Markets likely to make a dismal start on first day of a fresh week

Indian equity markets snapped Friday’s session at the lowest levels in 25-months as foreign investors ruthlessly squared off positions from local shares after RBI’s admitted that downside risks to economic growth have increased, but stopped short of announcing rate cuts. Today, the start is likely to be on a dismal note following the pessimistic leads from Asian counterparts after a downgrade of Belgium highlighted the risk of more rating downgrades for Europe. PSU oil marketing companies could be in spotlight in the session amid news that they have decided not to change petrol prices this fortnight in view of correction in rupee-dollar value. Meanwhile, the government’s Cabinet has cleared the National Food Security Bill which will be tabled in Parliament for approval. The project aims to provide subsidised food grain to over 62% of the country's population and will cost Rs 1,50,000 crore to the tax payer. Moreover, CLSA had reduced India's weight in its relative-return portfolio by two percentage points to 11%, citing the rising subsidies bill and broadening fiscal deficit as concerns. Apart from this there will be lots of scrip specific actions to keep the markets buzzing.

The US markets managed a close in the green territory on Friday but only with moderate gains as the rally in stocks petered out after rating agency Fitch warned of risk of recession in Europe. However, a series of encouraging US economic reports including the US consumer prices data and 12-month inflation reading, which suggested a strengthening US economic recovery, giving further support to equities. The Asian markets on the other hand got off to a pessimistic start and traded with massive losses on Monday as discouraging developments from Europe continued to dissuade investors in Asia. Stocks in the region fell amid heightened worries that possible credit ratings downgrades of several Euro-zone nations may derail progress towards resolving the region’s onerous debt problem.

Back Home, Indian equity bourses went through a demoralizing session on last day of the week as the benchmark indices capitulated to the lowest levels in over two years. The frontline indices got bludgeoned by over two percentage points in the session and even breached the important psychological 15,500 (Sensex) and 4,700 (Nifty) levels. A dramatic wave of selling hit Indian shores in the mid-noon trading session, which triggered across the board panic selling. Jittery investors chose to relentlessly square off positions from the Capital Goods and rate sensitive counters like Banking, Real Estate and Automobile. The local markets remained optimistic for most part of the day amid increasing hopes that the key interest rates have peaked and the Indian central bank will abstain from any more rate hikes after doing so for thirteen times since March 2010. Concerned over economic slowdown, the Reserve Bank kept CRR, repo and reverse repo rates unchanged and indicated that it could cut key policy rates from now onwards to arrest falling growth while keeping a close vigil on inflation. Meanwhile, India’s battered rupee recovered following a range of policy measures introduced by RBI to curb speculation in the foreign-exchange market to protect Asia’s worst performing currency this year. The domestic bourses underperformed against all its global peers on a day when encouraging US economic reports spurred optimistic sentiments among global investors. Earlier on Dalal Street, the benchmark got off to a reassuring opening after two straight sessions of decline as optimistic sentiments prevailing across Asian markets on the back of encouraging US employment and manufacturing activity reports. The frontline indices soon managed to capitalize on the momentum in morning trades and kept trending higher awaiting the RBI’s policy announcement. There appeared some profit booking after the RBI’s move to keep rates unchanged but sentiments got support from optimistic European markets, which helped the key gauges too touch highest point of the day. However, the benchmarks suddenly witnessed a devastating U-turn in the final couple of hours, as hefty position squaring across the board ruthlessly dragged the key indices to over two year lows by the end of trade. On the BSE sectoral front, the whole space was painted in deep red with the Capital Goods pocket bearing the maximum brunt of selling pressure as they got thrashed by over four percent. The rate sensitive counters too got heavily punished after the RBI policy announcement as the high beta Realty index nosedived over three percent followed by the Banking index which too went home with similar amount of losses. Finally, the BSE Sensex shaved off 345.12 points or 2.18% to settle at 15,491.35, while the S&P CNX Nifty plummeted by 94.75 points or 2.00% to close 4,651.60.