Markets to make a cautious start but may see recovery in latter trade

23 Aug 2016 Evaluate

The Indian markets suffered some profit taking in last session, amid weak global cues and fading hopes of rate cut after nomination of Urjit Patel as news RBI Governor, who is known for his hawkish view on inflation. Today, the start is likely to remain a bit cautious but some recovery can be expected in latter trade, with the business confidence index maintained by NCAER gaining 2.2 per cent during the June quarter helped by increasing optimism towards the coming six months. Markets will also be getting some encouragement with report that India will highlight the goods and services tax (GST) and other policy measures taken to boost ease of doing business in the country in its bid to get more investments from the US at the second Indo-US Strategic and Commercial Dialogue in New Delhi next week. However, there will be some cautiousness in the market with report that pledging of shares by promoters in companies listed on the National Stock Exchange hit a seven year high at the end of June. There will be some buzz in the port and shipping sector stocks, as the Union Minister for Road Transport, Highways and Shipping, Nitin Gadkari has said that the government will abolish the Tariff Authority for Major Ports or TAMP and introduce a new Act that will govern the sector. Gadkari said that the Centre is working on a proposal to form subsidiaries under the 12 major ports in India which will invest in developing inland waterways across the country. Some action can be seen in logistics stocks, with Chhattisgarh Assembly on Monday unanimously ratifying the Constitutional Amendment Bill on the Goods and Services Tax at a special session.

The US markets turned cautious and made a mixed closing in last session, with traders remaining on sidelines waiting for Fed chief’s speech to gauge the outlook for rate hike. The Asian markets have once again made a mixed start and the Japanese market was trading in red despite report that Japan's government is preparing a $33 billion supplementary budget to help fund Prime Minister Shinzo Abe's economic stimulus package.

Back home, Indian benchmark indices started the new week on a disappointing note as they went on to extend the declining streak for the second successive session as market participants resorted to hefty across the board position squaring. Investors turned cautious after Ministry of Finance said that Urjit Patel was named as the new Governor of Reserve Bank of India (RBI). Urjit Patel is known for his hawkish view on inflation just like Raghuram Rajan whose term as the RBI governor ends on September 4, 2016. By naming Patel who is a deputy governor at the central bank as the new RBI governor, the government is sending signal to markets that there will be continuity of central bank's policies. Besides, weak trend in Asian stocks coupled with depreciation in rupee value against the US dollar also weighed on the sentiment. However, investors got some comfort with Francis Gurry, director-general at the World Intellectual Property Organization stating that India can break into the top-25 rank in the next 10 years. Also, the global rating agency Moody’s Investors Service in its latest report said that it may consider India for a rating upgrade if the government is successful in introducing more growth enhancing economic and institutional reform. Policies like relaxation of thresholds for Foreign Direct Investment (FDI) and a change in the monetary policy framework that fosters credibility will contribute to more stable economic environment. On the global front, Asian markets ended mixed on Monday, while European stocks traded mostly higher in early deal. Back home, the local benchmarks got off to a sluggish opening in tandem with the pessimistic sentiments prevailing in Asian markets. Thereafter, the key indices failed to show any kind of fervor due to lack of encouraging leads. The selling pressure accentuated in the early afternoon trades as investors took to across the board risk aversion. Finally, the BSE Sensex slumped by 91.46 points or 0.33% to 27985.54, while the CNX Nifty dropped 37.75 points or 0.44% to 8,629.15.

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