Markets to consolidate; may get a soft-to-cautious start

The Indian markets extended their rally to the new week and both the major indices added another about a percent to their gains. Mood remained jubilant despite the weak report of manufacturing PMI and traders remained on a buying spree taking cues from the global markets. Today, the start is likely to be cautious and some consolidation can be expected after a series of gains. There will be some concern related to the economy, as the core sector of eight infrastructure industries recorded a growth of 2.3 per cent in May this year against 7.2 per cent in the year-ago period, mainly on the back of contraction in coal, crude oil, natural gas and fertiliser output. Also, the government’s effort to increase FDI limits in sectors such as defence and telecom may get a jolt with the home ministry opposing higher ceiling, raising security concerns. The oil marketing companies though are likely to remain in jubilant mood after the decision to raise diesel price by 50 paise per litre, excluding state levies. This is the sixth upward revision of diesel this year.

The US markets closed higher on Monday, despite some pullback in the late trades that took the major indices down well off their day’s high. The economic reports remained mixed, while a report from the Institute for Supply Management showed a modest expansion in US manufacturing activity in June, the  Commerce Department reported a slightly smaller than expected increase in construction spending in May. The Asian markets have made a mixed start, some of the indices are trading in green on signs the outlook for manufacturing in some of the world’s biggest economies is improving.

Back home, boisterous benchmarks showcased yet another enthusiastic performance on Monday with frontline indices rallying vehemently by about a percentage point. Indices not only extended their gaining streak for the third successive session but also soared to highest levels in last one month. The key bourses drew comfort after foreign institutional investors (FII) bought shares worth Rs 11.24 billion on June 28, 2013, snapping a 13-day selling streak. There was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too equally participated in the rally. Both the frontline indices ended the session near their psychological levels of 19,600 (Sensex) and 5,900 (Nifty).  Surprisingly, the beaten down realty sector surged in the day, emerging as the top gaining sectoral indices on the back of short covering. Some support also came in after Prime Minister Manmohan Singh stated that the government aims to invest Rs 1.15 lakh crore in PPP (public private partnership) projects across infrastructure sectors in rail, port and power in the next six months. Meanwhile, Indian factory activities remained weak in June as output contracted for the second consecutive month and order books contracted for the first time in over four years. However, consistent with a marginal expansion of the country’s manufacturing sector, the HSBC Purchasing Managers’ Index (PM) recorded above the no-change threshold for the fifty-first consecutive month in June, by coming at 50.3, slightly higher from 50.1 in May. Domestic markets gained further following firm opening in European counterparts. CAC, DAX and FTSE all edged higher by half a percent ahead of the release of a raft of factory activity data from across the region, which will throw more light on the health of the European Union's economies. Back home, northward journey continued after the Confederation of Indian Industry (CII) made a strong push for speedy action to implement the proposed Goods and Service Tax (GST) and have said that the industry hopes that political developments would not overshadow its progress. Rally in public sector oil marketing companies (PSU OMCs) too aided sentiments as IOC, BPCL and HPCL all edged higher after raising petrol price by Rs 1.82 a litre, excluding local sales tax or VAT, with effect from midnight of June 28, 2013. Actual increase will be higher and will vary from city to city depending on local taxes. Additionally, power equipment maker gained on hopes that higher natural gas prices would lead to higher orders from gas-based power producers. Finally, the BSE Sensex gained 181.58 points or 0.94% to settle at 19,577.39, while the CNX Nifty rose by 56.65 points or 0.97% to end at 5,898.85.