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Worries of the contagion effects from a possible Greek default roiled markets worldwide
The domestic market is likely to open lower ahead of the Reserve Bank of India’s (RBI) policy review and on a sharp sell-off in the global markets. The rate hike will make borrowings for corporate and individuals costlier. Besides the policy review, weekly food inflation numbers for the first week of June will be announced today. For the week ended 28th May, food inflation had jumped to a two-month high of 9.01%.
Among global markets, US stocks finished sharply lower on continuing debt crisis in Greece and a dull picture of the country’s economy. Greece’s woes also pulled Asian indices sharply lower in early trade on Thursday. The SGX Nifty was 65 points down at 5,387.50 compared to its previous close of 5,452.50.
The RBI possible move to cap rising inflation with a 25 basis point rate hike pulled the market lower yesterday. Earlier, the market opened lower, as nervousness took centre-stage ahead of the RBI's policy review. The Sensex started the day 10 points lower at 18,299 and the Nifty opened at 5,494, seven points down from its previous close.
The market was range-bound till mid-morning, after which buying in select stocks lifted it marginally, although the key indices were still negative. The market touched the day's high with the Sensex at 18,309 and the Nifty at 5,499. However, across-the-board selling and key European indices trading in the red pulled the domestic indices southwards in post-noon trade.
The market fell to its intra-day low in the last hour, with the Sensex losing 198 points to 18,111 and the Nifty at 5,439, down 62 points. The benchmarks managed a close above those levels, the Sensex ended at 18,132 a fall of 176 points and the Nifty settled at 5,448, a loss of 53 points.
The Nifty traded below yesterday's closing throughout the session and ended at a 14-day closing low. The index has hit a lower intra-day low and closed below the first support of 5,450. The downtrend will be confirmed if the Nifty hits a lower low and lower close below 5,415. After that it could quickly fall to 5,350 and below. What can reverse the decline is a surprise move by the RBI not to tighten rates.
The US markets tumbled on Wednesday after global rating agency Moody’s Investors Services warned of a downgrade of three largest French banks on account of their exposure in Greek debt or exposure to the Greek economy. Greek bonds were hammered, sending yields on two-year notes to 29%.
Also driving stocks lower were more dismal news on the domestic economy. The index of the Federal Reserve Bank of New York’s Empire State Manufacturing Survey fell below zero for the first time since last November, dropping 20 points from May to -7.79. Separate data showed industrial production rose 0.1%, less than analysts’ forecast for a 0.2% gain. Also, the consumer-price index increased 0.2% in May, figures from the Labor Department showed, the biggest increase since July 2008.
The Dow tumbled 178.84 points (1.48%) to 11,897.27. The S&P 500 declined 22.45 points (1.74%) to 1,265.42 and the Nasdaq Composite fell by 47.26 points (1.76%) to 2,631.46. All three major indices saw their biggest one-day drop since 1st June.
Tracking the crisis in Europe and fall in the US markets overnights, the Asian pack was trading sharply lower in early trade on Thursday. Concerns about the outlook for the US economy and contagion effects from a possible Greek default weighed on the markets across the region.
The Shanghai Composite declined 0.80%, the Hang Seng tanked 1.51%, the Jakarta Composite fell by 0.97%, the KLSE Composite was 0.23% lower, the Nikkei 225 lost 0.84%, the Straits Times fell by 0.89%, the Seoul Composite shrank 1.71% and the
Taiwan Weighted tumbled 1.77%.
Back home, the Securities and Exchange Board of India (SEBI) on Wednesday asked credit rating agencies (CRAs) to adopt standard symbols and definitions devised by it within four months, a move that will help investors to better understand financial health of firms.
Currently, CRAs registered with SEBI use different rating symbols and definitions.
The regulator has devised standard symbols and their definitions for long and short term debt instruments, structured finance instruments and mutual funds schemes. It has been done in consultation with CRAs and in line with international practices.