Markets likely to get a cautious start; may recover in latter trade

The Indian markets plunged further in last session, slipping to more than a year low. Banking sector got pummeled after global ratings firm Moody's downgraded State Bank of India's rating, there was also concern of spillover effect on the global banking system with Greek debt default. There has been report that Indian companies are seeing accelerated pace of credit downgrades while upgrades are slowing, as pressure on profitability mounts and demand moderates. Today, the start is likely to be cautious, though some recovery can be expected in latter trade and lot will depend on how the European markets start in noon. The banking stocks too may see some recovery after last sessions battering, meanwhile fearing deterioration in asset quality and to fire up credit demand, some of the top bankers urged the Reserve Bank to pause on its interest rate hike cycle.The Reserve Bank is scheduled to review the monetary policy on October 25. The Airlines stocks are likely to move higher as it has been reported that DIPP has commented that many of Indian airline companies are in dire need of capital and if any of these carriers collapse, then it will also impact the Indian financial sector. Some recovery is also expected from the metal counters as the global counterparts rose for the first time in last four days.

US markets heaved a sigh of relief on Tuesday and the major indices rallied in the last half-hour of trading. The trade remained choppy for the markets and initially the markets moved lower on a gloomy outlook from Federal Reserve Chairman Ben Bernanke but some sign of resolution to the European debt crisis helped the markets recover. Few of the Asian markets trading today have made a mixed start though, the downgrade of Italy’s credit rating has raised concern of worsening European debt crisis.

Back home, Tuesday’s session saw Indian benchmark indices complete a hat-trick of disappointing performances and reaching the finishing line only after collapsing by over one and half a percent. The wave of deteriorating global economic conundrum along with double dip recession jitters ruthlessly bludgeoned Indian frontline indices as it invigorated the bears which went out of control and dragged the key gauges even below the psychological 4,800 and 15,900 levels. The bourses were caught amid the pandemonium of relentless risk aversion after Euro-zone finance ministers’ postponed a key decision on crucial bailout loans for Greece while international auditors continued their inspection of the country's troubled finances. The European finance ministers’ meeting was expected to approve the next 8 bn euro bailout scheduled for 13 October but has been delayed for now. The European stock markets got off to a gap down beginning and were trading with nasty cuts in the range of 2-3.50% while the Asian counterparts too settled on a bleak note with huge losses. On the domestic front, sentiments got undermined after global ratings firm Moody's downgraded State Bank of India's rating by one notch to 'D+' because of the lender's low Tier-I capital ratio and deteriorating asset quality. Earlier on Dalal Street, the benchmark got off to a weak start as the indices breached the psychological 4,850 and 16,100 levels in the early moments of trade since investors largely remained influenced by the pessimistic sentiments prevailing in Asian markets. Thereafter, the key indices failed to show any kind of fervor due to lack of encouraging leads. The key gauges traded on a lackluster note for most part of the morning trades. Just when it looked like the local indices would go on to outperform global indices, sentiments got spooked in early afternoon trades following the sell-off in European markets. The sharp cut dragged key indices to intraday lows of around 15,750 and 4,720 levels post which some short covering helped the indices to settle off the day’s lows. Eventually the NSE’s 50-share broadly followed index Nifty, took a cut of over one and half a percent to settle above the crucial 4,750 support level while Bombay Stock Exchange’s Sensitive Index Sensex slipped by close to three hundred points and closed above the psychological 15,850 mark. Moreover, the broader markets, which showed some resilience early on, too succumbed to the selling pressure and closed with losses of over a percent. Finally, the BSE Sensex shaved off 286.59 points or 1.77% to settle at 15,864.86, while the S&P CNX Nifty plunged by 77.35 points or 1.60% to close at 4,772.15.

The US markets closed higher on Tuesday, making a swift, late-session rebound after a report that European officials were moving toward a plan to recapitalize the region’s banks. There was some report that European Union ministers were examining ways of coordinating recapitalizations of financial institutions. However, for most of the session, stocks had headed lower on worries about European debt. Remarks from Federal Reserve Chairman Ben Bernanke, which hinted at further steps to stimulate the economy, failed to shift the major indexes out of the red. Fed Chairman Bernanke noted slower than expected US economic recovery and highlighted the sluggish job market. In testimony to the Joint Economic Committee of Congress, Bernanke stated that the central bank was ready to take more action if necessary to bolster the US economic recovery.

Earlier, Europe’s debt debacle continued to rattle investors, with Greece’s finance minister saying that the nation can cover pensions, salaries and bondholders through the middle of next month. European commissioner for economic affairs, stated capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty. Meanwhile, Italy's government-bond ratings were downgraded yesterday by Moody's Investors Service to A2 from Aa2, with a negative outlook.

The Dow Jones industrial average gained 153.41 points, or 1.44 percent, to 10,808.70. The Standard and Poor’s 500 closed higher by 24.72 points, or 2.25 percent, to 1,123.95, while the Nasdaq composite gained 68.99 points, or 2.95 percent, to 2,404.82.

Crude prices continued their decline on Tuesday and fell to 8 weeks low on NYMEX on concern that global growth was slipping after Federal chief Ben Bernanke in a testimony to a congressional panel, said that the Fed is “prepared to take further action,” but said that “we have no immediate plans to do anything like” a third round of bond buying, meaning the Fed won't be pumping more money into the system and devalue the dollar. The crude prices were also under pressure due to the signs of rising US supplies and production from Libya.

Benchmark crude for November delivery settled at $75.67/barrel, down by $1.94 or 2.5 percent, its lowest close since September 23, 2010. In London, Brent crude futures settled at $99.79/barrel, falling $1.92, 1.89 percent, lowest close since February on the ICE.