Gap-down start on cards for the Indian markets

The Indian markets suffered sharp cuts in last session on getting extremely disappointing IIP data for the month of October. Factory output fell 5.1%and  after metal capital goods stocks were one of the major loser on  reporting fall of about 26% year-on-year. Today, the start is likely to be a gap-down one and the markets may lose about a percent in early trade. Capital goods stocks are likely to remain under pressure as the fall in IIP was principally led by capital goods. Meanwhile, Finance Minister Pranab Mukherjee has expressed concern over tardy decision-making process that is plaguing coal, environment and power ministries. Investors will also be eyeing the FII’s movement as they have been net sellers for last couple of days  and their further exodus may impact the sentiments of market. Also the rupee too will be watched after plunging to an all time low in last session. There will be scrip specific actions as well, and the Essar group companies may continue reeling in red as the company’s top notch have been charged with ‘criminal conspiracy’ and ‘cheating’ in the 2G scam by CBI. The other telcos too are likely to remain under pressure as the Telecom Ministry said it will soon take action against service providers that have entered into roaming agreements for 3G services.

Meanwhile, the Reserve Bank of India (RBI) for the first time has imposed a cap on banks’ direct or indirect equity investments in non-financial service companies, seeking to make banks focus more on their core business. Now the banks can make equity investment in a non-financial services entity at 10% of a company's paid-up capital or 10% of a bank's paid-up capital and reserves whichever is less.

The US markets despite some last hour recovery bid could not manage a close in green and all the major indices lost over a percent. The criticism of the European fiscal pact by two major rating agencies Fitch Ratings and Moody’s Investors Service put the investors in a somber mood after last week’s rally. The Asian markets have made a weak start and most of the indices are trading lower by 1-1.5% in early trade, concern regarding the global economy has gripped the investors.

Back home, Indian stock markets commenced the fresh week on a daunting note with the benchmark indices once again suffering nasty lacerations of over two percentage points in Monday’s session. The frontline gauges failed to showcase any kind of resilience through the session and kept drifting to lower levels, breaking one technical level after another to eventually settle around the psychological 4,750 (Nifty) and 15,900 (Sensex) levels. Market participants turned skittish after the release of distressing Industrial growth numbers which showed that IIP decelerated for the first time in 28 months as it shrank 5.1% from a year earlier, underscoring the fact that economic slowdown has taken deep roots in the Indian economy. The ugly IIP figures augmented speculations that India's hawkish central bank would abstain from hiking key interest rates to combat inflation despite it persisting at stubbornly high levels of around 9%. Approving that the October IIP data is discouraging, PMEAC chairman C Rangarajan opined that with pickup in public investments and in production for those goods which are in the public demand including areas like coal, roads and railways, can provide a great stimulus to the economy. Meanwhile the disappointing IIP data also had an adverse effect on rupee which got dragged closer to the all time low levels hit in November. Earlier on Dalal Street, the benchmark got off to an encouraging start tracking the optimism prevailing in Asian markets as investors cheered the outcome of EU summit where policymakers settled on a plan to introduce tougher fiscal rules for the 17-member euro zone countries. However, the optimism petered out sooner than later and the indices slipped into the negative terrain in morning trades. Thereafter, started the long slide for the benchmark gauges which only made some half-hearted attempts of recovery, but all proved futile. The bourses eventually got dragged to the lowest point of the day by the end and trebled the sorrow of closing in the red terrain. On the BSE sectoral space, the Metal counter continued to bear the maximum brunt of selling pressure and nosedived by over four percent, being the top laggard in the space followed by the rate sensitive Bankex pocket that sank close to three percent. Finally, the BSE Sensex plummeted by 343.11 points or 2.12% to settle at 15,870.35, while the S&P CNX Nifty shaved off 102.10 points or 2.10% to close at 4,764.60.

The US markets suffered a sharp decline on Monday, after investors had second thoughts about the last week summit of European leaders. On the contrary the economic data in US are outperforming expectations by the most in nine months. The markets had risen for two straight weeks as of Friday, when stocks rallied sharply following a European Union summit and accord to implement closer fiscal ties among the countries that use the euro. However, Moody’s Investors Service stated that the agreement was insufficient to reduce the odds of sovereign ratings downgrades in the euro region in the short to midterm. Fitch Ratings too stated that the inability by European Union leaders to devise a comprehensive fix to the region’s debt crisis had intensified pressure on debt ratings of euro-area nations.

November unemployment at the lowest level in more than two years and manufacturing running at the fastest pace in five months are among data that may dissuade Fed Chairman Ben S. Bernanke and fellow central bankers from pursuing a third-round of large scale asset purchases. At the same time, the Fed may still see significant downside risks for the economy as Europe’s financial crisis evolves. Moreover, Intel Corp cut its fourth quarter revenue forecast on hard disk parts shortages that are linked to Thailand floods. 

The Dow Jones industrial average lost 162.87 points, or 1.34 percent, to 12,021.40. The Standard and Poor’s 500 closed lower by 18.72 points, or 1.49 percent, to 1,236.47, while the Nasdaq composite lost 34.59 points, or 1.31 percent, to 2,612.26.

Crude prices slipped on Monday as doubts emerged that a European pact on closer fiscal union might not be enough to contain the region's debt crisis. The pact agreed by all EU countries except Britain last week on stricter budget rules, moves towards fiscal union and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund to help tackle the crisis, may take time. Not only crude but all the riskier assets fell on concern that European leaders won’t be able to prevent the euro zone's slide toward recession.

The cautiousness in the markets also prevailed ahead of the December 14 meeting of the Organization of the Petroleum Exporting Countries (OPEC).

Benchmark crude for January delivery settled lower by $1.64, or 1.7% at $97.77 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 25. In London, Brent crude for the January delivery fell $1.73 to $107.26 a barrel on the ICE.