Markets likely to get a cautious start, may recover in latter trade

The Indian markets lost complete control in the second half and plunged breaching their crucial support levels. Some of the major sectors like IT, Technology and banking led the plunge. Today, the mood is likely to remain cautious with sectors like telecom and banking continuing to remain under pressure. Impact of TRAI’s proposed a near tenfold increase in the price of 2G spectrum will be seen. However, justifying the prices set for spectrum allocation, Trai Chairman J S Sarma said that the recommendations are aimed at liberalising spectrum and enabling operators to take up any technology. While, banking stocks too may remain stressed after the PSU major SBI refused to cut lending rates immediately as costs of deposits continue to be high. However, the worries of FII’s may soothe as the Finance Secretary has said that GAAR will be used only if companies use structure to evade tax. Meanwhile, the recovery can be expected in latter part of the trade as Farm Secretary P.K. Basu said that India is likely to have normal monsoon in 2012 and the government. The June-September monsoon is vital for agricultural output and economic growth, which irrigates around 60 percent of farms in India. Also there will be lots of result announcements to keep the markets buzzing.

The US markets declined on Monday on the fear of flaring Euro zone crisis, the region’s economic and political stability rattled Wall Street as French President Nicolas Sarkozy was seen as lagging in the country’s presidential elections, while the purchasing managers index for the eurozone region fell to a five-month low. The Asian markets have made a mixed start and some of the indices are trading lower by around half a percent. The Japanese market was under pressure as the yen advanced against all of its 16 major counterparts, while the South Korea’s won weakened as Europe’s backlash against budget cuts gained momentum after Dutch cost of credit-default swaps on the nation’s government debt climbed yesterday to the highest level in five months.

Back home, volatility marked the day of trade on the Dalal Street on Monday, though what happened in second half was one way slide of the markets to the lowest levels. Initially on subdued global cues the domestic markets started flat after suffering over a percent of cut in last session. The US markets closed mixed on some weaker earnings while the Asian markets started on a soft note despite getting encouraging data from China as HSBC Flash PMI showed the country’s manufacturing activity gained some momentum in April, coming at 49.1 in April from a final reading of 48.3 in March. Back home, the benchmark indices that started the journey on a flat note showed some courage to remain above the neutral line in the initial hours of trade, Reliance Industries that reported over 21% profit decline in Q4 started trading higher because of its better than expected GRM numbers. The company reported GRM of $7.6 per barrel as against the general expectation of $6.8-7 per barrel. The major indices showed range-bound trade initially with Sensex and Nifty hardly showing any sign to buzz from the 17,400 and 5,300 levels respectively. But jitters started in the markets on some report that Macquarie's Asia hedge fund has exited its short positions in Indian single stock futures in response to proposed tax rules that could lower investment returns. The news intensified the selling pressure in the markets and all the sectoral gauges started witnessing profit booking, fearing further downside in the markets. All the sectoral gauges plunged with that reason or of some other; the IT sector came under pressure after Infosys declined on disclosing that the company was under scrutiny from US regulating authorities for likely errors in employer eligibility documents of its staff. On the same time, banking stocks lost momentum after heavyweight State Bank of India failed to cut its base rate, though it reduced the auto loan rates and said that it will be taking further rate cut decision segment-wise. Also, Reserve Bank of India’s Deputy Governor Anand Sinha stated that earnings of banks are likely to come under pressure due to the higher capital requirements for the implementation of Basel-III norms. Telecom stocks were pounded after TRAI set 2G auction reserve price higher than 3G auction price set in 2010. Though, in this entire gloom one non sectoral index that witnessed value buying interest was of paper manufacturers. Most of the paper stocks moved higher topping their average daily volume. Ballarpur Industries was up by 3% and West Coast Paper surged by 17% and AP Papers was up by over 16%. Finally, the BSE Sensex plunged by 277.16 points or 1.60% to settle at 17,096.68, while the S&P CNX Nifty shaved off 90.25 points or 1.71% to close at 5,200.60.