ECB’s announcement of buying Italian bonds to stop crisis from spreading could boost sentiments.
After Greek woes, now a high-voltage drama over Italian debt is sure to keep the Indian markets guessing for direction when these open for trade tomorrow, the last session of the week. The domestic markets were closed today on account of a public holiday.
While the bad news from Italy saw the Asian markets crash today, a sentiment booster from the European Central Bank later helped the US stock futures and other European markets register decent gains.
In Asia, Hong Kong’s Hang Seng led the fall, crashing 5.2 per cent. Japan’s Nikkei and China’s Shanghai Composite were also down, by 2.9 per cent and 1.8 per cent, respectively.
This was after Italian Prime Minister Silvio Berlusconi on Wednesday insisted on elections instead of a transitional government. Economists and traders thought this could prolong instability in the region. Italian 10-year maturity bonds were on fire, with yields rising to over seven per cent, leaving the country almost needing a bailout.
However, markets in the US and Europe were buoyed immediately, as ECB stepped in to soothe the nerves. Greece announced that former ECB vice-president, Lucas Papademos, would take over as the prime minister of the country, ending Greeks’ political crisis. ECB announced it would buy Italian bonds to stop the crisis from spreading.
S&P 500, the leading US equity index, rose over one per cent in futures trading. Before that, key European indices had already set a different trend from European markets as they rebounded from the day’s low to close in positive territory. The STOXX 50 was up 0.9 per cent, while DAX gained 0.89 per cent. However, the UK’s FTSE fell marginally, by 0.16 per cent.
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“It was a blessing in disguise that the Indian markets were closed today,” said Ambareesh Baliga, chief operating officer, Way2Wealth Securities. He added: “We may not see a major cut tomorrow if the US and European markets hold on to their gains.”
However, for some of the traders in Indian stocks, a public holiday was no reason to stay away from taking a position. The Nifty futures listed on the Singapore Stock Exchange fell 77 points and were last traded at 5,153. In India, the S&P CNX Nifty index had closed at 5,221 on the National Stock Exchange on Wednesday.
Analysts say the focus in the coming days would be more on banking stocks. This is now more pronounced, with global credit ratings agency S&P upgrading the score of Indian banks just a day after rival Moody’s downgraded the sector on a number of worries.
“There could be some more sell-off in banking stocks on concerns over non-performing assets. S&P upgrading the risk score of the Indian banking industry could provide some cushion to the stocks,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services.
On Wednesday, the BSE Sensex and NSE Nifty had slipped 1.18 per cent and 1.2 per cent, respectively, on Moody’s downgrade. State Bank of India, ICICI Bank, HDFC and Axis Bank shares had fallen sharply, contributing the most to the market fall.
S&P, however, upgraded the credit score as it felt the Indian banks were less risky than perceived. It revised its Banking Industry Country Risk Assessment on India to group ‘5’ from group ‘6’. It also revised the economic risk score to ‘5’ from ‘6’, at the same time assigning an industry risk score of ‘5’.