Weakness to persist in the domestic markets tailing global rout

The Indian markets slumped in last session on global worries and just when the things seemed settling down the benchmark indices took the turn for the worst and lost around 2 percent for the day. Today, the markets are likely to sway with the global rout and may lose another couple of percent in early trade, heading towards a worst week. However, there will be some buzz in the debt markets as the ceiling on foreign institutional investment in government and corporate bonds has been raised by $5 billion each. Investments by companies in India have shrunk after the RBI raised interest rates 13 times since early 2010, and consumer spending has dropped hurting growth. Food inflation has eased marginally and may have some soothing impact on the rate sensitives if the markets consolidate. The move is likely to help ease the pressure on the rupee, which has slumped nearly 13.5 percent from its year-high in July due to a widening trade deficit and falling foreign equity inflows.But the overall inflation also continues to remain stubborn. RBI has raised interest rates 13 times since March 2010 to tame prices. However, the PSU oil market companies are likely to rejoice with the sharp fall in the international crude prices. There will be scrip specific actions only and a couple of result announcements to keep the markets buzzing.

The US markets plunged further on Thursday extending their previous session losses, though the domestic economic news came better than expected but the Europe’s debt crisis took the center stage. Spain and France struggled with government bond auctions and the bond yield in Spain surged to their highest level since 1997. The Asian markets have made a weak start and most of the indices are trading lower by 1-2 percent on concern of spreading European debt crisis, while the Chinese banking regulator warned lenders of rising bad loans that too dampened the sentiments.

Back home, fragile Indian stock markets took yet another nasty laceration on Thursday as prolonged position squaring once again remained the order of the day and investors at large looked to avoid long positions. The session turned to be a tumultuous one for the benchmarks which got thrashed for the sixth straight session of trade to end on an extremely abysmal note after suffering close to two percent losses. Sovereign bond yields on the 10-year Spanish and French bonds spiked to Euro-era record highs which sent shockwaves across the bourses in the late hours of trade as the frontline indices drifted to their lowest levels in six weeks. Marketmen remained nervous ahead of French and Spanish bond auctions scheduled later in the day. Domestic benchmarks seem to have taken turn for the worse after being brutally butchered in the session and breaching the crucial psychological levels of 5,000 and 16,500. The notable moderation in India’s weekly inflation numbers too failed to underpin sentiments. India's food inflation declined for the second consecutive week to 10.63% in the week ended November 05. Meanwhile the RBI Deputy Governor Subir Gokarn opined the central bank will not relax the quantum of deposits banks have to park with the central bank, dubbed the cash reserve ratio (CRR), to ease current liquidity pressures. Earlier on Dalal Street, the benchmark got off to a quiet opening since sentiments remained cautious following the pessimism prevailing in Asian markets. Thereafter, the bourses failed to capitalize on the early momentum and kept see-sawing around the neutral line in an extremely tight range for most part of the day. However, the key gauges suffered a setback in the last leg of trade as sudden bouts of profit booking emerged in the local markets following the somberness prevailing in  European markets, post which the indices could not stage any kind of recovery and extended the sorrow of closing in the negative territory for the sixth straight session. On the BSE sectoral space, the Oil & Gas index remained the top laggard in the space and got heavily pulverized by over three percent after heavyweight RIL nosedived by a massive over four and half a percent. The Power and Metal pockets too went home with huge cuts of around two and half a percent. Finally, the BSE Sensex plunged by 314.16 points or 1.87% to settle at 16,461.71, while the S&P CNX Nifty shaved off 95.70 points or 1.90% to close 4,934.75.

The US markets slumped for yet another day on Thursday, as concern grew that Europe’s debt crisis will worsen and lawmakers will fail to agree on plans to cut the American deficit. Mariano Rajoy’s center-right opposition party is favored to win Sunday’s election in Spain, but the debt-laden Spain may end up needing a bailout given its skyrocketing borrowing costs. Concern about European debt markets and another potential impasse in Washington overshadowed better-than-estimated US economic data. Applications for jobless benefits decreased 5,000 in the week ended November 12 to 388,000, the lowest level in seven months. Also, new housing starts in the US declined 0.3% in October at a seasonally adjusted annual rate of 628,000 to the revised September rate of 630,000, according to data released by the US Commerce Department showed.

The markets extended losses yesterday after Fitch ratings stated that US banks face a serious risk that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most- troubled nations. The markets further extended declines after reports from euro-area official stating that there are no plans for aid for Italy from the European Financial Stability Facility.

The Dow Jones industrial average lost 134.86 points, or 1.13 percent, to 11,770.70. The Standard and Poor’s 500 closed lower by 20.78 points, or 1.68 percent, to 1,216.13, while the Nasdaq composite lost 51.62 points, or 1.96 percent, to 2,587.99.

Crude oil prices nosedived by close to four percent on Thursday as investors chose to take profits off the table after the recent rally in the commodity prices amid mounting worries over the Euro-zone debt trouble and the health of the global economy, which weakened oil demand outlook. The oil prices also got dragged on the back of weak US economic reports which showed that manufacturing growth in US Mid-Atlantic region slowed more than expected in November. 

Benchmark crude for December delivery got butchered by $3.77, or 3.67% to settle at $98.82 a barrel, after trading as high as $103.37 and as low as $ 98.28, on the New York Mercantile Exchange. In London, Brent crude for December delivery plummeted $3.66 or 3.27% to $108.22 a barrel, on the ICE Futures exchange.