Markets likely to make a soft start on political worries

The Indian markets had closed marginally in red before going for a holiday, there weren’t any fresh activity that could support the indices further on the upside and markets remained in consolidation mood. Today, the start is likely to be soft-to-cautious, political activities are likely to hog the limelight after one of the allies of the government Trinamool Congress taking its support from the government on issue of fuel hikes and FDI in retail, as the government has ruled out any rollback, it will have to depend upon outside support for survival and that may make the reform era difficult to progress further. Meanwhile, industry body Ficci, lauding the recent economic reform measures by the government has appealed to political parties to set aside their differences and support the government in its move. The PSU oil marketing companies (OMCs) are likely to hog the limelight today, as though the international crude prices are continuously declining, the finance ministry has ordered a scrutiny of the books of OMCs to see if the under-recoveries stated by them are in order or not.  There will also be buzz in the primary markets, IRDA in its draft guidelines has said that General insurance companies planning to tap the capital market for funds should have a 10 year experience and will have to seek prior approval from the sector regulator. Apart from this, there will be lots of scrip specific actions to keep the markets buzzing.

The US markets closed modestly higher on Wednesday after data showed the pace of home resales rose 7.8 percent in August, its fastest pace in over two years. Though the energy stocks continued their decline but traders followed the Federal Reserve’s last week decision to launch a new round of economic stimulus. Most of the Asian markets have made a soft start on concern related to Europe and weak export data from Japan.

Back home, Indian equities paused for breath after reaching fourteen-months high, as participants preferred to book some profit off the table in absence of fresh positive triggers on Tuesday. The bourses traded in tight band throughout the day and snapped the session near their previous levels as investors waited for further signals after the series of gains. The gauges turned negative, after recapturing positive terrain in early trade, following bitter consumer prices index (CPI) in India, which crept higher in the month of August, entering double digit figure of 10.03 percent, driven by the rise in food inflation. August CPI food inflation accelerated to 12.03 percent from 11.53 percent a month earlier. Some sense of cautiousness was also drawn on account of political drama in the country, as Mamta Banerjee led Trinamool Congress is expected to take some decision on its support to Congress-led United Progressive Alliance (UPA) government, after its 72-hour deadline to rollback diesel price hike, remove the cap on subsidised LPG cylinders and disallow foreign direct investment (FDI) in multi-brand retail ends on Tuesday evening. The sentiments also remained pessimistic after Industry body ASSOCHAM said that it is deeply disappointed by the Reserve Bank of India's decision to leave interest rates unchanged. The global cues too remained feeble as European counters traded lower in the early deals as investors turned their attention from central bank’s stimulus to slowing global growth and uncertainty about Spain’s desire for an international aid package. Some amount of pressure came in from energy stocks, which remained the biggest underperformers led by the sharp fall in market bellwether Reliance Industries, losing over two percent. The selling in software pack too dampened the sentiments and stocks like TCS, Wipro, Tech Mahindra and Mphasis all edged lower after Indian rupee strengthened against the US dollar as rupee recovered to 54.00 levels from 54.36. However, losses remain capped after banking stocks advanced for the second straight day after RBI announced a reduction of 25 basis points in the cash reserve ratio (CRR) of scheduled banks to 4.5% of their net demand. The sentiments also got some respite after shares of sugar manufacturing companies remained in demand with most of the frontline stocks up by over 4 percent on expectation of huge demand ahead of the festive season. The BSE Sensex lost 46.30 points or 0.25% to settle at 18,496.01, while the S&P CNX Nifty declined by 9.95 points or 0.18% to close at 5,600.05.Indian markets remained closed on Wednesday on account of Ganesh Chaturthi.