Markets likely to make a weak start on sluggish global cues

The Indian markets suffered sharp profit booking in lasts session, apart from the global jitters local developments spooked the markets and investors even overlooked the sharp fall in weekly inflation numbers. Today, the start is likely to be soft and the mood to remain cautious ahead of the details from the European summit. Meanwhile, the government has asked PSU banks for data on loans given to airlines industry that has raised hopes among banks that the Centre may step in to protect their interest. However, on the same time, the RBI Governor, Duvvuri Subbarao has admitted that there are liquidity constraints across the system,  and that might put pressure on the market. The auto stocks too are likely to remain in somber mood as the Society of Indian Automobile Manufacturers (SIAM) has said that car sales in India will likely be almost flat this fiscal year. Last fiscal year, car sales grew at an unprecedented 29.5 percent and SIAM initially pegged sales growth this fiscal year, which ends in March, at 16 to 18 percent.

The US markets fell on Thursday mainly dragged down by the financial stocks which lost momentum after being discouraged by the ECB president’s cautious approach of a halt in interest rate cut and about further bond purchases. But on the domestic front there was good news from economy side that US jobless claims fell last week to a nine-month low. The Asian markets have made a weak start after the European Central Bank damped speculation that it will buy more government bonds and Japan’s economy grew less than estimated. Japan’s gross domestic product increased at an annualized 5.6 percent in the three months ended September 30, compared with a preliminary figure of 6 percent.

Back home, Indian stock markets went through a tumultuous session on Thursday as the benchmark indices got bludgeoned by over two percent on a day when all the European counterparts exhibited optimistic trends. The benchmark indices succumbed to across the board selling pressure and tanked way below their important psychological bastions. The markets kept treading southwards through the session in search of a bottom as disappointing developments from the domestic front continued to pummel investors’ morale. Indian government’s inability to fix out problems, get reform process going, to take decisions, and put the economy ahead of politics are the factors that pummeled investors’ confidence. RBI deputy governor Subir Gokarn comments that RBI may not cut the cash reserve ratio since inflationary pressures are still high, also dissuaded marketmen. In addition, reports showed that according to initial estimates, India’s industrial output contracted by 7% in October, dragged down by a fall in the capital goods sector. Meanwhile, investors also overlooked the encouraging weekly inflation numbers which showed that food inflation extended its declining streak for the fourth straight week and eased to its slowest rate in more than two years to 6.6% for the week ended November 26. Earlier on Dalal Street, the benchmark got off to a sluggish beginning, tracking the weak Asian markets as investors chose to take profits off the table ahead of the key meetings in Europe. After trading in a narrow range in early trades, the selling pressure aggravated which dragged the key indices to lower levels. The frontline indices made some attempts to pare the huge losses in noon trades but investors took every rise as an opportunity to square off positions and take profits off the table, eventually leading the bourses to snap the session around day’s lows. On the BSE sectoral space, the Capital Goods counter bore the maximum brunt and nosedived by around four and half a percent, being the top laggard in the space followed by the high beta Realty pocket that sank close to four percent. Finally, the BSE Sensex plummeted by 388.82 points or 2.30% to settle at 16,488.24, while the S&P CNX Nifty shaved off 118.95 points or 2.35% to close at 4,943.65.

The US markets suffered a sharp decline on Thursday as European leaders gathered in Brussels one more time to find a solution to the widening debt contagion in the region. ECB President Mario Draghi’s statement that bank did not consider cutting rates further and remained cautious about further bond purchases weighed on the sentiments. Though, the latest meeting of leaders has raised the hopes that at least the 17 euro zone member nations of the 27 member European Union will accelerate the fiscal union and agree on fiscal spending limits. Events in Europe drew the spotlight away from positive news on the US economy where the Labor Department reported US jobless claims falling by 23,000 to 381,000 last week.

EU leaders are under pressure from ratings agencies and bond investors to devise a comprehensive plan to rein in sovereign debts that have sent some countries to the brink of default. The market came off its lows late in the session on detail reports of a draft proposal at the EU summit and Germany opposing some measures in the draft conclusions. Germany’s Angela Merkel has supported a stronger fiscal union that could penalize members if they don’t abide by deficit limits; some EU members don’t want such changes. Also, the ECB cut interest rates by a quarter of a percentage point to 1% and stated that it would supply banks with unlimited cash for three years.

The Dow Jones industrial average lost 198.67 points, or 1.63 percent, to 11,997.70. The Standard and Poor’s 500 closed lower by 26.66 points, or 2.11 percent, to 1,234.35, while the Nasdaq composite lost 52.83 points, or 1.99 percent, to 2,596.38.

Crude prices declined further on Thursday and the Nymex crude suffered the steepest single-day loss since November 17 after European leaders begin a two-day summit meeting; there is growing worry that the crisis in European Union could trigger a global economic slowdown. The prices were already under pressure after the Energy Information Administration on Wednesday reported that US inventories of crude oil, gasoline and heating oil all showed larger-than-expected increases last week.

Meanwhile, Saudi Arabia is pumping oil at the highest rate for decades in a signal to fellow producers and buyers just a week before an OPEC meeting that it intends to meet customer demand with more output if necessary.

Benchmark crude for January delivery settled lower by 2.1% or $2.15, at $98.34 a barrel on the New York Mercantile Exchange. In London, Brent crude oil for January settled lower by $1.42 or 1.3% at $108.11 a barrel on the ICE.