Markets likely to extend the declining trend with a weak start

The Indian markets seemed bucking the global trends in the first part of trade in last session but they too succumbed to the profit taking and completely lost their direction to close below their psychological crucial levels. Today the scene is not looking different as the other global markets are in deep red and the start of the domestic markets is likely to be weak. There will be cautiousness in the markets ahead of the RBI’s mid quarterly monetary policy review on December 16. The PSU oil marketing companies are likely to rejoice with the sharp plunge in the international crude prices. On the same time the sulking retail stocks are likely to see some light after Prime Minister Manmohan Singh was reported to have said that he may push to open the domestic retail market to foreign companies after regional elections in March. He also, reiterated that India’s economy would return to a long-term growth rate of 9 percent as inflation slows. Finance Minister Pranab Mukherjee too has said that India’s economic policy would shift its focus from curbing inflation to restoring economic growth as food prices slowed and investment suffered from high costs of corporate debt. The ADA group companies may remain in somber mood as a lawyer representing UK’s financial sector regulator in proceedings before a tribunal claimed that the family of Anil Ambani was the source of funds used by an offshore entity to buy shares of his group companies.There will be stock specific actions once the advance tax numbers start trickling in.

The US markets continued their declining trend for the third consecutive day and the major indices lost over a percent on European concern gripping the financial markets. Energy stocks were the hardest hit as the price of crude oil plunged over 4 percent for the day. The Asian markets have made a weak start and most of the indices are trading lower by 1-2% in early trade. The flash Chinese PMI stood at 49, up from 47.7, though the data showed improvement but still shows overall contraction in country’s manufacturing. Japanese markets too are down as manufacturing sentiment worsened and financing costs rose.

Back home, Indian stock markets wrapped Wednesday’s trading session on a distressing note as the benchmark indices went to undo all the good work done in the previous session by shaving off about three fourth of a percentage points and drifting below the psychological 15,900 (Sensex)and 4,800 (Nifty) levels. The frontline gauges got pummeled in the dying hours of trade as sentiments went awry tracking discouraging developments from the Euro-zone where equity indices traded on a pessimistic note. The lower levels proved came as the only supports levels. Local investors’ mood also got hit as despite the repeated measures from the government and RBI to curtail the inflationary pressure on the economy, country’s WPI inflation slowed to the lowest level in a year but remained stubbornly high above the uncomfortable 9% levels for the twelfth straight month. Meanwhile the rupee, which tanked 16% this year and became Asia’s worst performing currency, continued its streak of depreciation against the US dollar and slipped further to touch a fresh record low level. Earlier on Dalal Street, the benchmark got off to a sluggish opening tracking the pessimistic sentiments prevailing in Asian markets on reports that German Chancellor Angela Merkel rejected the idea of raising the upper limit of the European Stability Mechanism (ESM), which is currently at 500 billion euro. The key indices soon clawed back into the green zone and even capitalized on the momentum to touch the highest point in the session in late morning trades ahead of the monthly WPI inflation data announcement. However, investors showed knee-jerk reaction on getting the worse than expected November inflation numbers, dragging the gauges into the red terrain. Though, the benchmarks showed some resilience and rebounded into the green terrain, the short rally got sold into as investors chose to take profits off the table amid the heightened uncertainties surrounding the local as well as global markets. On the BSE sectoral space, the high beta Realty pocket bore the maximum brunt of selling and plunged around two and half a percent followed by the metal index which sank by over two percent. On the flipside, the defensive FMCG pocket remained the only gainer in the space, adding around a quarter percent. Finally, the BSE Sensex lost 121.37 points or 0.76% to settle at 15,881.14, while the S&P CNX Nifty declined by 37.35 points or 0.78% to close at 4,763.25.

The US markets extended their decline for the third session on Wednesday, as investors remained worried about the toll of Europe on global economy. Investors were also reacting to central bank and political leader comments that have lowered the likelihood of more government stimulus soon. Federal Reserve Chairman Ben Bernanke told Republican senators that Fed plans no additional aid to European banks amid the region’s sovereign debt crisis. At the same time, Bernanke said that obviously what happens in Europe could affect US economy.

Given recent comments by the US Federal Reserve and the ECB indicating a lack of new liquidity measures, investors see limited upside in the market. Besides, the Mortgage Bankers Association's seasonally adjusted index of mortgage application activity in the US rose 4.1% in the week ended December 9. The seasonally adjusted index of refinancing applications surged 9.3%. However, the measure of loan requests for home purchases slumped 8.2%, even as interest rates fell to their lowest in 2011.

In Europe, German Chancellor Merkel reiterated opposition to euro bonds, while European Central Bank council member Jens Weidmann stated that policy makers are becoming more skeptical that the ECB’s debt purchases are working. Merkel further stated there’s no looking back after last week’s European summit deal on stricter budget controls, with the path to fiscal union in the euro region now irreversible.

The Dow Jones industrial average lost 131.46 points, or 1.10 percent, to 11,823.50. The Standard and Poor’s 500 closed lower by 13.91 points, or 1.13 percent, to 1,211.82, while the Nasdaq composite lost 39.96 points, or 1.55 percent, to 2,539.31.

Crude prices plunged on Wednesday, posting their biggest one-day drop in three months. Nymex crude slid more than 5% to below $95 a barrel on growing worries about weak oil demand in the US and Europe. The euro weakened to less than $1.30 for the first time since January on fear that European crisis will spread and amid the fear of global oil demand, Organization of Petroleum Exporting Countries (OPEC) decision to hold output at current levels weighed heavily on the crude prices.  OPEC decided on an output target of 30 million barrels a day at the group’s meeting in Vienna.

Further the US Energy Information Administration reported crude stocks fell by less than expected last week, and gasoline inventories rose by more than twice the predicted level. The EIA also said total oil demand in the US, the world's biggest oil consumer, lags the year-earlier level by the biggest level in two-and-a-half years.

Benchmark crude for January delivery settled 5.2% lower, at $94.95 a barrel, the biggest percentage drop in a single day since September 22 on the New York Mercantile Exchange. In london ICE December Brent crude, which expires at Thursday's settlement, settled $4.48 a barrel or 4.1 percent lower, at $105.02 a barrel.