Markets likely to get a soft-to-cautious start

The Indian markets continued their declining trend in the previous session, despite getting a good start and supportive global cues. The domestic economic reports too remained inline. But traders fearing further rout in global markets opted to book profits at every rise. The worst part of the trade was that the mid cap started wilting and that has shaken the morale of the marketmen. Today, the start is likely to be cautious, though some recovery can be expected in latter part of the day but the somberness is likely to persist.The rate sensitive are likely to remain pressured as the Chief Economic Adviser to the finance ministry Kaushik Basu has said that India’s headline inflation in August is expected to be near 10 percent, which will prompt RBI to go for another rate hike. India’s Headline Inflation measured by Wholesale Price Index (WPI) rose to 9.22% in July, which is just below the June’s 9.44%. The PSU banks too are likely to remain in somber mood on reports that NPAs of government-run banks rose to 2.31 percent as on March 31, 2011, as compared to 2.27 percent in the previous year, though, some recovery can be seen in the PSU oil companies as the global crude prices declined overnight.

The US markets rally came to a halt on Tuesday and indices closed lower by about a percent on mixed economic news and the inconclusive meeting of the European leaders. While, the US housing starts slipped 1.5 percent, Industrial output was stronger than expected in July, rising 0.9% versus expectations of a 0.6% gain. But the persisting European debt problem weighed on the sentiments. The Asian markets have made a mixed start, with some of the indices trading even lower by a percent as the euro zone leader failed to restore investor confidence.

Back home, sentiments in the domestic markets are continuously deteriorating session after session as lack of significant upside triggers on the domestic front and depressing developments from the global front continue to dissuade investors from Indian equities. Tuesday’s session was no exception as coming from an extended weekend Indian benchmarks were expected to stage a relief rally on the back of optimistic global cues. Even though the frontline indices got off to a gap up opening, yet they failed to capitalize on the early momentum amid fears that RBI will continue its monetary tightening measures and will hike interest rates for the 12th time since March 2010. Despite the monthly WPI inflation numbers indicating slight moderation from 9.44% in June to 9.22% in July, marketmen were of the belief that external or internal conditions have not deteriorated sufficiently to force the central bank to pause its aggressive policy action. In addition, spillover effect of the domestic fuel price hike in May was evident on manufacturing as manufacturing products inflation came in at 7.49% in July from 7.43% in June. Meanwhile, the broader markets went through a brutal butchery in the session as fund based selling largely in the high beta infrastructure counter. Earlier on Dalal Street, the benchmark got off to a gap up start on the back of encouraging leads from the overnight US stock markets. But the frontline Indices failed to take advantage of the encouraging start and gradually kept losing steam. Marketmen overlooked the moderation in inflation numbers and booked hefty profits on expectations of another rate hike and also on fears of global economic slowdown, dragging the key gauges into the negative terrain in the dying hours of trade. Thereafter, the bourses failed to recover and settled way below important psychological levels. Eventually the NSE’s 50-share broadly followed index Nifty, shed about three fourth of a percentage points to settle below the crucial 5,050 support level while Bombay Stock Exchange’s sensitive Index, Sensex shaved off over a hundred points and ended above the psychological 16,700 mark. In the BSE sectoral space, the high beta Realty counter did the maximum damage, languishing at the bottom of the table with over five percent losses after heavyweight DLF got butchered by close to six percent on reports that Competition watchdog CCI imposed a penalty of around Rs 600 crore on realty major for abusing its dominant market position. The rate sensitive like Automobile and Bankex counters too bore hefty selling pressure. Finally, the BSE Sensex lost 108.69 points or 0.65% to settle at 16,730.94, while the S&P CNX Nifty declined by 37.15 points or 0.73% to close at 5,035.80.

The US market declined on Tuesday snapping three sessions of gains as Germany and France rejected the notion of selling common European bonds and suggested a financial-transaction tax. Though the market trimmed some of its losses after a Federal Reserve report showed industrial production gained in July by the most this year but the news was counterbalanced by the concerns of decline in housing starts and building permits. Some losses were also cut as Fitch Ratings reaffirmed the US triple-A credit rating and said the outlook is stable, pointing to the country’s role in the global economy and its multifaceted economy.

In Europe, French President Nicolas Sarkozy met with German Chancellor Angela Merkel for a summit on strengthening regional economic policies, but the meeting failed to produce solutions recently floated in financial markets such as issuing Eurobonds to fund struggling members like Italy and Spain. Over and above France and Germany proposed a financial-transaction tax next month.

The US Commerce Department reported that housing starts and building permits declined in the month of July. US import prices rose 0.3% in July following a revised 0.6% decrease in June. Federal Reserve report showed industrial production gained in July by the most this year, up 0.9% after a revised 0.4% rise that was better than had been estimated.

The Dow Jones industrial average lost 76.97 points, or 0.67 percent, to 11,405.90. The Standard and Poor's 500 closed lower by 11.73 points, or 0.97 percent, to 1,192.76, while the Nasdaq composite was down by 31.75 points, or 1.24 percent, to 2,523.45.

Crude prices declined again on Tuesday after witnessing a good rebound in previous session. Investors were left disappointed after French-German proposals for the euro zone debt crisis failed to ease concerns. Though crude prices declined by over a percent but they managed to recoup some of their losses as Fitch Ratings affirmed the United States’ top-notch credit rating at AAA and said the outlook for the rating was stable.

Traders were watching talks in Paris between German Chancellor Angela Merkel and French President Nicolas Sarkozy, but the talks ended without solid moves some traders were hoping for, including a plan to issue bonds backed jointly by all the countries in the currency union or an increase in its sovereign bailout fund.

Benchmark crude for September delivery settled at $86.65 a barrel, falling $1.23, or 1.4 percent, after trading in a range from $85.62 to $87.93 on the New York Mercantile Exchange. In London, Brent crude for September delivery expired down 44 cents at $109.47 a barrel, while the October contract, settled at $109.13, down 71 cents on the ICE.