Markets likely to make a flat start; to get direction with political developments

The US markets ended flat, while the Asian markets have started mostly in green

The Indian markets failed to capitalize on their early leads and snapped another day consolidating in last session. While, the robust IIP numbers gave a sense of relief, the higher CPI numbers overshadowed the enthusiasm. Today, the start of the markets is likely to remain flat-to-cautious, traders will be eyeing the development in Parliament, as Finance Minister P Chidambaram has expressed hope that opposition would cooperate in getting five key economic reforms bills passed in the ongoing winter session of Parliament. Earlier the government has announced a judicial probe into reports of lobbying by supermarket chain Walmart. The PSU sectors are likely to remain in upbeat mood, as the government witnessed strong participation from foreign investors and managed to mop up Rs 6,000 crore from the sale of its 10% stake in the iron ore miner NMDC. There will be buzz in the NBFCs too, as RBI has issued new prudential norms which require NBFCs to have a tier-one capital adequacy ratio (CAR) of 12% by April 2014. At present, the tier-I requirement is 7.5% for NBFCs except those in infrastructure where it is 10% and for those lending against gold where it is already 12%.

The US markets made a mixed closing, losing most of their early gains as House of Representatives Speaker John Boehner said that serious differences still remain in talks to avert the steep tax hikes, offsetting early leads of Fed announcement to the latest extension of its bond-purchasing program and low-interest rate policy. The Asian markets have started mostly in green, though few of the indices are marginally in red but others have taken encouragement with advancement in Japanese Exporters after yen fell to an eight months low.

Back home, mood of consolidation extended to the eighth straight day for the Indian markets. Frontline indices, despite some early leads on Wednesday, failed to capitalize and ended the session slightly in the red, as better-than-expected Index of Industrial Production (IIP) data for the month of October dashed expectations of rate cut from the Reserve Bank of India (RBI) in its upcoming policy meet on December 18, 2012. Industrial production growth rate bounced back to a 16-month high of 8.2% in October on good performance of the manufacturing, power sector and higher output of capital as well as consumer goods, indicating sudden recovery in the economy. The factory output, as measured by the Index of Industrial Production (IIP), contracted by 5% in October last year. The IIP had expanded by 9.5% in June 2011. Higher consumer price inflation (CPI) too dampened the investors’ sentiments as likely hood of a rate cut in forthcoming mid-quarter monetary policy review got lower. November 2012 CPI inflation number showed that the retail inflation is again trending towards double digit to 9.90 per cent in November 2012 as compared to 9.75 per cent in October 2012. Now all eyes would be on the wholesale price index (WPI) for November 2012, which is due on December 14, 2012. Some amount of selling was also witnessed after banking space took U-turn as both Houses of Parliament were adjourned before taking up the Banking Amendment Bill. The Banking Amendment Bill entails easing voting rules of shareholders in banks to attract foreign investment and allows the central bank more powers. However, global cues remained firm and helped the domestic markets to limit their losses as all the Asian equity indices ended the session in the green. Back home, stocks from Capital Goods, Public Sector Undertaking (PSU) and Metal counters witnessing nasty laceration, went home with loss of over half a percent. Downfall was also supported by fall in shares of three public sector oil marketing companies, as the government is considering raising the cap on the number of subsidised LPG cylinders available to households to nine per year. However, the losses remained capped as Software pack showed some traction amid sustained optimism for an agreement on upcoming US tax hikes. Finally, the BSE Sensex lost 31.88 points or 0.16% to settle at 19355.26, while the S&P CNX Nifty declined by 10.80 points or 0.18% to end at 5,888.00.