Markets likely to make a weak start; RBI policy action eyed

The Indian markets swayed along with the global cues and made a good recovery after a big fall in last session. All the rate sensitive sectors surged shrugging off the fear of rate hike by RBI in its mid quarterly policy review. Today the start is likely to be soft-to-cautious as the global cues once again have turned negative on concerns of devastating impact of Japanese crisis aftermath. Today all eyes will be on the Reserve Bank of India for its policy announcement; the general expectation is that the apex bank will go for a 25 basis point hike in policy rates to rein in the rising inflation; however 25 basis point hike in the repo rate is not likely to push up lending rates considerably and the rate sensitive might not go for a frenzy with it as it has already been discounted however, anything higher will impact shares negatively. If the central bank raises both the repo and the reverse repo by quarter of a percentage point each, the repo rate could move up to 6.75 per cent and the reverse repo to 5.75 per cent.  Also the weekly inflation numbers will be announced and that will give direction for the further course of action. Data for February showed headline WPI rising to 8.31 per cent, much higher than the estimates and also above the RBI’s projection of 7 per cent by the end of March.

The US markets suffered sharp fall on Wednesday and major indices erased nearly all of their gains for the year. The crisis in Japan deepened while the economic news too were not supportive that led the decline in the markets. Most of the Asian markets have made a weak start and majority of the indices are trading lower by about a percent with Japanese Nikkei suffering the most.

Back home, Indian benchmarks elegantly convalesced majority of Tuesday’s losses to snap last day’s session above crucial resistance levels as investors covered the hefty short positions that got built in previous session amid the global weakness due to aftershock in Japan. The sanguinity in the global markets got transmitted into the domestic frontline indices after investors in Tokyo resorted to intense bottom fishing in the fundamentally strong but highly undervalued shares. At home too investors piled up huge positions in rate sensitive counters like realty, banks and auto ahead of RBI’s mid-quarterly policy review on March 17. However, the bounce back in crude oil prices coupled with weakness in European markets in the dying hours of trade pulled the bourses off the day’s high level but they still settled with gains of a percent each. The NSE’s 50-share broadly followed index Nifty, pared some of its gains in the end but managed to hold on to the crucial 5,500 support level while Bombay Stock Exchange’s Sensitive Index, or Sensex closed a tad short of double century gains above the psychological 18,350 mark. The broader markets too finished with strong gains and managed to outperform their larger peers. Earlier on Dalal Street, the benchmark got off to an optimistic start as the index bounced back taking cues from the rebound in other Asian markets on bargain buying and a further decline in crude oil prices. The markets continued to trade firm through the day’s trade thanks to sustained buying in several front line stocks. The bourses after touching intraday highs in the second half pared some portion of their gains due to rebound in crude oil prices coupled with somber cues from the European peers. Eventually markets managed to perform largely in line with Asian peers and settle with over a percent gain. Finally, the BSE Sensex gained 191.05 points or 1.05% to settle at 18358.69 while the S&P CNX Nifty rose by 61.50 points or 1.13% to end at 5,511.15.

The US markets plunged on Wednesday closing lower for the third consecutive day, fears that a partial meltdown may have occurred at a nuclear plant in Japan led the markets for a sharp selloff. The mood was somber from the beginning after the European Union's energy chief said that Japan’s nuclear crisis could get worse. Japan temporarily suspended work at a stricken nuclear plant after a surge in radiation made it too dangerous for workers to remain there. There was a weak economy report that catalysed the fall, the Commerce Department reported that new home construction fell to the second-lowest level on record in February, reflecting weak demand.

Home construction plunged 22.5 percent in February from January to a seasonally adjusted 479,000 homes. Single-family homes, which make up roughly 80 percent of home construction, fell 11.8 percent in February. Apartment and condominium construction dropped 47 percent, reversing much of January's gains. Building permits, an indicator of future construction, fell 8.1 percent last month to the lowest level on records dating back to 1960.

The Dow Jones industrial average plunged by 242.12 points, or 2.04 percent, to 11,613.30. The S&P index fell by 24.99 points, or 1.95 percent, to 1,256.88, while the Nasdaq composite index closed lower by 50.51 points or 1.89 percent, to 2,616.12.

Crude prices recovered on Wednesday after witnessing a sharp fall in previous session, though the trade remained volatile as Middle East unrest came on the forefront again after violent clashes in Bahrain and Yemen, near top oil producer Saudi Arabia. Also, mounting concern over Japan’s nuclear crisis and weak equities too weighed and limited the rise.

Meanwhile, US Energy Information Administration (EIA) showed gasoline stockpiles fell 4.17 million barrels last week. Distillate stocks also dropped more than expected, lifting US heating oil futures, while crude stockpiles increased more than expected.

Benchmark crude for April rose 80 cents, or 0.8 percent, to settle at $97.98 a barrel, after trading in a range from $96.22 to $99.60 on the New York Mercantile Exchange. In London, Expiring ICE Brent crude for April rose $2.10, or 1.94 percent, to settle at $110.62 a barrel on the ICE