Markets likely to get a cautious start, monetary policy to give direction

The Indian markets despite a positive start could not hold up to their gains and kept sliding till last, to close the last session with half a percent of losses. Today is the big day for the markets and start of the trade is likely to be cautious. RBI will be announcing its mid quarter monetary policy review, though there are very little hopes of the apex bank cutting repo rate and it is expected to keep interest rates on hold despite government pressure for a cut, sticking to its guidance to ease monetary policy only in early next year, as cooling inflation is still above its comfort level. Also, there will be some pressure of the government pegging down the 2012-13 growth rate from above 7% to 5.7-5.9%, the lowest in a decade since 2002-03 in its mid-year economic review. Traders will be eyeing the movement of rupee, which has plunged to its three weeks low in last session. Marketmen will also look for the development in parliament as the government’s plan to push through crucial financial sector bills in the winter session may not fructify, with the Samajwadi Party looking determined to disrupt Parliament on Quota Bill issue. There will be buzz in the export oriented stocks, as the government will soon announce incentives for exporters to provide them a cushion in the wake of declining exports and global slowdown.

The US markets made a good bounce back with the start of the new week and the major indices gained about a percent on rising hopes that negotiations over the “fiscal cliff” were making progress. It is being said that President Obama made a new budget offer that would raise taxes by $1.2 trillion and increase tax rates for households earning more than $400,000 a year. Most of the Asian markets have made a positive start taking cues from the US markets, Japanese Nikkei is taking the lead as yen weakened further ahead of Bank of Japan’s two days meeting, starting tomorrow.

Back home, Indian equity indices, after taking breather in the previous session, resumed their southward journey ending the session with a cut of about 0.40 per cent ahead of Reserve Bank of India’s (RBI) mid-quarter monetary policy review to be announced on December 18. After a cautious start, the frontline gauges tried hard to keep their head above water as some support came from Prime Minister Manmohan Singh’s comment that the steps taken on the economic front were ‘only the beginning of a process’ and there would be no looking back, he said the government was committed to doing everything that is possible to alter the policy environment, accelerate economic growth and make growth socially and regionally more inclusive. But, sentiments got clobbered and frontline indices started moving southward after the government lowered the growth projection for the current financial year to 5.7-5.9 per cent from 7.6 per cent estimated earlier, while pitching for supportive monetary and fiscal policies to improve investor confidence. Additionally, investors also dumped local equities after Chief Economic Advisor to the Finance Ministry Raghuram Rajan reported, achieving the full year fiscal deficit target of 5.3 percent of gross domestic product being a difficult task. Sentiments also got dampened after Lok Sabha adjourned again as SP MPs rushed to the well of the House protesting against the SC/ST quota bill. Selling got intensified as European counters made a sluggish opening and traded in red in the morning session as investors remained concern over US budget talks. Back home, market participants were seen squaring off hefty positions from the software and technology counters pounding by over a per cent, led by about 3 per cent fall in Tata Consultancy Services on caution ahead of a scheduled meeting between the management and analysts later in the day amid concerns that the software services provider will deliver a downcast view on the sector. However, losses remain capped as metal space rose by over one and a half percent after data on December 14, 2012, showed that a preliminary version of HSBC’s China manufacturing Purchasing Managers' Index hit a 14-month high in December 2012. The HSBC flash purchasing managers’ index for December rose to 50.9, a 14-month high and the fifth straight monthly gain. Some support also came in from rally in selected multinational companies’ (MNC) stocks. Scrips like, Elantas Beck India, Kennametal India, BOC India, Fairfield Atlas and Timken India rallied on a strong response from investors to Honeywell Automation of India’s offer-for-sale (OFS) issue which oversubscribed 7.4 times. Finally, the BSE Sensex lost 72.83 points or 0.38% to settle at 19,244.42, while the S&P CNX Nifty declined by 21.70 points or 0.37% to end at 5,857.90.