Markets likely to make a soft-to-cautious start of the day

The Indian markets despite rise in monthly inflation number and non affair rail budget snapped the last session on a strong note. Banking stocks led the rally of the day amid choppiness. Today, the start is likely to be soft-to-cautious, though there are two important events scheduled for the day RBI’s mid quarterly monetary policy review and the Economic survey but the traders will be eyeing the mega events of tomorrow, the ‘union budget’. It is being expected that Reserve Bank of India’s Governor Duvvuri Subbarao may not hurry to cut interest rates in response to slowing economic growth, especially as the inflation is still not showing firm trend of declining. Economists are expecting that if inflation does not come under control and the government does not provide a reliable guide to reducing fiscal deficit from an estimated 5.6% this fiscal, the policy rate cut may get delayed beyond April.

There will be buzz in the markets due to the political upheavals as it has been reported that Union Railway Minister Dinesh Trivedi on Thursday sent his resignation letter to Prime Minister Manmohan Singh, after going for a fare hike after ten years. Meanwhile, the railways related stocks will keep reacting to the rail budget after analyzing the impact.

The US markets ended mixed, while the Commerce Department reported that higher fuel prices helped push February import prices by 0.4% after prices stayed unchanged in the previous month, the financial stocks moved higher boosted by the  latest round of bank stress tests. A number of banks issued stock buyback announcements after the results of the stress tests were released. The Asian markets too have made a mixed start with most of the indices trading in red. The Japanese market was up in green as exporters advanced after the dollar rose against the yen ahead of a report to show the US economic recovery is strengthening.

Back home, the Railway Budget 2011 turned out to be a low key affair for the equity markets as it failed to bolster sentiments in the local markets which snapped the day’s trade with gains of over half a percent on a day when equities globally rallied fervently, following sanguine cues from the US. The frontline equity indices got off to an exhilarating gap-up opening but failed to sustain the sanguine momentum as investors chose to take profits off the table ahead of the release of Monthly WPI inflation numbers. The benchmarks nearly flattened out in early noon trades after reports showed India's inflation accelerated for the first time in five months in February, putting the Indian Reserve Bank in a tight corner, a day ahead of its mid quarter monetary policy review in which it is now likely to abstain from resorting to any liquidity easing measures. Rate sensitive counters gave a mixed reaction to the announcement as high beta Realty index plunged around 1% being the top laggard on the BSE sectoral space on speculations that the chances for a cut in funding costs are grim. While on the other hand, the Banking index rallied close to 2% outperforming all the sectoral as well as frontline indices as investors hopes that the Union Budget could contain beneficial measures to the sector, including making provisions on non-performing loans tax deductible. Meanwhile, investors’ risk appetite got bolstered after the US markets logged the best gains in 2012 and scaled multi-year highs after US Federal Reserve slightly lifted its outlook, predicting the GDP to grow moderately this year, but the central bank held to its forecast that interest rates will likely stay near zero until at least 2014. In the meantime, industry body FICCI has opined that the government is most likely to overshoot its targeted fiscal deficit of 4.6% of GDP this fiscal and should be near the 5.7-5.8% mark as estimated by while it may be around the 5.2% mark in the next fiscal. Finally, the BSE Sensex gained 105.68 points or 0.59% to settle at 17,919.30, while the S&P CNX Nifty rose by 34.40 points or 0.63% to close at 5,463.90.