Markets to make a cautious start; RBI’s policy review eyed

The Indian markets suffered some profit booking in last session that led the benchmarks lower for the day. Today the start is likely to be cautious and traders will be eyeing the RBI’s policy announcements later in the day. Though, in most likelihood RBI won’t tinker the rates but any surprise can give the markets’ direction for the session and days to come. The general expectation is RBI will wait until February or April to ease rates, despite sharply lower inflation and may come up with some dovish statement to sooth the nerves of industry and the government. There will be some buzz in the textile stocks, as the Lok Sabha passed a bill to free the ailing National Textile Corporation. The Textile Undertakings (Nationalisation) Laws (Amendment and Validation) Bill, 2014 replaces an ordinance passed by the government. The bill aims to ensure proper and effective implementation of the revival scheme for sick textile units. The PSU oil marketing companies and the aviation stocks too may see some movement, as price of non-subsidised cooking gas (LPG) was cut by a steep Rs 113 per cylinder and that of jet fuel (ATF) by 4.1 per cent as international oil rates slumped to multi-year lows. Auto stocks are likely to maintain their jubilation, as automobile sector has picked up pace, with eight of the country's leading manufacturers reporting combined sales growth of 10 per cent in November.

The US markets ended lower in last session, as traders overlooked an upbeat manufacturing data amid worries about developments overseas after Moody’s downgraded Japan's debt rating by one notch to A1 from Aa3. The Asian markets have made mostly a negative start, weighed down by rating cut of Japan on uncertainty over whether Japan will achieve its deficit-reduction goals and succeed in boosting growth.

Back home, Indian equity markets suffered some late hour profit booking that dragged the major indices down by about half a percent on the very first day of the month. Though, the trade remained rangebound for most part of the day, ahead of the RBI's policy review, although the wide expectations are that Governor Raghuram Rajan who has resisted calls to cut the repo rate, even though retail price inflation has dipped below the 6% target he wants to hit by January 2016, may not oblige the street with a surprise. Still the traders were keeping some hopes that finance minister Arun Jaitley would argue with RBI governor to lower interest rates when the two meet ahead of an RBI interest rate decision. The global cues were not very supportive as most of the Asian markets after a cautious start turned negative, while the European markets too made a soft start led by decline in commodity and energy producers, after manufacturing slowed more than forecast from China to the euro area. German manufacturing unexpectedly shrank last month to 49.5 from 51.4. Manufacturing in France and Italy also shrank and a euro-area gauge was revised to 50.1 from 50.4. Back home, the local bourses lost momentum after a weak start of the European markets and the early gains gathered in reaction to the better than expected GDP data for the second quarter announced late Friday was finally given up. The economy slowed in second quarter at 5.3 per cent from 5.7 per cent in the previous April-June quarter, dragged down by the poor performance of the manufacturing sector. Though, the numbers were much better than the street expectations and the GDP growth for the first half of the year, April-September stood at 5.5 per cent as against 4.9 per cent in the same period last year. In the latter part of the trade the markets even ignored an upbeat reading of manufacturing sector in the month of November, as the HSBC India Purchasing Managers' Index (PMI) rose from 51.6 to 53.3 to reach a 21-month peak. Manufacturing operating conditions in the country improved for the 13th month in a row, supported by stronger growth of output and new work intakes. The weakness in domestic currency also weighed on the sentiments, as the rupee extending its fall slipped to fresh nine months low, after the dollar strengthened overseas. Finally, the BSE Sensex plunged by 134.37 points or 0.47%, to 28559.62, while the CNX Nifty declined by 32.35 points or 0.38% to 8,555.90.