Markets to make a flat-to-cautious start of the new week

The Indian markets rallied in the last session with demonatisation worries taking back seat and traders going for value buying at lower levels. Today, the start of the week is likely to be flat-to-cautious and the markets will be eyeing further development in Asian peers and the rupee movement. Markets especially the banking sector will be first reacting to the Reserve Bank of India's (RBI) surprise move during the weekend, ordering banks to transfer 100% of their cash under the central bank's cash reserve ratio (CRR) from deposits generated between September 16 and November 11. Though, RBI has said that it will review its decision asking banks to deposit their extra cash with it once the government issues an adequate quantum of market stabilisation scheme bonds to soak up liquidity. Markets will be getting some comfort with Fitch Ratings’ latest statement that it expects India's GDP growth trend higher than China's in the medium term despite demonetization. It added that in India it expects GDP growth to accelerate in FY2018 on the back of reform implementation, monetary easing of the past year and infrastructure spending. Also, RBI Governor Urjit Patel has said that all necessary actions are being taken to 'ease the genuine pain of citizens' who are honest and who have been hurt. Liquidity in the banking system has increased and the intent is to normalise things as soon as possible. Currency is available and banks are working in a mission mode to take them to branches and ATMs, expressed the RBI Governor. There will be some result reactions too, with few important names announcing their numbers.

The US markets ended modestly higher in the last session, even though the trade deficit in goods widened much more than expected in October. The Asian markets have made mostly a positive start, though sliding oil prices were weighing down the sentiments on Asian energy stocks, amid concern over the outcome of this week’s OPEC meeting. The Japanese market was in red on weakness in dollar against yen.

Back home, a session after capitulating to late sell-off, Indian equity benchmarks managed to pull through a dazzling performance by surging over one and half a percentage points on Friday, thanks to the hefty short covering in the beaten down but fundamentally strong stocks. Sentiments remained up-beat from the start of the session, tracking Indian rupee, which recovered from its 39-month closing low on fresh selling of the US currency by banks and exporters, while low roll-overs at the expiry of monthly derivatives on Thursday spurred more buying in cash markets. Stocks suffered their worst setback in 15 months in the November future and option (F&O) series that concluded on Thursday. The Nifty lost 7.5% or 650 points to close at 7,965.60, while the Sensex fell 7.4% or 2,056 points to close at 25,860. Meanwhile, investors got come confidence with Finance Minister Arun Jaitley’s statement that the government’s demonetisation move is going to have a positive impact on the economy, including GDP. Jaitley said there will be a positive impact because a lot of money that operates in the shadowy economy will now become part of the banking structure and banks will have a lot more money to support the economy. IT stocks accounted for around half of the benchmarks’ gain as Infosys and Tata Consultancy Services extended upmove on the rupee’s weakness. A weak rupee boosts revenue of IT firms as the sector derives a lion's share of revenue from exports. Most steel stocks also gained traction after the government imposed anti-dumping duties on hot-rolled flat sheets and plates of alloy or non-alloy steel to curb cheaper imports into the country. Finally, the BSE Sensex rallied 456.17 points or 1.76% to 26316.34, while the CNX Nifty rose 148.80 points or 1.87% to 8,114.30.