MARKETS COME OFF DAY'S HIGH

Indian frontline equity indices which enthusiastically rallied through the morning trades have come off the day's highs in the afternoon session and are trading around intraday lows post a flat European market opening. The optimism over fresh liquidity measures from the European Central Bank got withered to some extent on reports that global rating agency Moody's have downgraded the debt ratings of a dozen banks in United Kingdom because of doubts over the strength of the government's support. In addition, the rating agency has also cut ratings of nine Portuguese banks due to increased asset risk as a result of the banks' holdings of Portuguese government debt. Nevertheless, investors are largely focusing on covering hefty short positions amid easing Euro-zone worries. The concerns over the financial situation in Europe are showing signs of easing after the European Central Bank announced various policy measures aimed at raising liquidity in European banks, including the offer to flood banks with any amount of one-year loans through 2013. Local sentiments also got buttressed by the extension of strong rally in global markets as Europe stepped up efforts to bolster its banks while jobless claims in the world's largest economy, the US rose less than expected. Meanwhile, India's weekly food inflation, measured by WPI, surged to 9.41% for the week ended September 24 from 9.13% in the last week however, the primary articles group which has the highest weightage in WPI, declined by 0.1 % to 202.4 (Provisional) from 202.7 (Provisional) for the previous week. On the sectoral front, buying was evident across the board as not even a single sectoral index traded in the negative territory. Investors piled up hefty positions in the beaten down Metal counter which rocketed by around four and half a percent while the badly butchered Banking index to showed smart recovery and jumped by about four percent.
Moreover, the broader markets too traded on an optimistic note with strong gains of over a percent but were outperformed by their larger peers. The bourses gained on weak volumes of over Rs 0.50 lakh core, while the market breadth on BSE was in favor of advances in the ratio of 1830:712 while 92 scrips remained unchanged.
The BSE Sensex is currently trading at 16,222.07 up by 429.66 points or 2.72% after trading as high as 16,347.48 and as low as 16,198.60. There were 29 stocks advancing against 1 declines on the index.
The broader indices were trading on a quiet note; the BSE Mid cap index surged 1.44% and Small cap soared 1.37%.
On the BSE sectoral space, Metal up 4.41%, Bankex up 3.78%, Realty up 3.45%, IT up 2.90% and Consumer Durables up 2.43% were the major gainers while there were no losers in the space.
Sterlite up 7.99%, Jindal Steel up 6.66%, Tata Motors up 6.31%, DLF up 5.74% and ICICI Bank up 5.71% were the major gainers on the Sensex, while Bharti Airtel down 3.15%was the only loser on the index.
Meanwhile, India's economic growth in the coming quarters is expected to below 8% on the back of the uncertainty in global economy and the Reserve Bank of India's (RBI) continuous hike in its key policy rates. The Citigroup in its research report said India's economic growth is likely to remain below 8% in the coming quarters owing to aggressive monetary tightening and worsening global prospects.
The India's Gross Domestic Product (GDP) growth for the first quarter of 2011-12, fell to its 6 quarter lowest level to 7.7% from 8.8% in the same period of last fiscal year. 'Recently-released macro and sectoral data indicate a clear slowdown in economic activity,' Citigroup said. By adding further it said that the 'growth in the coming quarters will likely remain in the sub-8% range and average 7.6% in FY12.'
"We expect this trend to continue due to lagged effect of 500 bps of tightening, structural policy issues, and worsening prospects on the global front," the Citigroup report added.
During last financial year, India's economy grew by 8.5% and in 2009-10, it grew by 8%. For the current financial year, in this year's budget, the government had forecasted India to grow by 9%. However because of the debt crisis in Eurozone and slowdown in United States, government revised downwards India's GDP growth forecast to 8.2%.
The Citigroup said, "The worsening global economic situation has taken a toll on the domestic currency and equities. Moreover, higher deficits and peaking inflation is likely to further add to the burden".

In the last month, on the back of global crisis, the Indian rupee fell by 7.3% and the Bombay Stock Exchange benchmark Sensex declined by 3.98%, and the headline inflation, measured Wholesale Price Index (WPI) stood at 9.78%, which is almost double the RBI's comfort zone. Since March 2010, in order to cap hovering inflation, the RBI has increased its short term leading and borrowing rates by 12 times.

'While we have been expecting inflation to remain elevated due to higher minimum support prices of agricultural crops and continued upward revisions to past data; two further price pressures have emerged, firstly commodity prices have showed no sign of abating despite slowing global demand and secondly, weakness in rupee, which adds to inflationary woes,' the report said. By adding further it says this puts the RBI in an unenviable position of balancing slowing growth and rising inflation.
India is, somewhat in a better place than its Asian peers. Positives for India include the country's low exports to GDP ratio, domestically financed fiscal deficit, limited exposure to foreign liabilities, and a healthy banking system. However, in times of risk aversion, India immediately comes on the radar due to its reliance on external capital, Citigroup said.
During the April-July 2011, India's fiscal deficit stood at Rs 2,288 billion from Rs 909 billion in April-July 2010. 'Despite the announcement of austerity measures, we expect the government to miss its deficit target due to both lower revenues and higher expenditures,' the report added.
The S&P CNX Nifty is currently trading at 4,880.30, higher by 129 points or 2.72% after trading as high as 4,922.60 and as low as 4,875.55. There were 45 stocks advancing against 5 decline on the index.
The top gainers on the Nifty were Sterlite up 7.89%, Jindal Steel up 6.78%, Axis Bank up 6.37%, Tata Motors up 6.11% and DLF up 5.72%.
Bharti Airtel down 3.06%, Ambuja Cement down 1.44%, BPCL down 0.39%, Ranbaxy down 0.39% and Hero Moto down 0.38% were the major losers on the index.
Asian markets traded on a optimistic note, Hang Seng surged 2.90%, Jakarta Composite soared 1.91%, KLSE Composite gained 0.49%, Nikkei 225 ascended 1.06%, Straits Times garnered 1.66%, Seoul Composite spurted by 3.02% and Taiwan Weighted climbed 1.12%.
Stock markets in China remained closed in observance of Golden Week holiday.
The European markets traded on a flat note with negative bias as France's CAC 40 eased 0.35%, Germany's DAX slipped 0.25% and Britain's FTSE 100 shed 0.02%.