Mixed Signals Point Towards A Tame Opening

Indian markets may see a flat opening today, striking a balance between subdued global macroeconomic cues and a positive whiff of air on the domestic front following the governments moves to boost investments.

The government stepped into action to accelerate approvals for large projects and also approved a new law for land acquisition. It has been decided to set up a cabinet panel headed by the Prime Minister to speed up the clearances of projects worth more than Rs 1000 crore. The cabinet also approved a 30% cut in the base price for airwaves that had no buyers in the latest 2G auctions and a urea policy that is expected to bring in projects worth Rs 35000 crore.

Globally, concerns over the fiscal cliff have surfaced again as politicians in the US publicly expressed their difficulties in reaching a deal to avert the triggering of spending cuts and tax raises. Moreover, economic data released in the US too was not supportive of any improvement in sentiment. Retail sales in the US rose 0.3% in November. If the auto sector was to be excluded out of this data, retail sales would come in to be flat.

In Europe, finance ministers approved the long-delayed release of financial aid to Greece. Greece completed the prerequisites as set by international creditors of a debt buyback. Although this news is fairly positive, European stocks were dragged down by developments in the US.

Sentiment does not seem to be any better in Asia. The closely tracked Bank of Japan ‘tankan’ survey of business sentiment showed, increased pessimism in Japan. Business conditions at large manufacturing enterprises fell to -12 from -3, for medium sized enterprises to -12 from -6 and for small sized enterprises to -18 from -14.

China remains positive as the HSBC and London-based Markit Economics’ manufacturing Initial Purchasing Managers’ Index (PMI) for December rose to a 14 month high of 50.9 from 50.5 in November.

With the above factors in play, indices in the US closed the day lower in the range of 0.56% and 0.72%. Europe closed lower in the range of 0.1% and 0.43%. In Asia, while the Hang Seng and Nikkei are trading lower by 0.21% and 0.42% respectively, the Shanghai Composite is trading higher by 0.27%.

China’s manufacturing data has resulted in oil extending its weekly gains. The Chinese economy is starting to look good again as a series of data releases has been indicative of a spurt in manufacturing and industrial activity. Being one of the world’s biggest crude consumers, this has directly affected oil prices.

The rupee saw some strength yesterday as inflows continued from foreign investors for Bharti Infratel’s IPO. The issue was subscribed 1.21 times. Stability in the rupee is expected as the dollar sees some moderation and there are more inflows as the government moves ahead with stake sales.

Overall, the mixed cues resulting out of negative global factors and positive domestic factors will keep markets volatile. As for the opening, expect it to be on a weaker note.