Markets to extend gains with a positive start

The Indian markets were first to see signs of recovery, wiping out an initial slump on the Italian premier’s resignation. The global rating agency S&P has said that Italian referendum outcome may not have immediate implications for Italy’s economic or budgetary policies beyond likely near-term changes in Italian politics.  Today, the start of the domestic market is likely to be in green and the markets will be extending the gains on supportive global cues, however all eyes will be on Monetary Policy Committee (MPC) meeting starting today amid expectations of at least 0.25 percent policy rate cut in order to tackle the impact of demonetisation move by the central government.  It will be the second meeting of the MPC chaired by the Reserve Bank of India Governor Urjit Patel. There will be some cautiousness too in the markets with a private report stating that India's economic growth rate is likely to fall to 6.5 percent in the ongoing quarter and remain subdued at around 7 percent in the January-March period as cash shortage is expected to last at least until next month. The PSU oil marketing companies may see some signs of relief with break in global crude price rally. Tata group stocks will again be buzzing with former chairman of Tata Sons, Cyrus Mistry suggesting that the government should look into the governance structure at Tata Trusts and take action against people who have shown “a blatant disregard for good governance” within the trust.

The US markets moved higher in last session with Dow touching new record highs after the Institute for Supply Management released a report showing a significant acceleration in the pace of growth in the service sector. The Asian markets have made an all green start joining the global relief rally and tailing the gains in US Markets overnight.

Back home, Indian equity markets started the fresh week on a sluggish note but managed to post decent gains by the end of trade as the benchmarks clawed back into the positive terrain in the last leg of trade on getting some supportive leads from the European markets. Though, European bourses opened on a bearish note, the risk sentiment soon recovered and the European equities turned positive and staged a solid rebound, calming unnerved markets, with the officials from the Euro area economies hitting the wires and posting optimistic remarks on the Italian banks sector and overall economy. Also, markets cheered an unexpected rebound seen in the UK’s services sector activity alongside solid services PMI reports published from the Euroland as well. On the domestic front, market participants remained optimistic on raising expectation that the Reserve Bank of India will cut its repo rate by 25 basis points to 6 per cent in the bi-monthly monetary policy review on December 7, 2016, amid downside risks to growth following the notes ban and subdued inflation. Adding optimism among investors, Prime Minister Narendra Modi said India's economy is expected to witness a five-fold growth by 2040 owing to increase in investments. Modi said while global economy is going through uncertainty, India has shown tremendous resilience. Indian economy is more stable than others with investment in India at the highest levels. The country's current account deficit has improved steadily, while he expects growth in manufacturing, transport and civil aviation among other sectors. However, investors remained cautious with the report that Indian services activity dived into contraction in November after Prime Minister Narendra Modi’s surprise move to withdraw high denomination bank notes led to a sharp decline in demand. The Nikkei/Markit Services Purchasing Managers’ Index sank to 46.7 in November from October’s 54.5, the first time since June 2015 that the index has gone below the 50 mark that separates growth from contraction. It was the biggest one-month drop since November 2008, just after the collapse of Lehman Brothers triggered the global financial crisis. The latest data, coupled with another last week that showed factory activity slumped as well, offers the first glimpse of the massive hit the economy is likely to take from the demonetisation drive. Finally, the BSE Sensex gained 118.44 points or 0.45% to 26349.10, while the CNX Nifty rose 41.95 points or 0.52% to 8,128.75.