Markets likely to make a soft start on weak global cues

The Indian markets went for a trend reversal and after a positive start and good going, lost their momentum in last hour to end marginally lower after S&P said that Indian could be the first BRIC nation going for a downgrade. Today, the start is likely to remain cautious, as the global cues are sluggish and traders will be keenly watching the IIP data scheduled to be announced later in the day. Though, the industrial production are likely to remain slow but could come better than previous month of -3.5 per cent, however if it still remains in contraction mood, the market sentiments will get hurt. Traders will also be eyeing the movement of rupee which has once again started depreciating. The auto makers are likely to remain in somber mood as car sales rose at the slowest pace in the last seven months, as high interest rates and costlier petrol prices hit demand. However, there is a saving grace, indirect tax collections rose 16.1% in May from a year ago, suggesting a pickup in industrial activity after months of stagnation.

The US markets suffered sharp drop on Monday, there were some weak economic news from across the globe, while the Europe’s aid to Spain’s banks was unable to soothe the investors sentiments and they feared that crisis in Spain would compound the single currency bloc’s troubles before June 17 elections in Greece. The Asian markets have made a soft start with some indices trading lower by over a percent in early trade. Surge in Spanish bond yields stoked concern that a bailout for the nation's banks won't be able to contain European debt crisis.

Back home, stock markets in India failed to keep the gaining momentum going for the sixth straight session on the week’s first trading session as the relief rally finally petered out a day ahead the release of India’s industrial production numbers for April. The psychological 5,100 (Nifty) and 16,800 (Sensex) levels proved as stern resistance levels as the benchmarks witnessed a sharp trend reversal in late hours and plunged to close around the day’s lowest levels. The Indian bourses not only halted the five session gaining streak but also resumed their streak of underperformance against their global peers as they were outclassed by all the Asian as well as the European counterparts. Sentiments got spooked in the dying moments after reports showed global rating agency S&P’s threatened India that it could lose its lowest investment grade rating of BBB- and become the first 'fallen angel' among the BRIC nations. Investors started to book profits largely across the board after reports highlighted that the combination of a weakening political context for further reform, along with economic deceleration, raised the risk that the government may take modest steps backward away from economic liberalization in the event of unexpected economic shocks. On the domestic front, the cues from money markets started to look worrisome as the rupee, which appreciated sharply in morning trades, had pared almost all the gains and weakened by around half a percent against the US dollar. Moreover, investors also turned cautious as they shifted their focus towards Tuesday’s IIP data for April month, which is widely expected to expand by around 1.7% y-o-y. Meanwhile, power producing majors like Tata Power, Adani Power and Reliance Infra rallied sharply in the session amid reports that power projects using imported coal could be allowed to hike tariffs by up to Re 1 per unit to counter the effect of increase in fuel price due to additional taxes or changes in law by the governments of source nations. On the BSE sectoral front, investors were seen squaring off hefty positions from the Capital Goods counter, which got battered by over one and half a percent, being the top laggard in the space a day ahead of April IIP data announcement. The defensive - Healthcare and high beta - Realty pockets too got pummeled in the session by over a percent cuts. Amid largely across the board selling, the Consumer Durables index remained the only counter with prominent gains of around a percent. Finally, the BSE Sensex lost 50.86 points or 0.30% to settle at 16,668.01, while the S&P CNX Nifty declined by 14.25 points or 0.28% to close at 5,054.10.