Markets May Start Green

There have been a series of cues globally and domestic. Taking into consideration a cumulative effect of all these factors, the markets are likely to open positive today. However, the directional trend later in the trading session would be dependent on developments during the day.

During the last few days, we have seen choppy trading on the broader indices though there is inherent strength in the markets evident from the rise in midcaps and smallcaps and from the market breadth. This may continue over today as well.

Globally the sentiment was positive on account of positive manufacturing and industrial data from China, employment data from the U.S. and on account of the Greek 100% bond buyback programme.

However, this turned sour with Mario Monti expressing his intention to quit from the post of Italian Prime Minister as soon as the parliament passed a pending budget law. European stocks saw an extremely weak opening yesterday due to an addition to the existing problems of the euro zone. Later in the day, these losses reversed as European markets started following the U.S. markets.

The Federal Reserve is scheduled to end its two day meeting on Wednesday and the central bank is expected to announce a continuation of purchase of longer-dated Treasury securities. At the same time, it is expected to end the selling of short-term securities, which together formed Operation Twist. Although this spread positive sentiment in the market, gains were capped as a result of worries over the fiscal cliff. With this, the Dow, S&P and Nasdaq ended the day higher by 0.11%, 0.07% and 0.30% respectively.

Asian markets have seen a weak opening today with indices trading lower in the range of 0.12% and 0.52%.

Resulting out of positive data from China, oil rose above USD 107 per barrel. Data showed that China’s implied oil demand in November crossed the 10 million barrels per day mark for the first time while its crude imports moved to the second highest daily rate on record.

On the currency front, the rupee fell marginally due to dollar demand from oil importers but then stabilised towards the end of the day. The street has been expecting an inflow of funds with the opening of Bharti Infratel’s initial share offering on December 11 through December 15. This is likely to be followed by the government’s stake sale in NMDC which is likely to further increase inflows.

Domestically, there was some action on the parliamentary front. The Enforcement of Security Interest and Recovery of Debt Laws (Amendment) Bill 2011 was approved in the Lok Sabha. The amended law will allow the lenders to convert fully or in part their loan to a stressed entity into equity, helping lenders provide relief to stressed borrowers from high interest payments.

However, the Opposition blocked a bill to amend banking laws in a session similar to that seen during the multi-brand retail FDI debate. The Banking Laws (Amendment) Bill includes a few clauses including the one that allows banks to enter into futures trading. Developments on the political front too are likely to affect markets.

All these factors taken into consideration, the markets are likely to start on a positive front and directional trend later in the day is likely to be decided by global and domestic developments.