Markets likely to get a soft start; trade to remain cautious ahead of US Fed meeting

The Indian markets started showing fatigue in last session after witnessing good rally. Another rate hike by the RBI is going to impede the further industrial growth and pinch the India Inc. However, Finance Minister Pranab Mukherjee has said that hike in key policy rates by the Reserve Bank of India would help bring down inflation to a ‘comfortable’ level sooner rather than later. He has said that even though the growth was affected in the recent months due to aggressive monetary tightening, it has left ‘scope for growth to pick up in the second half of the year’. Industrial output growth slumped to 3.3 percent in July, the lowest in 21 months. Today, the start is likely to be soft tracking the regional peers and the trade is likely to remain range bound. Today, stock specific actions are likely to keep the markets buzzing and the markets will look forward to the outcome of the US Federal Reserve's meeting scheduled for Tuesday and Wednesday.

Meanwhile, it has been reported that the finance ministry is working on a three-pronged strategy to tackle the rising oil subsidy bill in the current financial year. The plan includes utilisation of savings, reduction in expenditure on big schemes and rollover of a part of the burden to the next financial year.

The US markets kept gaining for the entire passing week, their longest gaining streak in last two months. Though, the domestic economic news were not supportive but the markets moved higher on easing worries in the euro-zone with the announcement of European Central Bank for a coordinated action. The Asian markets have made a weak start as the European policymakers failed to introduce a plan to stem the region’s debt crisis. Euro and Asian currencies have fallen against dollar and have impacted the stocks too. Finance Minister Pranab Mukherjee has exuded confidence that the world leaders will be able to find a solution to the European economic crisis at the G-20 finance ministers’ summit scheduled in November.

Back home, trade on the Dalal Street remained extremely volatile on the last trading day of the week with indices surging to the high points of the day by noon and after recovery, losing their traction once again in the final hours to close flat with a positive bias. The boisterous start tracking the jubilant global cues took a halt with the announcement of another rate hike by the Reserve Bank of India. It was the 12th hike in last 18 months by the central bank to curb the inflation menace, which took the markets lower all of a sudden. Though there was instant recovery after the knee-jerk reaction but that could not sustain till last and the final hour profit booking took the sheen out of the markets. Earlier the domestic markets got a gap-up start and started moving higher in tandem with the other regional peers after the developments in the Europe that eased the concern of global community of debt default by some nations in the region. Benchmarks which crossed their crucial psychological levels of 17000 (Sensex) and 5100 (Nifty), remained in a tight range till noon and got a spike up to reach the highs of the day but the announcement of another rate hike by RBI, brought a sharp sell-off at that levels and the markets slipped near the neutral line, the lowest point of the day. However, the 25 basis point of hike was already factored in and the markets regained strength, though trade remained choppy in the remaining trade and barring some selective counters others seemed in a mood to take some breather. The Reserve Bank of India, maintaining its hawkish tone, in its mid-quarter monetary policy review hiked short term leading and borrowing rates. Repo rate has been increased by 25 basis points to 8.25%, while the reverse repo rate got adjusted at 7.25%; however the cash reserve ratio (CRR) was kept unchanged at 6%. Consumer loans are likely to get dearer with the hike but still all the rate sensitive’s managed a positive close, with realty and auto gaining over a percent each. The PSU oil marketing companies remained buzzing as the petrol prices were hiked by Rs 3.14/litre  from Thursday midnight after rupee touched two-year low against the US dollar. Though, they lost their way in the fag end of trade on reports that the meeting of a panel of ministers headed by Finance Minister Pranab Mukherjee on limiting the supply of subsidised LPG has been deferred after apparent objections from some UPA constituents. Though one stock that remained in limelight from the oil block was ONGC, which moved higher after the government put the company’s FPO on hold, it was reported that the FPO has been pushed back due to price mismatch, the stock moved higher by around 6 percent. The export oriented stocks too gave mixed response after the government announced new drawback scheme. On the sectoral front PSU remained the top gainers led by ONGC, closely followed by power, realty and auto, while FMCG, IT and technology witnessed some profit booking. Finally, the BSE Sensex gained 57.29 points or 0.34% to settle at 16,933.83, while the S&P CNX Nifty rose by 8.55 points or 0.17% to close at 5,084.25.