Soft start on cards for the markets on unsupportive global cues

The Indian markets remained under pressure of rising global concern and closed lower after three consecutive days of gains on Monday. Though there were domestic jitters as well but the gloomy global scenario weighed on the markets. Today, the start is likely to be soft and the global developments will be giving direction to the markets. Though, the decline in international crude prices is likely to support the PSU oil companies. However, upstream companies might come under pressure as the finance ministry wants Oil and Natural Gas Corporation's fuel subsidy outgo to almost double to Rs 47,640 crore this fiscal so that diesel, domestic LPG and kerosene can be sold at below market prices to consumers. The aviation stocks might get some respite with Civil Aviation Minister Vayalar Ravi urging state governments to reduce surcharge on aviation fuel, saying airlines are facing problems due to this. Meanwhile, India is likely to endorse a G-20 stand on removing food export restrictions. Iron ore companies will get some support as the government is likely to increase the volume of iron ore marked for auction in Karnataka among steel mills which base their production on ores mined from the state.

The US markets after a whole week of gains turned lower on Monday, on escalating debt crisis in Europe. Though, the trade remained volatile but the indices managed to pare most of their losses in late hours. Meanwhile, President Barak Obama proposed $1.5 trillion in taxes, including a provision that some individuals earning more than $1 million a year no longer be allowed to pay taxes at a lower rate than middle-income Americans. He also calls for ending certain tax cuts for families making more than $250,000 a year.

The Asian markets have made a soft start after Standard & Poor’s downgraded Italy’s sovereign-debt rating, prompting a selloff in regional financial and exporter stocks. Japanese market is leading the decliners pack after an extended weekend. Italy was lowered to A from A+ on concern that weaker growth and a “fragile” government mean the country won’t be able to reduce the euro-region’s second-largest debt load.

Back home, Indian frontline equity indices failed to extend the winning momentum for the fourth straight day on Monday as undermining leads from the stock markets across the globe pummeled domestic investors’ conviction. Marketmen refrained from initiating fresh long positions as profit booking remained the order of the day as uncertainties over European sovereign debt crisis loomed large after euro-zone finance ministers decided on Friday to delay a second tranche of aid worth 109 billion euros to Greece amid increasing concerns that European Union will not be able to come up with a plan to prevent Greece from defaulting on its debts. Earlier on Dalal Street, the benchmark got off to a gap down opening, in tandem with the daunting sentiments prevailing in Asian markets after European finance heads failed to agree a plan to solve the region’s debt woes. The frontline gauges kept trying hard to pare the losses and move towards the neutral line but ruthless profit booking at higher levels kept dragging the key indices closer to the session’s lows. The second half of the session remained upsetting as European markets after the somber opening got crushed further and undermined local sentiments. However, a mild short covering in dying moments of trade ensured that the key indices shut shops above intraday lows. Finally the NSE’s 50-share broadly followed index Nifty, deposed over a percent to settle below the crucial 5,050 support level while Bombay Stock Exchange’s Sensitive Index, Sensex garnered around two hundred points and ended below the psychological 16,750 mark. Moreover, the broader markets showed some resilience and abstained from giving in to the selling pressure witnessed by their larger peers. The midcap index settled on a flat note with mild losses while the smallcap index was little changed from its previous closing levels. On the BSE sectoral space, Capital Goods counter bore the maximum brunt and got pulverized by over two percent as bellwether L&T sank by over three percent while other majors like BHEL, Siemens and Crompton Greaves too suffered heavy losses. The rate sensitive Banking index too succumbed to the selling pressure as majority of the components of the gauge finished in the negative terrain. On the other hand, only the Consumer Durables and Automobile pockets witnessed some buying and managed to settle in the green territory. Finally, the BSE Sensex plunged 188.48 points or 1.11% to settle at 16,745.35, while the S&P CNX Nifty plummeted by 52.30 points or 1.03% to close at 5,031.95.

The US market closed lower on Monday, snapping a five-session winning streak after a choppy session that was again dominated by news related to Greece’s debt worries and on S&P’s downgrade of Italy’s credit rating which reinforced concern about Europe’s spreading debt crisis.Meanwhile, President Barack Obama’s $3.6 trillion deficit reduction plan, which the White House stated would allow the country to start reducing its debt level by 2017, provided little support as the Republicans’ reacted coolly to the proposals. The Republican response suggested there will be further bickering in Washington and very little is going to get done.

The market was nervous as fears that Greece was heading toward a default drowned the optimism that underscored strong market gains last week. Also, ratings agency Standard & Poor's has cut its unsolicited long- and short-term sovereign credit ratings by one notch on the Republic of Italy to A/A-1 from A+/A-1+, with a negative outlook on concern that weakening economic growth and a fragile government mean the nation won’t be able to reduce the euro-region’s second-largest debt burden. However, the market did trim the losses after late-day on reports that international lenders were close to an agreement to ensure Athens received the next tranche of its financial aid.

The Dow Jones industrial average lost 108.08 points, or 0.94 percent, to 11,401.00. The Standard and Poor's 500 closed lower by 11.92 points, or 0.98 percent, to 1,204.09, while the Nasdaq composite lost 9.48 points, or 0.36 percent, to 2,612.83.

Crude prices suffered sharp cuts on Monday, second day in a row due to escalating fears over the euro zone debt crisis. Speculation that the European debt crisis will cut demand turned rife after OPEC’s secretary-general indicated consumption is rising less than expected. Though, a Monday conference call between Greece and its international lenders appeared to produce some cause for relief, although officials said details of a deal would need to be worked out on Tuesday. In the meantime, traders will look to weekly inventory data on Tuesday afternoon and Wednesday morning for further evidence of a market that many believe belies the darkening outlook.

Benchmark crude for October delivery fell $2.87, or 3.3 percent, to $85.09 a barrel on the New York Mercantile Exchange. In London, Brent crude for November fell $3.08 to settle at $109.14 a barrel, having fallen as low as $108.87, its lowest price since August 24.