Domestic And Global Hopes To Keep Markets High On Opening

The Indian markets are likely to open positive today, on hopes that the banking bill may get the Lok Sabha nod, coupled with the optimism that Republicans and Democrats will finally reach a deal to prevent the fiscal cliff in the US. The meeting between US President Barack Obama and House Speaker John Boehner, over the weekend has renewed hopes of a deal being struck to avoid the much dreaded spending cuts and tax raises and is being looked upon as a big positive by global markets.

This renewed sentiment led to a rise in European and Asian markets. Europe even sidelined worries over Italian Prime Minister Mario Monti resigning and focused on developments on the fiscal cliff. The Asian markets have opened positive today with the Hang Seng and Nikkei trading higher by 0.52% and 0.53% respectively. The Shanghai Composite is trading flat and was marginally down this morning (-0.08%).

Overall, hopes are keeping the sentiment positive and we expect the markets to open in the green. The SGX Nifty was trading higher by 19 points at 5951 at 07:45 AM today. IIP data for the month of October will be released later in the day and the street will be closely watching this.

Apart from tracking gains in the US markets, European sentiment was also boosted due to data from Germany. The ZEW economic expectations index in Germany rose to 6.9 in December, far exceeding expectations of reading of -11.3. Also, the current-conditions index rose from 5.4 in November to 5.7 in December. This had the DAX and CAC witness heavy buying and ending the day higher by 0.96% and 1.12% respectively.

On the domestic front, all eyes have been on developments in the parliament. With allowability of FDI in multi-brand retail getting a nod and the bill on recovery of non-performing assets getting approval, eyes are now fixed on the banking bill. This bill was expected to be passed in the Lok Sabha yesterday. However, with a response similar to that observed during the retail FDI issue, the lower house was adjourned, largely disappointing the street.

Standard & Poor’s warned once again that there was a one in three chance of a downgrade for India in its sovereign rating to junk grade over the next 24 months. The reasons, as cited earlier were high fiscal deficit and debt burden, political climate and slow pace of reforms.

On the currency front, as expected, the rupee gained some strength. Inflows on account of Bharti Infratel’s Initial Public Offering led to this gain. More strength is expected till March 2013 as the government has planned to sell its stake in many state-owned companies in a move to bridge its current account deficit. Of these, a 10% stake sale in NMDC is scheduled for today. This is likely to add further strength to the rupee.

Gold, on the other hand, snapped its three day rally due to a weakness in global demand. There was selling seen as a result of prices reaching a one-week high and amidst speculation over the Federal Reserve extending its bond buying programme to boost the economy.

Oil is expected to see some fluctuation resulting out of a number of factors. While positive manufacturing and industrial data from China has been causing upward movement in oil prices, rising stockpiles in the U.S. has been easing prices. In addition to this, OPEC delegates are scheduled to decide the group’s production data which will decide the trend for oil prices.

Overall, based on the cues emanating on the domestic and global front, we expect a positive opening on the markets today with its direction later in the day likely to be decided by the IIP data.