio in its monetary policy review on January 24. It was said that the bankers in the pre-policy meeting were told by the RBI deputy governor Subir Gokarn that 'lowering CRR will be contradictory to the anti-inflationary stance we (the RBI) have taken”. Though there will be buzz in the markets as the government has notified 100 per cent foreign direct investment (FDI) in single brand retail. Auto stocks too may extend their uptrend in early trade after reporting strong sales growth in December. The sales rose 8.45 per cent from a year earlier to 14,13,709 vehicles bought in the month with passenger car sales increasing by 8.49 per cent to 159,325.

The US markets surged on Tuesday on optimism of good earnings season, sparked by the strong start with bullish forecast of Alcoa. There were other good news from the global markets that supported the sentiments, Fitch Ratings said it will not downgrade France's debt this year, and metals demand of China remained firm. Most of the Asian markets have started the day in green, though marginally. Chinese market is trading down despite the buzz that the country will ease monetary policy to spur growth. The Japanese market is trading up on getting positive signal from the US economy.

Back home, coming into the session after four straight days of consolidation, Indian benchmark equity indices showed renewed enthusiasm as they vehemently rallied by two and a quarter percent to re-conquer the psychological 4,850 (Nifty) and 16,150 (Sensex) levels in the session. Hyperactive bulls aggressively piled up positions in not only heavyweight stocks but in the broader markets too, ahead of the quarterly earnings season which will formally commence with bellwether Infosys’ result announcement on January 12, 2012. The key gauges finally managed to sail beyond the 4,780 (Nifty) and 16,900 (Sensex) levels which had proved as though nuts to crack for the indices despite repeated attempts to claw beyond those levels. There appeared no trepidation in the session either from the domestic or global front as market sentiment was buoyed on hopes that Euro-zone leaders are taking efforts towards implementing tougher budget rules across the single currency zone. On the domestic front, worries over the rupee’s outlook alleviated to some extent as the currency rose to strongest levels in around a month on the back of strong FII flows and rally in equities. Meanwhile, bankers have sought a cut CRR so that liquidity pressures that are likely to emerge down the line are taken care of, however the Reserve Bank is of the view that liquidity position is comfortable. Sentiments also got a lift in the session after Moody’s in addition to the three upgrades in December 2011, also upgraded India’s short-term country ceiling on foreign currency bank deposits. Earlier on Dalal Street, the benchmark got off to an optimistic start following the Asian peers as sentiments got bolstered after getting further evidence that the world’s largest economy, US is steadily gaining momentum. The frontline indices gathered strength thereon and commenced the northbound journey with great conviction. There appeared no resistance what so ever throughout the session as the indices kept conquering one psychological level after another. The indices surged from strength to strength and the journey halted only with the end of session around the highest point of the day. On the BSE sectoral space, the high beta Realty counter remained the top gainer in the space with over four percent gains followed by the beaten down Capital Goods index which ended with over three and half a percent gains. Meanwhile, Auto counter too surged close to three percent despite SIAM lowering car sales growth forecast for the third time to 0-2 percent for the ongoing fiscal citing unfavorable macro economic conditions, however, it said that the sales may see a jump of 11-13 per cent in FY13. Finally, the BSE Sensex jumps 350.37 points or 2.22% to settle at 16,165.09, while the S&P CNX Nifty climbed by 106.75 points or 2.25% to close at 4,849.55.

The US markets edged higher on Tuesday, sending the Standard & Poor’s 500 Index to the highest level in five months as earnings optimism lifted broader indexes amid speculation that China may act to spur growth. Alcoa Inc., the biggest US aluminum producer and first company in the Dow to report results for the latest period, had a fourth-quarter loss excluding restructuring costs, matching the average projection. Besides, trade data from China’s government showed that nation’s import growth declined to a two-year low last month, raising expectations for monetary easing for the second-largest global economy.

Moreover, the Federal Reserve will pay $76.9 billion to the US Treasury as part of an annual dividend it remits after covering its own expenses from interest on its ballooning bond portfolio and other gains. Total assets on the Fed’s balance sheet stood at a near- record $2.92 trillion on January 4. The central bank expanded its portfolio by purchasing $2.3 trillion in US. Treasury debt, mortgage-backed securities and housing agency debt to push down longer-term interest rates once its benchmark lending rate hit zero in December 2008. In Europe, banks are preparing to meet revised capital guidelines this year and may need to raise at least 145 billion euros in the next eighteen months. Also, European leaders stated that they made progress toward implementing tougher budget rules across the euro zone. German Chancellor Angela Merkel and French President Nicolas Sarkozy met in Berlin yesterday indicating that they made progress on an agreement to implement new budget rules for the euro-zone. The German Chancellor is also scheduled to have talks with the International Monetary Fund Managing Director Christine Lagarde in Berlin.

The Dow Jones Industrial Average closed higher by 69.78 points, or 0.56 percent, at 12,462.50. The S&P 500 was up by 11.38 points, or 0.89 percent, at 1,292.08, while the Nasdaq closed up 25.94 points, or 0.97 percent, at 2,702.50.

Crude oil prices got a halt to their three straight sessions' downtrend and climbed around a percent higher on Tuesday as sentiments got a lift amid hopes of improving demand outlook after world’s second largest oil consumer China reported that oil imports grew six percent in Dec 2011 against the same month last year. The fuel price also took support from lingering concerns over supply disruptions from Iran while the rally in risky assets like equities globally and depreciation in American greenback against a basket of currencies together buttressed the commodity’s prices.

Benchmark crude for February delivery surged $0.93, or 0.9% to settle at $102.24 a barrel on the New York Mercantile Exchange. In London, February Brent crude declined $0.83 or 0.7% to end at $113.28 a barrel on the ICE.