Markets likely to make a flat-to-cautious start, may gain some strength in latter part of the day

The Indian markets suffered a cut of around a percent on Friday despite the GDP numbers coming better than expected. Concerns of slowing economic growth weighed on the sentiments and traders fearing further slide opted to book profit. Today, the start is likely to remain cautious as there is no major positive development to support the markets, while the global cues too are mixed. There will be buzz in the markets with the Shome committee's draft report on modification of General Anti-Avoidance Rules (GAAR), though it brought breather for the FIIs its other proposal to do away with short-term capital gains tax by increasing the transaction tax “appropriately” may weigh on the sentiments of small traders and arbitrageurs. The auto stocks will be in lime light after reporting their sales number for the month of August. There has been a general decline in auto sales due to slowdown and inflationary pressures, but some of the companies like Hyundai and Tata Motors have posted positive growth. Traders will also be eyeing the rupee movement that has improved in last session; its further upmove may support the sentiments. However, the marketmen will also be watching the political developments, as the monsoon session enters the final week with no business being conducted in Parliament in last two.

There will be lots of scrip specific movements, after 20 months of acquiring a controlling stake in Ispat Industries (JSW Ispat), JSW Steel announced the merger of the company with itself. The share swap ratio has been fixed at 1:72. Operations at six Coal India mines in Odisha were halted after its environmental clearances expired.

The US markets surged on Friday after the comments of Federal Reserve chief, though he once again refrained from announcing the instant stimulus but he reiterated his stand that Fed was ready to act and that he wouldn’t rule out more stimulus, raising hopes that there might be some announcements in the upcoming FOMC meeting. The Asian markets have made a mixed start and some of the indices are trading lower by quarter to half a percent, as weak economic reports from China and Japan stoked concern that the region’s economy is slowing.

Back home, key Indian benchmarks started the new F&O series on a soft note hitting 4-week low as Gross Domestic Product (GDP) for the April-June quarter failed to impress the market-men. The market, after a soft start, saw some recovery post first quarter GDP announcement as the numbers remained slightly better-than-expected at 5.5 percent against the street expectation of 5.3 percent, after eight successive quarters of declining growth. The manufacturing sector grew an annual 0.2 percent during the quarter, while farm output rose 2.9 percent. But, the recovery proved short lived as investors turned cautious as services sector growth continued to slide, and the gross capital formation and private consumption numbers too remained muted. The major annihilation in the markets came in the noon trade led by sharp fall in Power and infrastructure sectors amid long political impasse in Parliament over the issue of coal block allocation, which made investors, believe that no major reform could be in store during the monsoon session of Parliament. Also worries, that the impact of deficient rainfall will reflect in the second quarter numbers and increased inflation will further delay in any rate cuts, hampered the sentiments. The selling got intensified after metal shares tumbled on concerns that demand would slowdown after China’s factory output rose to its slowest rate in eight months in July. China is the world’s largest metal consumer. Adding fuel to the fire, stocks from Auto sector got hammered on concerns that August sales growth would continue to remain subdued and demand would further slowdown on account of high interest rates on auto loans and rising fuel prices. Capital goods shares also witnessed selling pressure as manufacturing segment witnessed dismal growth during the Apr-Jun quarter. During the quarter ended June 30, the manufacturing sector grew marginally by 0.2 percent, against 7.3 percent growth in the same period of 2011-12.Pressure also came in from software front as stocks like TCS, Wipro and Infosys edged lower ahead of US Fed Chairman Ben Bernanke's address to the annual Jackson Hole meeting of central bankers later in the day. The BSE Sensex shaved off 112.08 points or 0.64% to settle at 17,429.56, while the S&P CNX Nifty plunged by 56.55 points or 1.06% to close at 5,258.50.