Markets May Open Negative

Yesterday the markets displayed some kind of strength as investors used the opportunity to buy some of the heavily beaten down scrips. Infosys was one of them and this helped the market to sustain itself at a higher level and close in the green zone.

Yesterday, post market hours, there three major announcements were made by the government. According to media reports, the Union Cabinet meeting held on Thursday evening resulted in the granting of approval to various pending decisions ranging from levying of import duty on power equipment, demerger of VSNL’s surplus land, extension of the M B Shah Commission and amendments to the Forward Contracts Regulation Amendment Bill 2010. It also approved the sale of 10.82 per cent of its stake in Steel Authority of India (SAIL).

The next was that of the presidential election. According to media reports, 148 of the 240 MLAs have casted their votes in favour of the UPA candidate for the presidential election, Pranab Mukherjee, as against the BJP-supported P A Sangma. However, three of the 243 MLAs could not cast their votes. More importantly, on the eve of his resignation, Mukherjee cleared about Rs 20,000 crore in compensation dues to state governments in lieu of their phasing out the central sales tax (CST), one of the key steps in the move towards the goods & services tax (GST) regime that aims to replace a plethora of central and state indirect taxes with a single nationwide levy.

The third one was of the much-awaited reforms of FDI in retail. According to media reports, the government is gearing up for a ‘big ticket’ show by August 15, perhaps even earlier than that. The parliament session kicks off on August 8 and so a lot can be done before that. But by August 15, 10-15 proposals are likely are likely to go through. One may see some kind of positive reaction to the retail stocks in today’s trade.

Overnight the U.S. markets closed higher in the positive territory with major Indices like Dow, S&P 500 and Nasdaq closing higher in the range of 0.2 to 0.8 per cent. This was in the wake of media reports which stated that the stocks extended gains in its third session as better-than-expected earnings from International Business Machines Corporation and other companies offset the weak economic data.

The European markets also ended yesterday’s trade with gains as some of the major indices like DAX, FTSE and CAC closed higher in the range of 0.5 to 1.2 per cent. This was after the Bloomberg reports which stated that some of the major companies like Nokia, Akzo Nobel and Remy Cointreau had reported quarterly earnings that had exceeded analysts’ estimates.

Ignoring the U.S. and European markets’ cues overnight, the Asian markets have opened in the negative territory. This was due to media reports which stated that the euro had declined amid concern Europe’s debt crisis dragging down global growth even as China pledged to keep curbs on its property market. Further, investors pulled away from some defensive sector and steel makers’ shares. 

The rupee has recovered from its all-time low but is trading above the comfort zone at Rs 55.383 against a USD. Brent crude has again started moving northwards from the lower level of USD 89 and has crossed the three-digit levels of USD 107.45 per barrel, which is slightly above our comfort zone. Further, the commodity prices, especially of crude, spiralled upwards and this was probably because the streets expected something definite about quantitative easing (QE). Also, earlier the global central banks had adopted a dovish stance in order to boost their economies. If the crude continues its upward trend and again reaches USD 125, it would push inflation higher and worsen our balance of payments, thereby affecting the economy.

For today, watch out for stocks like Asian Paints, Crompton Greaves, Hindustan Zinc, India Bulls Financial Services, JSW Energy, Karnataka Bank, RIL, Praj Industries, UltraTech Cement and United Phosphorus as the companies are going to announce their June quarter numbers. One may see some volatility in the above mentioned share prices in today’s trade.

In conclusion, we expect the markets to remain volatile and therefore investors should tread with caution.