Markets to make a gap-down start of the new month on weak global cues

The Indian markets after a volatile day of trade snapped the month on a weaker note and major averages lost about another half a percent. Today, the start is likely to be weak on feeble global cues and discouraging economic data. Economic growth slowed to 7 percent in the April-June quarter, from 7.5 percent in the previous quarter, amid deceleration in farm, services and manufacturing sectors. Also, the index of eight core industries fell again to 1.1 per cent in July compared to 3 per cent in the previous month. However, the developments have raised demand for rate cut from the RBI and India Inc. has said that the subdued performance of economy indicates that the cost of capital needs to come down. Finance minister Arun Jaitley too has said that the RBI will take note of the fact that inflation is broadly under control, oil and commodity prices are low and prospects of a better-than-expected agricultural production, when it reviews monetary policy. There will be some buzz in the banking sector, after HDFC Bank, India’s second largest private bank, cut its base rate by 35 basis points to 9.35%, this may prompt others to follow. Meanwhile, RBI has designated the State Bank of India and ICICI Bank as domestic systemically important banks (D-SIBs). There will be some action in oil marketing companies too after the petrol and diesel prices were reduced for the third time in the month.

The US markets ended lower in last session making it the worst month in last three years on renewed concerns about the Chinese economy. On the domestic economic front too business activity in the Chicago area unexpectedly grew at a slower rate in the month of August. The Asian markets have made a weak start with the Chinese market once again slumping over 4 percent after a gauge of manufacturing fell to a three-year low. The Japanese market too was trading lower as the yen strengthened against dollar.

Back home, monday turned out to be a disappointing session for the Indian equity indices which got pounded by around half a percent, breaching their crucial 8,000 (Nifty) and 26,300 (Sensex) levels as investors remained on sidelines ahead of quarterly gross domestic product (GDP) data scheduled to be released post market hours today. In the extremely volatile session of trade key gauges, after a sluggish start, staged smart recovery in noon deals to regain their green terrain as investors got some encouragement with Reserve Bank of India’s (RBI) Governor Raghuram Rajan hinting of an imminent rate cut, after he said that inflation has come down to the comfort zone quicker than expected and he is keeping a watch on data to see how much room is there for further easing of the monetary policy. However, market participants booked profit at higher levels in last hour of trade ahead of April-June gross domestic product data which is likely to come at 7.4 per cent, just below 7.5 per cent in January-March. Sentiments also remained dampened on report that the country’s services sector witnessed around 14 per cent decline in foreign direct investment (FDI) at $636 million (Rs 4,036 crore) in the first quarter of the current fiscal. Some cautiousness was also due to the progress of the monsoon as a strengthening El Nino weather pattern is likely to trim rainfalls in August-September, raising fears of the first drought in six years. Selling got intensified after European counters made an awful start, while the Asian markets ended mixed. Back home, traders were also concerned about Prime Minister Narendra Modi’s announcement that the government will not re-promulgate the controversial ordinance on land acquisition. Weakness in Indian rupee too weighed down sentiments. Finally, the BSE Sensex plunged by 109.29 points or 0.41% to 26283.09, while the CNX Nifty declined by 30.65 points or 0.38% to 7971.30.