Markets to make a bounce back in early trade

The Indian markets made valiant effort to buck the global trend on Tuesday but late hours profit booking washed all the efforts and the indices made another weak closing. Today, the start is likely to be good on jubilant global cues. All the beaten down sectoral gauges are likely to get some recovery in early trade. Finance Minister Pranab Mukherjee has said that the current global financial turmoil emerging from the downgrading of the US sovereign rating and the Euro zone’s mounting debt crisis is challenging for India, but the country is capable to deal with the situation. Also the RBI’s decision that qualified foreign investors can buy rupee-denominated units of equity schemes of local mutual funds, are likely to boost the markets. The Securities and Exchange Board of India and the government on Tuesday opened a fresh $3 billion (around Rs 14,000 crore) window for foreign investors to invest in debt instruments issued by domestic infrastructure companies.

Some softness can be seen in the PSU oil companies as the international crude prices have started moving up after Fed’s assurance. Also profit booking at higher levels cannot be ruled out as the investors are still not confident about the economic condition.

There will be lots of result announcements to keep the markets buzzing, Adani Enterprises, Financial Technology, Tata Power, Tata Global, Indian Oil Corporation, Hotel Leela, NHPC, Bharat Forge and REC are among the many to announce their numbers today.

The US markets made a smart bounce back on Tuesday with major indices surging by 4-5 percent after the Federal Reserve pledged to keep its key interest rate at its record low of nearly zero through the middle of 2013.Traders were hoping that another round of fiscal stimulus could be on the way. The Asian markets have made a good bounce back and all the major indices are showing upmove of 1-3 percent in early trade, only Straits times that escaped the massacre in last session is showing some correction.

Back home, it turned out to be an extremely volatile session of trade for the Indian frontline equity indices, oscillating in the range of around seven hundred points for the Sensex and over two hundred points for the Nifty as they failed to halt the six successive session downtrend. The BSE’s Sensex has surfaced a gargantuan loss of close to one thousand five hundred points from last Tuesday while the losses for the NSE’s nifty too are staggering about four hundred fifty points amid the ongoing pandemonium on both sides of the Atlantic which have shaken investor sentiment across the world. The global confidence seemed to have gone on holiday and the fresh S&P downgrades kept markets squarely focused on the FOMC rate decision scheduled later in the day. Meanwhile despite intervening in European debt markets the European Central Bank (ECB) has yet failed to convince the world's financial markets that it can contain the sovereign debt crisis to the euro zone. However, on the domestic front, sentiments showed some signs of improvement in the Tuesday’s session as marketmen were seen accumulating badly beaten down but fundamentally strong stocks amid a series of assurances that came not only from the top Indian bureaucrats but also from the premier rating agency S&P which has been making a lot of noise of late. Earlier on Dalal Street, the benchmark plummeted nearly 300 points, or down 1.76% on the opening bell as frenzy  sell-off continued amid volatile economic conditions in the US and Europe. Thereafter the key gauges slowly and steadily gathered steam and even went on to pare all the losses by the early noon trades. But the optimism proved short lived as profit booking at higher levels once again dragged the indices, leading them to extend the four session declining run to yet another session. Nevertheless the local bourse still managed to outperform all the European and most Asian peers.  Eventually the NSE’s 50-share broadly followed index Nifty, declined by around fifty points to settle above the crucial 5,050 support level while Bombay Stock Exchange’s Sensitive Index, Sensex lost over a hundred points and ended above the psychological 16,850 mark. The broader markets too succumbed to the selling pressure by the end of trade and settled with large cuts, drifting deeper than their larger peers. On the sectoral front, it was the turn of Information technology counter to languish at the bottom of the BSE sectoral space on being slaughtered by about three and half a percent amid credit rating downgrade of the  US, from where these companies earn around 60 per cent of their  revenues. Finally, the BSE Sensex lost 132.27 points or 0.78% to settle at 16,857.91, while the S&P CNX Nifty declined by 45.65 points or 0.89% to close at 5,072.85.

The US markets bounced with a bang and surged the most in two years on Tuesday, rebounding after their worst day since 2008, after a Federal Open Market Committee said benchmark rates would stay near zero through mid-2013. Though the market was under pressure at start but moved higher with the announcement.

The Fed rate setting committee, in a split 7-3 decision, agreed that it would keep interest rates, now near 0%, at ultralow levels at least through mid-2013- the first time it put a time frame on its low-rate stance. The Fed’s statement represents the biggest effort since November to spark the US economy and revive confidence. The monetary committee also lowered its outlook for the pace of recovery, and discussed a range of policy tools to stimulate growth. The Federal Open Market Committee is also prepared to employ additional tools to bolster an economy hobbled by weak hiring and anemic household spending.

Also, Moody’s Investors Service reiterated yesterday that it affirmed the US government’s top AAA ranking because the dollar’s status as the main reserve currency allows it to support higher debt levels than other countries. However, investors have been distracted by the credit crisis in Europe, which shows few signs of dissipating.

The Dow Jones industrial average surged by 429.92 points, or 3.98 percent, to 11,239.80. The Standard and Poor's 500 closed higher by 53.07 points, or 4.74 percent, to 1,172.53, while the Nasdaq composite was up by 124.83 points, or 5.29 percent, to 2,482.52. 

Crude prices made some recovery in sync with the equities, though the prices closed lower on the worries of economic slowdown and slack demand of commodities due to it. The crude prices started moving higher in late trade after the American Petroleum Institute data showed an unexpected drawdown in US crude inventories last week, against forecasts of rise.

The American Petroleum Institute said that for the week to August 5, domestic crude stocks fell 5.2 million barrels, against the forecast in a Reuters poll for 1.5 million barrel increase.

Benchmark crude for September delivery settled at $79.30 a barrel down $2.01, the lowest since September 29, after trading in a range from $75.71 to $83.05 on the New York Mercantile Exchange. In London, Brent crude closed $1.17 lower at $102.57 a barrel on the ICE.

The Indian ADRs closed in green on Tuesday, ICICI Bank was up by 3.51%, HDFC Bank was up by 3.16%, Dr Reddy’s Lab was up by 2.20% and Infosys Technologies was up 1.89%. On the flip side, MTNL was down by 0.06%.