Markets likely to get a soft start; Fitch rating downgrade to weigh

Indian markets went through rough weather in last session after being disappointed by the status-quo stand of RBI and the mixed signals from the European markets. Today, the start is likely to be soft-to-cautious and the market mood will remain volatile after the Fitch rating down grade. The international ratings agency has not only downgraded India’s growth outlook to ‘negative’, but also lowered the rating outlook of seven public sector companies including heavyweights like NTPC, SAIL and IOC to ‘negative’. There will be concern among the marketmen, as the development is likely to hurt India’s image as an investment destination and can also lead to rise in overseas borrowing cost for Indian companies. However, deputy chairman of planning commission, Montek Singh Ahluwalia has assured that India has the ability to ride out even the worst sort of financial shock delivered by the Euro zone crisis. Today, the airlines stocks are likely to be under pressure as the Aviation regulator DGCA has asked domestic carriers to have a "relook at route-wise fares and make them rational and reasonable" in the backdrop of a sudden rise in airfares. Some upmove is likely to continue in the export oriented stocks as Reserve Bank of India has offered Rs 30,000 crore of additional liquidity by way of higher refinance against export credit.

The US markets made a mixed start of the first trading day of the week; the positive news of Greek election brought various concerns that the country will have to face in the coming days, starting with immediate challenge of forming a viable coalition government. The Asian markets too have made a mixed start with some of the indices trading lower by quarter to half a percent, rise in borrowing costs in Spain is weighing down the sentiments in the region.

Back home, the Reserve Bank of India’s (RBI) mid-quarter monetary policy review day turned out to be a tumultuous one for the stock markets in India, which reversed their course immediately after the RBI’s policy decision, came to the fore. The benchmark equity indices not only got ruthlessly slaughtered by about three percentage points from the high point of the day but also went on to undo all the good work done in the past week. After getting off to a gap up opening, the markets traded with hefty gains of over a percent for most part of morning trades as cues from across the global space remained supportive. Greek parliamentary elections’ likely verdict of a narrow victory to parties that supported a bailout for the country’s failed economy, propelled market participants across the Asian region into an euphoric mood as the vote was widely seen as a last chance for the debt laden nation to remain in the European Union. Most markets in the European region too traded with over a percent gains as fears of a global financial turmoil due to Euro-zone break-up got dispelled with the Greek election’s likely outcome. However, the frontline equity indices settled with huge losses of about one and half a percent on the week’s first trading session as sentiments’ got spooked after RBI maintained a status quo on key interest rates, choosing to keep its focus on reining in the inflationary pressure on economy rather than stimulating economic momentum. The key gauges found some support around the psychological 5,050 (Nifty) and 16,700 (Sensex) levels. The central bank’s move defied wider market expectations of a cut in key interest rates by 25 basis points as they expected RBI to employ monetary easing measures to bring the economy out of doldrums. Meanwhile, a separate data highlighted that India’s consumer price inflation moved up marginally to 10.36% in May on account of increase in prices of vegetables, edible oils and milk. Moreover, cues from the money market too remained disappointing as rupee came off the day’s highs and depreciated against the US dollar. On the BSE sectoral space, the rate sensitive Bankex and Realty pockets got brutally butchered by close to three percent and remained the top laggards, while the defensive FMCG counter too witnessed severe selling pressure and plunged over one half a percent. Amid the broad based position squaring, the only index which went home with slight gains was the Consumer Durables index which added ten points. Finally, the BSE Sensex shaved off 244.00 points or 1.44% to settle at 16,705.83, while the S&P CNX Nifty plunged by 74.80 points or 1.46% to close at 5,064.25.