Jan 20, 2012

MARKET OUTLOOK

Markets to continue the rally mood with a good start

The Indian markets surged in the last session, positing a rally of over a percent and the benchmark indices surged past their crucial psychological levels. There were supportive global cues along with good earnings announcement that bolstered the Indian markets. Today, the start is likely to be good and the indices are expected to add strength. The rate sensitives’ are likely to keep buzzing with the continuous decline in food inflation numbers that may put pressure on RBI for a rate cut in its upcoming policy review. However, rating firm ICRA has opined that the apex bank may not cut key policy rates due to moderating demand-side pressure. Today is result heavy day and the market bellwether Reliance Industries will be announcing its numbers, though after the market hours but the buy-back related issue is likely to give another upmove in the stocks of the company which has risen around 10 percent in last three days. Meanwhile, in their pre-budget demand banks and financial institutions have sought more tax sops from the finance ministry, arguing that the greater deposit mobilisation through incentives will help them lend more when the economy recovers. The top bankers also suggested that the government should increase the limit on tax deducted at source (TDS) on interest from bank deposits to Rs 50,000, from Rs 10,000 at present.

There will be other important result announcements too, to keep the markets buzzing. Axis Bank, Exide Inds, ITC, HCC, Hindustan Zinc, JSW Steel, Jet Air India, NIIT, United Spirits, Syndicate Bank, Wipro etc. are among many to come up with their December quarter numbers today.

The US markets closed modestly higher on Thursday, extending their gains in the week, there were few better than expected earnings announcements, while applications for unemployment benefits fell last week to the lowest level since April 2008. The Asian markets have made an all green start on speculation that China may take steps to stimulate growth in the world’s second-largest economy. In Europe, the Spanish and French borrowing costs declined and boosted the morale of the global investors.

Back home, boisterous bulls after a day’s rest, went all guns blazing on Thursday taking the benchmark equity indices to six week high levels, beyond the important 5,000 (Nifty) and 16,600 (Sensex) bastions which the key gauges could not conquer despite repeated attempts in previous sessions. After a day of consolidation, investors kept piling up positions with conviction as sentiments got buttressed by not only encouraging weekly inflation data from the domestic front but also from the strength in markets across the globe. Market participants remained in enthusiastic mood right from the start of trade, tracking sanguine leads from the Asian markets. A slew of encouraging developments such as overnight jump in US equities, encouraging US homebuilders’ confidence report and IMF’s plans to expand its lending capacity by as much as $500 billion in order to prevent fallout from the Euro-zone crisis and avert a global recession, bolstered investors risk taking confidence in the session. Investors’ morale also got a boost in the session after weekly food inflation continued to languish in the negative terrain for the third straight week in the period ended January 7 as it stood at -0.42%. Stocks from the rate sensitive counters like high beta realty, banking and automobile remained in demand after the upbeat inflation numbers as investors speculated that the RBI would abstain from its monetary tightening measures and shift its focus to spur economic growth. Also the encouraging third quarter earnings announcement from banking major HDFC Bank and two-wheeler heavyweights like Hero Moto and Bajaj Auto kept marketmen busy piling up positions. Earlier on Dalal Street, the benchmark got off to a gap-up opening tracking the impressive leads from Asian markets as encouraging overnight leads from the US triggered a strong rally across the region. There appeared some selling pressure in the early afternoon trades when the indices slipped to intraday lows after the Bajaj Auto quarterly result was announced. However, the bulls were quick in regaining the lost momentum and brought the key gauges above the crucial levels to eventually snap the session around the high point of the day. On the BSE sectoral space, Realty counter remained the top gainer in the space with strong gains of over three and half a percent while, the Metal sector too gained a lot of traction and settled with close to three percent gains. On the flipside, the IT and TECk counters remained the top laggard with moderate cuts. Finally, the BSE Sensex surged 192.27 points or 1.17% to settle at 16,643.74, while the S&P CNX Nifty climbed by 62.60 points or 1.26% to close at 5,018.40.

The US markets closed higher on Thursday, extending their 2012 advance, after weekly jobless claims fell more than anticipated while consumer prices remained unchanged. Though, the Dow average had briefly dropped into the red but then rebounded, after an index of Philadelphia-area manufacturers reported a slight increase in activity in January. Investors were back to the markets as jobs and housing data showed that the worst is over, plus data signaling inflation pressure remain subdued. First-time claims for US employment benefits dropped more than anticipated in the week ended January 14, according to a report released by the US Labor Department. The report showed that weekly jobless claims fell to 352,000 from the previous week's revised figure of 402,000. Separately, a report showed that US consumer prices remained unchanged for the second consecutive month in December. Excluding food and energy prices, consumer prices rose 0.1% in December. Though, US housing starts fell more than estimated in December, according to data released by the US Commerce Department. New homes starts fell off to a seasonally adjusted annual rate of 657,000 in December, 4.1% below the November level.

The European markets successfully concluded debt sale by Spain and France. Investors were optimistic on the outcome as the Greek government heads into a second day of talks with private creditors on a crucial bond swap deal. Greece is expected to lower its debt by €100 billion in the next three years and exchange a new security that pays less than 4% interest rate.

The Dow Jones Industrial Average closed higher by 45.03 points, or 0.36 percent, at 12,624.00. The S&P 500 was up by 6.46 points, or 0.49 percent, at 1,314.50, while the Nasdaq closed up 18.62 points, or 0.67 percent, at 2,788.33.

Crude oil prices extended the consolidation to second straight session on Thursday and settled with slight losses but managed to hold on to the psychological $100 a barrel mark by the end of trade. Sentiments got dampened after an US EIA data indicated that oil demand in the world's top oil consuming nation slipped to weakest levels since April 1997, plunging by 7.2% year on year. However, downside in oil prices was a limited as weekly US employment data which showed that jobless claims slipped to the lowest levels since April 2008, thereby giving some hope that the economic situation in US is not as bad as feared.

Benchmark crude for February delivery eased $0.20 or 0.2% to $100.39 a barrel, after trading as high as $102.06 on the New York Mercantile Exchange. In London, February Brent crude climbed $0.89 to end at $111.55 a barrel on the ICE.