Markets likely to make a positive start; RBI’s mid quarter policy decision eyed

The Indian markets showed strong vigor on the last trading day of the week, surging by over one and half a percent. Soothing global sentiments as well as some positive development on the domestic front helped the markets move higher. Today, the mood is likely to remain euphoric with the positive Greek election outcome and sanguine global cues. Traders however will be eyeing the RBI’ Mid-Quarter Review of Monetary Policy, to be released at 11 am for further cue. Though, there is general expectation that the apex bank will go for a cut in short-term lending rate or repo rate by at least 25 basis points, however a 50 basis points may give a chance to the markets to rally again, while a wait and watch stance of the Governor Duvvuri Subbarao may even take the Greek cheers back from the street. The ailing aviation sector is likely to come under pressure on buzz that government has ruled out raising the 49 percent FDI cap in the Indian aviation sector. Meanwhile, Corporate Affairs Minister Veerappa Moily too has raised concern over the budget proposal to retrospectively tax overseas transactions involving Indian assets.

The US markets surged on Friday making it the second consecutive week of gains, though the industrial output weakened in May but traders were optimistic about a positive outcome of Greece election and FOMC meeting following that, which can decide for some stimulus measures. The Asian markets have made a jubilant start and most of the indices are trading up by over a percent after Greece election delivered a slim parliamentary majority to pro-bailout parties, considered crucial to European leaders’ efforts to hold the euro together.

Back home, after suffering over a percent laceration in previous trading session, stock markets in India showed a courageous performance as they not only regained all the ground lost in previous session but also settled in close proximity with the psychological 5,150 (Nifty) and 17,000 (Sensex) levels. The benchmark equity indices showed renewed vigor since afternoon trades and rallied vivaciously by over one and half a percent following supportive cues from the European markets. Domestic markets got off to an encouraging start as cues across global space remained supportive. Markets across the Asian region largely traded on a positive note as investors were influenced by overnight rally in US markets amid intensifying hopes that additional stimulus is on its way from the US Federal Reserve following the initial jobless claims data, which rose for the fifth time in last six weeks and as consumer prices fell 0.3 percent in May, the biggest drop in more than three years. Markets’ mood was also buttressed by reports that central banks from major economies are preparing for coordinated action to provide liquidity if needed after the Greek election this weekend. On the domestic front, after getting the disappointing industrial production numbers and the slightly below 5 percent threshold - core inflation number, market participants grew increasingly hopeful that the Reserve Bank of India would resort to monetary easing and cut key interest rates by 25 basis points. This propelled the interest rate sensitive Automobile, Banking and Realty counters in the range of 1-3%. Some degree of political uncertainty too has had its toll on sentiments amid constant developments in the political circles on presidential election. Meanwhile, cues from the money market too remained positive as rupee has come off the day’s lows and showed signs of appreciation against the US dollar. Besides, corporates’ advance tax payment numbers too did not disappoint market-men as most of leading corporates paid marginally higher advance tax in the first quarter of the current fiscal despite widening economic gloom. Finally, the BSE Sensex surged 271.95 points or 1.63% to settle at 16,949.83, while the S&P CNX Nifty soared by 84.30 points or 1.67% to close at 5,139.05.