Markets likely to extend the gains in early trade; IIP data to give direction

The Indian markets despite some choppiness moved higher on Friday, with indices gaining over two percent for the day. The momentum is likely to extend forward with the start of a data laden crucial week. The markets will first react to the surprising CRR rate cut. The Reserve Bank of India, after the market hours on Friday has cut the cash reserve ratio, the share of deposits that banks must hold with it, by 75 basis points to 4.75 percent. This reduction, which will inject around Rs 48,000 crore of primary liquidity into the banking system, has come ahead of RBI policy review meet on March 15 will give boost to the banking and rate sensitive sectors. There will be another announcement from the macro front; IIP numbers for the month of January will be released. Marketmen are expecting a slight rebound in IIP numbers driven by consumer goods and the January IIP is seen at 2.1% against 1.8%, month-on-month. A better or worse numbers can make or mar the sentiments of the traders. The textile sector stocks too are likely to remain buzzing after government scrapped a one-week-old ban on exports of cotton after protests from growers, traders and the largest consumer of the fiber China.

The US markets moved higher marginally on Friday on getting good jobs data, the nonfarm payrolls climbed more than expected. The Asian markets have made a mixed start with most of the indices trading in red on reports of as Chinese exports growing at a slower pace than economists forecast. However, the Japanese market was trading in green on reports of rebound in machinery orders and better- than-expected US jobs data.

Back home, Coming after celebrations of ‘Holi’ - the festival of colors, Dalal Street got painted in deep green as market bulls took the upside triggers to cover the significant pile of short positions that got build in the week. The frontline indices surged on large volumes as investors’ appetite for riskier asset classes like equities got a boost, after the recent brutal risk aversion, as reports signaled that debt laden Greece closed in on a crucial debt-swap in order to avert an onerous debt debacle. After a day’s break, euphoric investors resorted to hefty across the board bottom fishing, taking the frontline gauges beyond the psychological 17,500 (Sensex) and 5,300 (Nifty) levels. The local bourses amassed over two percent gains and comprehensively outperformed all the global peers after the Greek debt deal progress caught bears on the wrong foot.  Though, some profit booking around the psychological levels in late morning trades brought the key indices lower, however the gauges recovered soon after IMF head Christine Lagarde voiced her optimism over the Greek debt deal stating the risk of crisis in the Euro-zone has been removed, with the Greek rescue efforts seeing progress. Back home, rating agency Moody’s cautioned that a failure to narrow fiscal deficits could endanger India’s credit strengths and could eventually compromise the country's macro-economic profile. However, investors not only shrugged the rating agency’s words of caution but also the India’s trade data for February which showed imports continued to outpace exports in February due to weak demand from major exports markets like the US and Europe, thus widening trade deficit which would in turn worsen India's current account deficit and further weaken the rupee.  But domestic investors at large have shifted their focus towards the RBI's March credit policy review meet in which they expect the central bank to ease liquidity condition to spur economic growth while the Union Budget 2012-13, which is scheduled to be unveiled on March 16, 2012, too is being eyed for further direction. On the BSE sectoral space, across the board buying was evident with the Metal counter leading the space after rallying over 4.5% followed by the Capital Goods pocket which jumped 3.75%. The defensive FMCG index remained the only chink in the armor with marginal loss. In the meantime, the successful listing of shares of MCX, which ended at Rs 1,297 a premium of 25% over the issue price of Rs 1,032, was indicative of the strong sentiments prevailing in local markets. Finally, the BSE Sensex gained 357.72 points or 2.09% to settle at 17,503.24, while the S&P CNX Nifty increased by 113.10 points or 2.17% to close at 5,333.55.