Domestic markets to follow the global trends; likely to get a gap-up start

The Indian markets despite a mid-day recovery attempt could not manage a green closing in last session; traders concerned of the global reasons opted to book profits at the higher levels. Today, the start is likely to be a good gap-up one for the Indian equities on jubilant global cues. All the beaten down sectors are likely to get a bounce back, especially the metals pack which has been battered in last few sessions on weakening demand concern. However, RBI governor Duvvuri Subbarao has said that India is not decoupled from whatever happens in Europe and “Whatever happens in Europe will affect us”. He further said that Central banks don't have “template solutions,” he said, adding that they have to be careful about communicating policies because they cannot be too transparent. If they provide caveats, markets invariably ignore these conditionalities. The markets will also remain buzzing with a proposal of reducing securities transaction tax (STT). To boost weak investor sentiment, which has been hurt by the developments in the global markets, the government is considering a proposal to reduce STT paid on selling and buying of shares, and bring down the stamp duty paid on futures and options trading in equities; also there will be lots of scrip specific actions.

The US markets made a good bounce back in final hours of trade to close at the high points of the day, their best one day gain in last three weeks, Dow shot back over 11,000. The gains were induced by the optimism that European finance ministers will take appropriate steps to prop up the region’s unstable economies. However, there was initially some concern over a report that new single-family home sales in the United States fell in August to a six-month low. The Asian markets have made a jubilant start tracking the gains in the US markets and most of the indices are up by 2-4 percent in the early trade after European governments increased efforts to contain the region’s debt crisis.

Back home, Indian frontline indices commenced the September series F&O expiry week with an unenthusiastic performance by extending the losing streak for the fourth consecutive session and this on a day when European counterparts staged a remarkable bounce back and traded with gains in the range of 1-4%. However, the benchmark indices managed to recover a great deal from the lowest levels in the session and settled with moderate losses of over half a percent. Investors remained highly apprehensive in early part of trade amid the distressing uncertainties over the eurozone as leaders of the debt-troubled region struggled to find a plan to solve the crisis. The reports that rating agency Moody’s downgraded ratings of eight Greek banks by two notches weighed on sentiments while the assurances from G20 finance leaders that they would take strong, coordinated action to avoid another global financial crisis, too failed to pacify marketmen. However, there appeared some tentative recovery in investors’ sentiments in afternoon trades as the key indices tracked European equity markets which swiftly recuperated and surged after a somber opening with large cuts of around one and half a percent. Earlier on Dalal Street, the benchmark got off to a flat but positive opening, shrugging the somber sentiments prevailing in Asian markets. However, the indices slipped into the negative territory and even went on to test important psychological 15,800 (Sensex) and 4,750 (Nifty) levels. The key gauges got solid support around those intraday low levels as they convalesced from thereon. The indices tried hard to move back into the positive territory and even got there but only for a brief period as investors took the opportunity to cash in on the bounce back. The bourses finally extended the declining run for the fourth session but finished way above the session’s lows. Moreover, the broader markets too failed to show any kind of fervor and settled with large cuts of around a percent. On the BSE sectoral space, barring the information technology counters, all the gauges closed in the negative territory with indices like Consumer Durables and Metal suffering nasty lacerations. Though there were no other sectoral gainers, there were some among individual gainers like Jaiprakash Associates, Bharti Airtel and ICICI Bank which gained some traction in the session. Finally, the BSE Sensex lost 110.96 points or 0.69% to settle at 16,051.10, while the S&P CNX Nifty declined by 32.35 points or 0.66% to close at 4,835.40.

The US markets soared on Monday to finish near the session’s high on the hopes that European policymakers are close to containing the Greek debt crisis. The European Central Bank is likely to debate restarting covered-bond purchases and may discuss interest-rate cuts to ease funding strains, a euro-region central bank official stated. German Chancellor Angela Merkel’s comments that leaders must erect a firewall around Greece prompted speculation about a European version of the US’s Troubled Asset Relief Program after finance chiefs including US Treasury Secretary Timothy F. Geithner urged more efforts to prevent contagion.

The marketmen overlooked the Commerce Department report showing that the sale of new homes fell 2.3% last month to an annual rate of 295,000, marking a decline for the fourth month in a row. Another report showed US economic activity fell in August. Also, the Federal Reserve Bank of Chicago’s national index, which draws on 85 economic indicators, was minus 0.43 in August versus 0.02 in July. A reading below zero indicates below-trend-growth in the national economy.

The Dow Jones industrial average surged by 272.38 points, or 2.53 percent, to 11,043.90. The Standard and Poor's 500 closed higher by 26.52 points, or 2.33 percent, to 1,162.95, while the Nasdaq composite gained 33.46 points, or 1.35 percent, to 2,516.69.

Crude prices moved higher on Monday despite a volatile session as optimism strengthened that European officials and banks can tackle the euro zone debt crisis. In the early trade the prices fell sharply as there was no clue about the next step of the European officials, but made a good recovery on a better-than-expected German sentiment survey and speculation of more support from the European Central Bank. The weakness in dollar in latter part of the day too supported the crude prices to move higher.

However there was some report that Saudi Arabia, the world’s biggest oil exporter, may cut production as Brent falls toward $90 a barrel next year because the government needs higher prices to fund its budget, Brent has lost 7 percent in this quarter.

Benchmark crude for November delivery rose 64 cents, or 0.80%, to $80.49 a barrel, after hitting an intraday low of $77.11, the weakest in last one year on the New York Mercantile Exchange. In London, Brent crude for November delivery edged up 29 cents, or 0.28%, to $104.26 on the ICE.