Markets likely to get a flat-to-cautious start; volatility to persist

Indian markets sensed the sign of relief in previous session after being battered badly in last couple of days. Buying emerged in the fundamentally strong stocks while the short covering ahead of the Thursday’s F&O series expiry helped the markets move higher by over a percent. Today, the start is likely to be cautious as there is not much positive development in global scenario and the volatility is likely to persist. Also, the traders will not be much enthusiast after Prime Minister Manmohan Singh’s statement that the economy is expected to grow around 8% or a little more due to the impact of the uncertain global economic situation, slower than the 8.5% projected by the finance ministry and other policymakers. However, he further said that India could have the world's third largest GDP by 2025 if the country maintained its present growth rate. Meanwhile, the foreign institutional investors (FIIs) continued with their selling spree and have pulled out around Rs 10,000 crore in August so far. The trade is likely to remain sideways till noon and will take cues from the opening of the European markets. There is some good news for IT and ITeS industry, research firm Gartner has said that key economies like India and China will see growth in the Business Process Outsourcing (BPO) market with rise in demand for outsourcing services in customer management, accounting, banking and financial sectors by 2015.

The US markets' early rally fizzled out in the late trade but they still managed to close modestly in green. Investors are worried that the US may fall into another recession and the banking stocks suffered the most for yet another day. The Asian markets have made a flat start and some of the indices are even in red in the early trade. Japanese market is in green as exporters climbed on speculation that the Federal Reserve will announce additional measures to shore up the recovery in the US.

Back home, after weeks of horrendous performances, Indian equity benchmarks finally showed some enthusiasm as market bulls eagerly waited for some significant upside triggers to cover the huge pile of short positions that got build up through the August futures and options series. The frontline indices surged on large volumes amid heightened volatility, as gains on the European stock markets underpinned sentiments and reversed earlier losses caused by the declines in the Asian peers and Wall Street amid worries over a potential global economic recession. Local sentiments got the additional push as investors reckoned that the international crude oil prices, especially Brent crude, could see substantial decline as the momentum against the Gaddafi regime in Libya, an OPEC member which produces around 2% of world oil output, reached a tipping point, indicating that the six month long civil upheaval in Libya may come to an end soon. Back home, the psychological 4,800 and 16,050 levels proved as strong supports for the benchmarks as they got a technical bounce from those levels on the back of hefty short covering in beaten down oil and gas, power and rate sensitive counters, while most technology and software shares too pared losses. But pessimistic were of the belief that extreme volatility is likely to continue as uncertainties surrounding Europe’s debt problems and the outlook for growth in the US and around the globe loom large. Also the political overhang from the standoff between Team Anna and the government over the contours of the Lokpal institution did its share of drag on market sentiments. Earlier on Dalal Street, the benchmark got off to a quiet opening amid the somber mood prevailing in Asian markets. The frontline indices kept oscillating around the neutral line through the first half of trade but the second half saw a reversal of sorts as sentiments suddenly turned sanguine and the key gauges swiftly started gathering a lot of traction. The hefty short covering ensured that the frontline indices snap the four straight session declining streak and settle around the highs of the session. Finally the NSE’s 50-share broadly followed index Nifty, surged by over a percent to settle a tad below the crucial 4,900 support level while Bombay Stock Exchange’s Sensitive Index, Sensex smashed a double century and ended just below the psychological 16,350 mark. The broader markets also showed some resilience and managed to perform in line with their larger peers. Finally, the BSE Sensex surged by 200.03 points or 1.24% to settle at 16,341.70, while the S&P CNX Nifty soared by 53.15 points or 1.10% to close at 4,898.80.

The US market closed higher on Monday, for the first session in three, bouncing back from a four-week retreat that has led the S&P 500 Index down 13% so far this month. Though, the trade remained choppy and in early trade markets rallied ahead of the anticipated speech by Federal Reserve Chairman Ben Bernanke but later lost its sheen at the closing after Goldman Sachs confirmed that it has hired a defense attorney, other financial stocks tumbled amid speculation that the government debt crisis in Europe will spur banking losses.

Marketmen were optimistic that the Federal Reserve will announce a plan to stimulate the economy. Chairman Ben Bernanke is scheduled to speak on August 26 at a meeting of central bankers. Also, the Federal Reserve Bank of Chicago’s national activity index improved in July, going to negative 0.06 from negative 0.38 in June. Meanwhile, German Chancellor Angela Merkel rejected the idea of euro bonds as a solution to the sovereign debt crisis. However, Spain unveiled additional austerity measures.

The Dow Jones industrial average gained 37.00 points, or 0.34 percent, to 10,854.70. The Standard and Poor's 500 closed higher by 0.29 points, or 0.03 percent, to 1,123.82, while the Nasdaq composite gained 3.54 points, or 0.15 percent, to 2,345.38.

Crude prices ended higher in volatile trading on Monday as gains in the equity markets lifted sentiment toward oil. Also the expiration of the near month contract on Nymex led the choppiness in the market. Meanwhile, US crude's discount against Brent crude narrowed sharply on hopes that Libyan oil production would restart soon, with the imminent end to the country's civil war. Though, Brent pared some of its losses in last as traders tamped down expectations for a quick resumption of Libyan crude exports.

Investors awaited fresh signals of central bank intent on any further stimulus at a gathering of policymakers and other financial leaders in Jackson Hole, Wyoming, beginning Thursday.

Benchmark crude for September delivery expired and settled at $84.12 a barrel, gaining $1.86, or 2.26 percent, after trading in a range from $81.13 to $84.67 on the on the New York Mercantile Exchange. In London, October Brent crude settled down 26 cents, or 0.2%, to $108.36 a barrel on the ICE.