Markets likely to make a soft-to-cautious start; inflation data eyed

The Indian markets went for a sudden rally in last hour that helped the benchmark indices to snap the session with good gains on Tuesday. Short covering was witnessed in the beaten down bluechips, expecting a good inflation numbers. Today, the start of the markets is likely to be cautious, though any sharp cut are not expected and the trade may remain rangebound. Traders will be eyeing the monthly inflation numbers for November. Street is expecting the numbers to ease partly due to decline in prices of food articles, non-food articles and minerals, and partly due to a high statistical base. The investors will also be looking at rupee which has plunged to an all time low and also to the debt market where government is looking to cut the lock-in period for foreign institutional investors in infrastructure bonds to one year from three years currently. There will be jitters in stocks related to insurance, as a parliamentary committee has rejected almost all the key changes proposed in the Insurance Laws, including the key reform to allow 49% foreign direct investment in the sector on grounds that the alternate route for meeting the capital needs of the sector has not been seriously explored. Not only this, the committee, headed by former finance minister Yashwant Sinha also rejected the proposal to allow unregistered foreign entities to operate in special economic zones, on grounds that it will place domestic capital at the risk of being taken out of the country and will be biased against Indian insurers.

The US markets extended their losing streak for yet another day on Tuesday and all the major indices lost over half a percent. However, the Federal Reserve said on Tuesday that the US economy has improved modestly as hiring and consumer spending has picked up but the indices reversed their early gains on reports that the German Chancellor Angela Merkel had turned down the idea of boosting the ceiling of the European Stability Mechanism. The Asian markets have made a cautious start and all the major indices in the region are trading marginally in red.

Back home, Indian stock markets witnessed a startling finish on Tuesday, just when it appeared that the benchmark indices would snap a lackluster session on a sluggish note the indices got an unexpected boost in dying moments of trade, yanking them from the lowest point in the session to the highest point in no time. The frontline gauges showcased a late short covering rally of around two percentage points from the low point of the day which helped them to attain the psychological 4,800 (Nifty) and 16,000 (Sensex) levels. The surprise upsurge in sentiments came a day ahead the government’s announcement of monthly WPI inflation data for November which by many is expected to moderate to sub 9% levels from 9.73% in October. The Indian bourses not only managed to halt the recent brutal carnage of last three sessions but also put an end to their streak of underperformance against their global peers as they outclassed all the Asian as well as the European counterparts before closing. Meanwhile the depreciation in rupee value continued to keep investors worried as it slipped to fresh all time lows above the 53.50 mark against a US dollar, hurting importers by making imports costlier. Also Finance Minister Pranab Mukherjee rebutted the perception that there is a paralysis in the decision making process of the government while he said that the India’s economy has the capacity and resilience to overcome the crisis at hand sooner than later. Earlier on Dalal Street, the benchmark got off to a soft start tracking the pessimistic sentiments prevailing in Asian markets post global credit ratings agencies’ warning to review the credit rating of Euro-zone nations. The key indices kept exhibiting side-ways kind of movement through first half of the session, lacking any significant triggers to move either ways. The gauges got dragged to the lowest point in the session in late hours following the European counterparts. However, the markets witnessed a sudden spurt in heavyweights like Reliance, Coal India and some metal stocks in dying moments which ensured that the benchmarks snap the three session declining streak with close to a percent gains. On the BSE sectoral space, the Metal pocket showed resilience and remained the top gainer in the space with around two percent gains followed by the Oil & Gas index which surged over a percent on the back of over a percent gains in index heavyweight Reliance Industries. Finally, the BSE Sensex gained 132.16 points or 0.83% to settle at 16,002.51, while the S&P CNX Nifty rose by 36.00 points or 0.76% to close at 4,800.60.

The US markets dropped for a second session on Tuesday after the Federal Reserve refrained from taking more steps to stimulate the economy and concern grew that European leaders won’t agree on ways to expand the region’s bailout capacities.  The markets started their decline after policy makers at the central bank stated that the US economy managed to maintain growth even as the global economy slowed. In Europe, German Chancellor Angela Merkel rejected the idea of boosting the ceiling of the European Stability Mechanism, or the permanent rescue fund for the euro area.

The Fed further stated it would continue its trade of $400 billion of short-term debt with long-term securities to extend the average maturity of its holdings, but did not unveil any new stimulus program. Besides, the government data showed the nation’s retail sales rose at the slowest pace in five months climbing just 0.2% in November. Also the Commerce Department reported that inventories at US businesses rose 0.8% in October, with business sales up 0.7%. Separately, the Labor Department estimated job openings fell to 3.27 million in October from 3.38 million the month before.

The Dow Jones industrial average lost 66.45 points, or 0.55 percent, to 11,954.90. The Standard and Poor’s 500 closed lower by 10.74 points, or 0.87 percent, to 1,225.73, while the Nasdaq composite lost 32.99 points, or 1.26 percent, to 2,579.27.

Crude prices surged on Tuesday as some rumor spread that Iran closed a major oil-shipping channel. Geopolitical jitters about Iran combined with threats to supply and key shipping lanes sent US crude prices higher. Investors even overlooked American Petroleum Institute’s report that crude inventories rose 462,000 barrels in the week ended December 9.

The API said that gasoline stocks fell by 12,000 barrels, while the Distillate stocks, comprising heating oil and deisel fuel, rose 1.2 million barrels.

Though Iran doesn't supply oil directly to the US, but it is the world's third-largest supplier of crude, exporting 2.2 million barrels per day and if its barrels are removed from the global portfolio it would pinch remaining available supply.

Benchmark crude for January rose $2.37 to settle at $100.14 a barrel, after touching $101.25 intraday, the biggest percentage jump since November 16, on the New York Mercantile Exchange. In London, Brent crude for the January settled $2.24 higher at $109.50 a barrel on the ICE.