Indian Markets slump on SBI rating downgrade

The markets opened on a negative note tracking overnight US markets and moved sideways in the morning session. Later in the second part of the day we saw heavy selling coming in which took the markets down to the bottom and closed for the day near to it. Major selling crawled in the second half of the day after Moody's Investor's Service downgraded SBI's rating to D+ from C- which brought heavy selling in SBI and other banks like ICICI Bank, Axis Bank etc followed suit hitting their respective 52 week lows. Bank Nifty was down around 3.4% and is looking extremely weak as we are nearing the Q2 numbers. The KBW bank sector index, which tracks 24 geographically diverse institutions including banks, fell around 4.78% to $33.65 showing that the mood of the banking sector across the globe is negative and is worsening. FIIs have remained net seller for the last couple of sessions and they have been parking a part of their funds in strong currencies and precious metals.

Inflation is still a concern for emerging economies like India and China. Highly fluctuating commodity prices have kept the inflation above 9% for some time now. The interest rate hikes done to bring down the inflation has not given the desired result till now. Due to rising interest rates and other monetary tightening in emerging economies, the manufacturing is showing a falling trend which will have a negative impact on the demand for commodities especially base metals. This will, to a certain extent, help manufacturing companies to bring down their input cost. Further according to the MET data, rains in June-September period were 1% above the 50 year average which is giving hopes of better harvest this time and ultimately will help to keep the price of essential commodities under check. Government's efforts to bring down inflation will also get boost from better rains.

Nifty came near to its major support of 4720 and bounced back from it. Overall trend of the market is still negative and if Nifty moves and closes below this level then further selling can be seen, because there are no major positive triggers for the market.

On the sectoral front, we saw selling pressure in interest rate sensitives like banking, auto and other sectors like oil and metal. However capital goods made gains today. Apart from these, fertilizer stocks gains on hopes of urea price decontrol. Crude price fell near to $76 which brought buying in aviation and PSU oil marketing companies.

Asian markets were trading deep in red. It was down tracking the overnight US markets which had fell on growing concerns over Greek default which over shadowed higher than estimated US manufacturing. European zone is still uncertain and it even signaled that bond holders may have to take bigger losses on Greek debt if the second bailout package is announced and the policy makers signaled that they may renegotiate terms of Greece's bailout. Crude is continuing its fall and is staying below $77 on expectation that European debt crisis may deteriorate further. US index futures are trading in red over 1000 points ahead of the federal chairman's speech later in the day.

Source : Equity Bulls

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