Sensex succumbs to profit taking...Autos skid

After a fantastic rally in the previous trading session, the Indian equity markets seemed to lose some steam as the early new year global rally faded and investors turned cautious ahead of important economic announcements in the coming days. Also, corporate earnings will soon start trickling in and market participants would want to hear from the management about the prospects for the coming fiscal year.

Reports that the Centre had deferred a decision on allowing PSUs to buyback their shares may just have hurt the undertone a wee bit. In the process, the market ignored the upbeat data on the services PMI, which hit a five-month peak.



Today's session was quite volatile. The BSE Sensex, which managed to breach the 16000 mark in mid afternoon was seen falling back to ~15800 levels. Some profit booking was seen in Telecom, Consumer Durables and FMCG stocks. While Auto stocks continued their underperformance as compared to the benchmark indices.

Finally, the BSE Sensex ended at 15,882, down 56 points or 0.4% from the last close. It earlier touched a day's high of 16,004 and day’s low of 15,822.

The NSE Nifty closed at 4750 marginally down 16 points. The index hit an intra-day high of 4783 and an intra-day low of 4723.

In terms of sectors, the BSE Auto index was the top gainer, down 1.2%. The BSE Capital Goods index, the BSE Teck index and the BSE Consumer Durables index fell by ~0.6% each. BSE PSU and BSE Capital Goods indices rose by 1.7% and 1% respectively. The IT index gained 0.7%.

The BSE Mid-Cap index gained 0.2% while the BSE Small-Cap index was up 0.2%.

Among the 30 constituents of the Sensex, Bajaj Auto, M&M, Hindustan Unilever, Bharti Airtel, Hero Motocorp were among the top gainers. On the other hand, only Tata Motors, BHEL, Hindalco, ICICI Bank and ONGC ended in the positive terrain.

The Advance-Decline ratio on the BSE was again in favor of the bulls. On the BSE, 1499 stocks advanced against 1200 declining stocks. While, only 135 stocks were unchanged.

Sentiment was also hit after the opening of the European markets. Continental indices opened lower, recovered smartly but could not sustain the bounce for long. The main benchmarks in Germany, France, Italy and Spain were trading in the red.

Data showed continued contraction in eurozone private sector activity in December, increasing the chance of a recession in the debt-plagued region. At the same time, inflation cooled off in the 17-member euro bloc, giving ample room to the ECB to cut rates further.

Asian markets closed mixed today after two positive sessions in the new year. Stocks in Japan rose by 1.2% as it returned to trading following a long weekend. The Australian market was by far the top gainer, rising by 2%.

The Chinese stock index fell by ~1.3% after reports said that home prices fell for a fourth month in December due to government's crackdown on the property market. Also, Chinese Premier Wen Jiabao said that business conditions may be relatively difficult in the first quarter of 2012 and that monetary policy will be fine-tuned as needed.

US stocks rallied on Tuesday after the ISM manufacturing PMI jumped to a six-month high. Manufacturing PMI data in several key geographies have also shown improvement.

"The two-day rally may give an impression that things are looking up again. The appetite for risk could extend for a day or two. But, doubts persist whether the upbeat start to January can be sustained given the foggy outlook for the Indian economy and problems plaguing other markets.

The bounce in world markets may bump into resistance amid persistent worries about the eurozone debt crisis. Most market participants are still cautious after suffering big losses last year. Investors are holding onto cash and are not willing to commit in risky asset classes like EMs as yet given the downbeat outlook for the economy.

In India, policymakers are confronting plenty of problems. It will take a while for them to deal with each one decisively and revive the sluggish domestic economy. So, the most prudent strategy is to adopt a 'wait-and-watch' approach in the short term, and avoid undue adventures, " says Amar Ambani, Head of Research, IIFL - India Private Clients.