Morning Note - Market Insight By Mansukh - 2nd August, 2011

On Monday 01 Aug 2011,The first day of a new month saw an impressive start of trade at Dalal Street with the bourses flying high after US President Barack Obama announced that top American lawmakers have reached an agreement to reduce the budgetary deficit to avert a debt default. Laying out the endgame in the US debt crisis just two days before a deadline to lift the borrowing limit, the White House and congressional leaders said the compromise would cut about $2.5 trillion from the deficit over the next 10 years, thereby prompting across the board buying. However, the bourses disengaged most of their sparkling gains towards the end of the trade as trader's took the profit off the table, digesting the latest monthly auto sales and economic reports like trade data and manufacturing PMI. The HSBC factory Purchase Managers' Index (PMI), a headline index to measure the country's factory output, slipped to the lowest in 20 months at 53.6 in July from 55.3 in June. Indian factory growth fell for the third month in a row in July as a long series of interest rate hikes and faltering global demand weighed on new orders and output growth.

The BSE Sensex gained 117.13 points or 0.64% and settled at 18,314.33 and NSE Nifty closed at 5516.80 up 34.80 points or 0.63%. The BSE Mid-cap index lost 0.02% while Small-cap index was down by 0.26%.   On the BSE Sectoral front, IT up 0.86%, TECk up 0.81%, Auto up 0.79%, Capital Goods up 0.71% and Health Care up 0.56% were the major gainers. On the flip side, Metal down 1.25%, Consumer Durables down 0.30% and FMCG down 0.11% were the only losers.

On the global front, US shares closed with sharp losses on Friday as debt woes combined with disappointing gross domestic product data spooked investors. Meanwhile, Asian shares jumped higher on Monday with US President Barack Obama's announcement of a framework agreement to lift the nation's debt ceiling and avert a sovereign default sparked a relief rally. The European shares recovered some of the previous week's sharp losses on Monday, supported by a political deal to raise the United States' borrowing and forecast-beating results from HSBC.

Meanwhile, trader's were also cautious after Prime Minister's Economic Advisory Council said inflation would remain around 9 percent till October and the central bank will have to continue with its tight monetary policy, thereby signaling another rate hike by the RBI in its upcoming monetary policy review. The council cut its 2011-12 growth forecast to 8.2% from 9% and predicted that headline inflation would not begin to ease till November. Also, the projection that the fiscal deficit could touch 4.7% in the year to March 2012, above the government's target of 4.6%, called for stronger measures to increase revenue intake and cut spending.