Markets likely to make a positive start on European optimism

The Indian markets closed with marginal losses in last session as there was not much cue to take the markets higher. The mixed global and domestic cues kept the indices movement range bound. Today, the start is likely to be flat-to-positive, though the European optimism is likely to help the domestic markets after a day of trading gap. The retail stocks are likely to be in somber mood as after much argument, ultimately the government is likely to dilute the initial reform steps and postpone implementation in full until at least next May and the decision is likely to be announced in an all party meet later in the day. On the same time the ailing airline companies may heave a sigh of relief as the finance ministry has approved a draft Cabinet note floated by the commerce and industry ministry allowing foreign fliers to acquire up to 26 per cent stake in India’s aviation companies, however it has long way to go as the finance ministry has asked the commerce and industry ministry to see that any such policy conforms to a new takeover code, where companies have to go for an open offer if they acquire at least 25 per cent stake. Apart from this there will be lots of scrip specific actions to keep the markets buzzing.

The US markets managed a flat close helped by the rally in the late trades after a choppy start. The report from Europe that the leaders there might create a second bailout fund to supplement the one they have already agreed to, helped the markets move higher. The Asian markets have mostly made a positive start and barring one-two indices most are trading with gains of half to one percent.

Back home, Indian frontline equity indices commenced the week on a sluggish note as the indices showcased an unenthusiastic performance on Monday and settled with moderate cuts of around a quarter percent. Marketmen looked to consolidate their position in the session after the benchmarks' swashbuckling over seven percent surge in the week gone by, the best weekly gain in the last two and half years. Cautiousness prevailed largely across the Asian region since marketmen looked ahead to a slew of important meetings in Europe, which are expected to spell out concrete measures to avert the onerous sovereign debt debacle in the European region. The downside for the markets was limited by encouraging developments from the European front where Italy’s cabinet unveiled austerity measures in the weekend. Furthermore, reports indicated that the European service sector contracted for the third consecutive month in November however, the decline was slower than in October and faster than the earlier flash estimates. Back home, after two straight months of contraction, India’s service sector recovered in November on the back of surge in new business received by Indian private sector companies despite persistent inflationary pressures. However, concerns over the ruling government's ability to implement important reform measures came to the fore, keeping investors’ mood under check. Retail stocks continued to reel under the selling pressure despite government’s stand that they will try to evolve a consensus on the issue. Earlier on Dalal Street, the benchmark got off to a sedate start as investors took a breather after the previous week's sharp rally and remained on the sidelines ahead of a slew of developments from the European front. However, the psychological 5,000 and 16,700 levels proved as strong support levels for the key gauges as the benchmarks soon recovered from the lows and even managed to claw back into the green in early noon trades on the back of optimistic European leads. But the indices’ stint in the positive terrain was brief as investors lacked conviction and took profit off the table. On the BSE sectoral space, the Metal pocket was the top laggard in the space, languishing at the bottom of the table with around a percent loss while the Consumer Durable counter shed three fourth of a percentage point. On the flipside, buying was evident in the Power and Capital Goods counters, which climbed by close to a percent each. Finally, the BSE Sensex lost 41.50 points or 0.25% to settle at 16,805.33, while the S&P CNX Nifty declined by 11.00 points or 0.22% to close at 5,039.15.

The US markets made a mixed closing on Tuesday, as investors hoped that European leaders may act to contain the debt crisis after S&P put 15 euro nations on review for possible downgrade and on possibility of optimistic outcome of crucial European Union summit which is scheduled at the end of the week. S&P had earlier warned that it may downgrade debt ratings of 15 euro-zone nations, including France and Germany. German Finance Minister Wolfgang Schaeuble stated that S&P’s warning will help force European leaders to ratchet up efforts to resolve the crisis. S&P also stated that the European Financial Stability Facility may lose its top credit rating if any of its guarantors have their own debt grade cut.

French President Nicolas Sarkozy and German Chancellor Angela yesterday called for stricter fiscal discipline among euro-zone members and offered a master plan ahead of the 2-day summit later in the week. At the EU summit, finance ministers and other leaders are expected to discuss a coordinated budgetary process and coherent fiscal oversight.

The Dow Jones industrial average gained 52.30 points, or 0.43 percent, to 12,150.10. The Standard and Poor’s 500 closed higher by 1.39 points, or 0.11 percent, to 1,258.47, while the Nasdaq composite lost 6.20 points, or 0.23 percent, to 2,649.56.

The Indian ADRs made a mixed closing on Tuesday, Infosys Technologies was up by 0.52%, Tata Motors was down by 0.32% and Dr. Reddy’s Lab was down by 0.18%. On the flip side, Wipro was up by 0.03% and MTNL was up by 0.02%.

Crude prices moved higher on Tuesday on hopes that EU leaders would come up with a credible solution in a Thursday and Friday summit of European Union leaders in Brussels to contain the euro debt crisis against the threat of Iran oil supply interruptions.

The S&P’s warning on Monday that it may downgrade 15 of the 17 euro zone countries within 90 days depending on the summit's outcome has raised hopes that EU policymakers would act quickly and decisively to tackle the growing debt crisis.

Benchmark crude for January delivery settled at $101.28 a barrel, up 29 cents, or 0.29 percent, after trading in a range from $100.20 to $101.42 on the New York Mercantile Exchange. In London, January Brent crude settled at $110.81 a barrel, rising $1, or 0.91 percent on the ICE.