Markets to make a cautious start after showing a good bounce back

The Indian markets bounced back in second half of the last session to post decent gains, with consumer durables stock taking the lead. Today, the start is likely to be cautious though traders will be relieved with reading on Chinese factory sector outpacing the market’s bleak expectations. However on domestic front there will be some advantage with Crisil saying that Indian economy may record 5.5% growth this fiscal as India is bound to benefit the most when oil prices come down and it will be visible this year, reducing the cost of production for those industries which use oil as a primary input. On the other hand there is some concern for the PSU banks raised by another global ratings agency Moody’s Investors Service, which has said that India’s state-run banks barely manage to meet the minimum capital requirements and the major 11 banks need between Rs1.5 lakh crore to Rs 2.2 lakh crore, or $26-$37 billion by 2019 to comply with the so-called Basel-III norms and the government will find it difficult to raise capital quickly in the current environment due to low bank valuations. Oil & Gas sector stocks may get some support with reports that a complete clarity on the new price for domestically produced gas will emerge by September 30.

The US markets closed lower in last session with Dow pulling back well off last Friday’s record closing high. Traders went for profit booking, while the economic reports too came weak with unexpected drop in US existing home sales in the month of August. The Asian markets are showing some recovery following a soft start after a preliminary gauge of Chinese manufacturing unexpectedly climbed to 50.5 in September from a reading of 50.2 in August.

Back home, Indian equity benchmarks staged a smart recovery in second half of trade on Monday and ended the session in green with a gain of around half a percent, supported by short-covering in beaten down but fundamentally strong stocks. Nevertheless, traders remained cautious ahead of the September F&O expiry on Thursday. Earlier in the day, after opening in red, key benchmark indices languished in the negative territory till early noon trades. The indices even went on to test important psychological 26,900 (Sensex) and 8,050 (Nifty) levels, but the key gauges got solid support around those intraday low levels as they convalesced from thereon. However, a divergent trend was visible in the broader markets. The midcap and smallcap indices which were resilient for most part of the day lost some steam in the closing hour of trade. Global cues remained somber with European markets trading in the red in early deals, while Asian markets ended mostly in the red. Back home, stocks related to jewellery sector remained on buyers’ radar ahead of festive season. Telecom stocks too edged higher on report that the Home Ministry has insisted that obtaining prior security clearance should be made mandatory for service providers for granting them telecom licences. Meanwhile, Department of Industrial Policy and Promotion (DIPP) has stated that foreign direct investment (FDI) in the services sector rose marginally to $1.03 billion during the April-July period of the ongoing fiscal, compared to $1.02 billion during the same period of the previous fiscal, 2013-14.  On the flip side, pharma stocks edged lower with the government capping the prices of another 36 drugs, including those used to treat infections and diabetes, in its latest move to make essential medicines more affordable. Finally, the BSE Sensex surged by 116.32 points or 0.43%, to 27206.74, while the CNX Nifty gained 24.85 points or 0.31% to 8,146.30.