Domestic markets likely to get a big gap-down start

The Indian markets plummeted along with the global markets in previous session and despite some good economic news the benchmark indices lost over 2 percent. India's food price index rose 9.03 percent in the year to Aug. 6, declining from the previous weeks, annual food inflation of 9.90 percent. The major attention of the markets across the globe has turned towards US which is feared of sliding into recession. Today, the domestic markets are likely to get a gap-down start and are expected to extend their downtrend for yet another day. Some recovery can be seen in the PSU oil companies as the international oil prices too have plunged overnight, while the rate sensitive sectors are likely to remain under pressure as the inflation rate is still hovering over 9 percent. Moreover, Morgan Stanley has cut year-end target for India's benchmark index by 3 percentage points to 18,850 citing weak earnings growth. Not only India, the bank has cut its forecast for global growth this year, citing an “insufficient” policy response to Europe’s sovereign debt crisis, weakened confidence and the prospect of fiscal tightening.

Meanwhile, eminent agriculture scientist and a member of the Sonia Gandhi-led National Advisory Council (NAC), M.S. Swaminathan, has cautioned against the government's plan to replace subsidised food with cash under the proposed National Food Security Act.

The US markets suffered sharp drop on Thursday and the major indices lost 4-5 percent for the day on getting bleak economic reports, manufacturing sharply weakened in the Mid-Atlantic States, housing sells fell and jobless benefit claims rose. The gloom was spread all across the global markets. The Asian markets have made a dismal start and most of the indices are down by 2-4 percent in early trade, the entire equity markets are witnessing massive exodus to safe heaven, reflecting heightened concerns with a possible recession.

Back home, a day after witnessing the dead cat bounce, it turned out to be bloodshed across the Dalal Street on Thursday as marketmen grew increasingly pessimistic about the market outlook amid growing evidence over slowing global economy. A slew of reports from the global front dragged the benchmarks to the levels last seen over fourteen months ago in June 2010. Reports including the downbeat Japanese export data, British retail sales figures, muted sales outlook from a US technology bellwether Dell Inc., fiscal tightening pressure in China and global growth downgrades stoked fears amongst traders and renewed worries over the state of the global economy, hitting the already fragile confidence in stock markets. On the domestic front, the weekly inflation numbers showed that India's food price index moderated to 9.03% in week ended August 6 against 9.90% in the previous week but the ease in food inflation numbers failed to provide any kind of support to the domestic sentiments as despite the moderation inflation reading was way beyond RBI’s comfort zone, heightening concerns that the central bank will tighten monetary policy further. Earlier on Dalal Street, the benchmark got off to a flat opening with a positive bias but soon the index slipped into the negative territory and commenced a southbound journey which ended with the closing bell only. The frontline indices witnessed a freefall in the session finding absolutely no support at any crucial levels and eventually settled around the lowest point in the session. Finally the NSE’s 50-share broadly followed index Nifty, took a nasty triple digit laceration to settle below the crucial 4,950 support level while Bombay Stock Exchange’s Sensitive Index Sensex got butchered by close to four hundred points and ended just above the psychological 16,450 mark. In the BSE sectoral space, technology and software shares languished at the bottom of the table, after being annihilated by four percent amid relentless position squaring from the counter after Dell's disappointing outlook overnight fueled concerns about a slowdown in global economy. The rate sensitive counters like Banking and Automobile plummeted amid fears that another rate hike by RBI would be inevitable as the stubborn inflation has not shown any significant signs of moderation in recent readings. Finally, the BSE Sensex got pulverized by 371.01 points or 2.20% to settle at 16,469.79, while the S&P CNX Nifty plummeted by 112.45 points or 2.22% to close at 4,944.15.

The US market plunged on Thursday, on the weak US economic data and ongoing debt stress in the Euro zone. The markets made a gap down start and accelerated to further low on the growing economic uncertainties, rising inflation and the euro-zone leaders’ inability to stem the widening debt contagion. US regulators have intensified scrutiny of the US divisions of European banks. Moreover, the economic reports too were bleak, the number of Americans filing new claims for jobless benefits rose by 9,000 last week, but the four-week average, viewed as a more reliable gauge, fell to 402,500.  Also, the Federal Reserve Bank of Philadelphia reported factory activity in the region falling sharply in August, to negative 30.7 from 3.2 in July. Existing home sales declined 3.5% in the month to annual rate of 4.67 million units compared to upwardly revised 4.84 million unit rate in June.  Above all Morgan Stanley reduced its forecast for global growth, calling Europe’s policy answer to its sovereign-debt crisis insufficient.

The Dow Jones industrial average lost 419.63 points, or 3.68 percent, to 10,990.60. The Standard and Poor's 500 closed lower by 53.24 points, or 4.46 percent, to 1,140.65, while the Nasdaq composite lost 131.05 points, or 5.22 percent, to 2,380.43.

Crude prices witnessed another down day on Thursday falling sharply by about 6 percent on fear of recession, as fresh batch of weak economic data from the United States hit investor confidence already worried about global economic growth and Europe's debt problems. US existing home sales unexpectedly dropped in July also the claim for jobless benefits rose last week and consumer prices increased at the fastest pace in four months in July.

Benchmark crude for September fell $5.20, or 5.94 percent, to settle at $82.38 a barrel after trading in a range of $87.53 and $81.15 on the New York Mercantile Exchange. In London, Brent crude ended $3.55 lower at $107.05 a barrel on the ICE.