Markets likely to witness some profit booking after the massive rally of last session

The Indian markets went for a massive rally in the last session with major indices crossing their more than a year high, both the benchmarks gained over two percent for the day. Today the start is likely to be soft on sluggish global cues and some profit taking can be witnessed in early trade, though the volatility too is likely to creep in with the start of the September months F&O expiry week. Traders will be expecting more hints from the government regarding reforms, as in an address to nation Prime Minister Manmohan Singh justified the government’s decision and said that the government would take more reforms measures to pull the country out of a 1991-type economic abyss, he further said that Centre was examining commercial and corporate laws to ensure inclusive growth and to make them relevant to future challenges. Deputy Chairman of the Planning Commission Montek Singh Ahluwalia too, allaying fears of FDI in retail has said that it’s not a threat to small retailers and modern retail was an expanding segment and it would more than double in a very short time. Meanwhile, the export oriented stocks will be in focus as the Ficci’s Export Survey has said that export target of $360 billion for the current fiscal is unlikely to be achieved due to the global demand slowdown. The PSU oil marketing companies too may keep buzzing on report of their plan to revise petrol prices downward due to falling international crude oil prices and a strengthening rupee.

The US markets ended flat on Friday though the Spain’s efforts to seek a bailout gave some support in early trade but late hours sell-off in some sectors washed the gains. The Asian markets have made a weak start with some of the indices trading lower by about a percent on concern that talks among European leaders to resolve the region’s debt crisis are not getting any headway. Also, there was report of decline in optimism in Chinese manufacturers and retailers, putting additional pressure on the regional indices.

Back home, Indian frontline equity indices staged a smart bounce back on Friday, a session after being pulverized by around a percent, as the government notified FDI in retail, aviation, broadcasting and power exchanges. Nifty ended near its high of July 8, 2011, which was little below the 5,700 mark, a level which acted nothing but short of strong resistance. Similarly, Sensex, too puffing over 2 percent gains ended above the 18,750 psychological level, scaling new highs for 2012. Sentiments got fillip after Samajwadi Party leader Mulayam Singh Yadav said his party will continue to extend external support to the UPA government. Yadav’s support comes at a crucial time as the ruling coalition has been reduced to a minority after the Trinamool Congress quit to protest against hike in fuel prices and the decision to allow foreign investment in the retail sector. Sentiments remained extremely bullish throughout the session, as investors piled up hefty positions not only in heavyweight stocks but across the board on reports indicating that the Centre could announce further reform-centric measures in the near term to counter the lingering impression of policy paralysis. Meanwhile, retail and aviation stocks picked up momentum in early trade after the government braved intense political opposition to notify rules for allowing foreign retailers such as Walmart and Carrefour to set up stores in India on Thursday. Stocks like Pantaloon Retail, Shoppers Stop, Kingfisher, Jet Airways and Spicejet all edged higher in the trade. The sentiments also got boost after government approved the operational features of the Rajiv Gandhi Equity Savings Scheme, allowing an income-tax waiver of 50% on new equity investments of up to Rs 50,000 by retail investors who have annual income of less than Rs 10 lakh. The government also slashed the withholding tax on overseas borrowing by local companies to 5% from 20% at present. The reduction in tax will encourage Indian companies to raise funds from the overseas markets. The withholding tax liability on Indian companies was also reduced to 5%. It will apply to funds borrowed between July 2012 and June 2015. Finally, the BSE Sensex rallied 403.58 points or 2.20% to settle at 18,752.83, while the S&P CNX Nifty jumped by 136.90 points or 2.46% to close at 5,691.15.