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Indian stocks to see soft opening: Thursday Market Preview

A cut in the US growth forecast, although in line with expectations, resulted in the global markets edging lower

The Indian stock market is likely to witness a soft opening on the back of negative global cues. Also, the weekly food inflation numbers, which will be released around noon today, will give the market some direction as trade progresses.

Wall Street ended its four-day winning streak to end lower overnight as the Federal Reserve tapered its economic growth forecast for this year and the next and kept silent on any new stimulus package. Tracking the developments in the US, markets in Asia were trading mostly lower in early trade on Thursday. The SGX Nifty was 13 points lower at 5,270 against its previous close of 5,283 on Wednesday.

The market which opened in the positive on Wednesday, riding on the optimism from Greece, stayed range-bound for the whole trading session and closed flat in the absence of any domestic triggers. The Nifty resumed trade at 5,305, up 29 points, and the Sensex opened 99 points higher at 17,659. The indices soon touched the day's high with the Nifty touching 5,311 and the Sensex at 17,679.

However, volatility from the opening bell and the India Meteorological Department's report that the monsoon this year will be slightly below normal, made investors nervous. This is another dampener, in addition to continuing high inflation and successive rate hikes by the Reserve Bank of India, the most recent effected only last week.

The market hovered on both sides of the neutral line in post-noon trade, following mixed trade by key European markets in the early session. It fell to the day's low, the Nifty fell to 5,263 and the Sensex to 17,492. The indices witnessed a flat close with a mixed bias; the Nifty added two points to 5,278 and the Sensex shed 10 points to finish at 17,550.

The US markets snapped their four-day gains to settle lower on Wednesday as the Fed cut its economic growth forecast for this year and the next and failed to make a mention of any new stimulus package as the $600 billion QE2 ends next week. The central bank, at the end of a two-day meeting, lowered the its gross domestic product (GDP) forecast for 2011 to a growth rate of a mere 2.7% to 2.9%—down from an April projection of 3.1%-3.3%. The Fed also reduced its 2012 GDP growth forecast to a range between 3.3% and 3.7%.

The Fed estimates that unemployment will still be around 8.6% to 8.9% by the end of the year. However, Fed chairman Ben Bernanke said the slower recovery are expected to be temporary. He also said that the case for a third round of quantitative easing just isn’t there yet.

The Dow declined 80.34 points (0.66%) to end at 12,109.67. The S&P 500 shed 8.38 points (0.65%) to 1,287.14 and the Nasdaq fell 18.07 points (0.67%) to settle at 2,669.19.

Tracking the decline in the US markets on account of the cut in growth forecast by the Fed, markets in Asia were mostly lower in early trade today. While the developments were in line with expectations, it ignited fresh worries about the pace of the global recovery.

Meanwhile, the Iwate prefecture in northeast Japan on Thursday reported an earthquake with a preliminary magnitude of 6.7. The region was among those devastated by the 11th March earthquake and tsunami. However, reports of damage or injuries have not yet been reported.

The Shanghai Composite declined 0.38%, the Hang Seng fell 0.89%, the Jakarta Composite was down 0.44%, the KLSE Composite decreased by 0.32%, the Nikkei 225 declined 0.37%, the Straits Times lost 0.36%, the Seoul Composite fell 0.71% and the Taiwan Weighted was 0.59% lower.

Oil rose 3% on Wednesday, supported by a fall in US crude and gasoline stockpiles. ICE Brent crude for August delivery settled at $114.21 a barrel, gaining $3.26. US August crude gained $1.24 to settle at $95.41 a barrel, dropping down to $94.54 in post-settlement activity.

Back home, the Securities and Exchange Board of India (SEBI) yesterday asked the asset management industry to look at having presence in the pension funds, as retail investors would prefer the route.

“There is a good potential here (pension funds), which perhaps we are missing,” SEBI chairman UK Sinha said at the CII summit on Mutual Funds.

Mr Sinha said in the US 68% of the households own mutual fund products through the pension route, perhaps through the pension reforms that took place in the US. He said in India, the asset managers classified each investor alike, which according to him was a mistake.

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