Indian equity markets showed a volte-face on the last day of the week as what started on a cheerful note ended as a dismal show. The optimism in local markets petered out completely by the end of trade and the indices even drifted in to the negative territory, despite getting off to a gap-up opening. Sentiments got a hit after President Pranab Mukherjee issued a note of caution that the Narendra Modi government's demonetization decision could likely lead to a temporary slowdown in the economy and hurt the poor. The President called for policymaking that would reduce the suffering of the poor, and seemed to question the focus shift in the government's poverty alleviation programmes and policies from an entitlement-based approach to an entrepreneurial one. Furthermore, a private report highlighted that India's GDP is likely to have grown at a much slower-than-expected pace of 5 percent in the October-December period and may see a 6 percent growth in the following quarter due to a slowdown in manufacturing and services sectors post demonetization. Besides, sharp selling in IT counter also weighed on investor sentiments. Technology stocks came under pressure on reports that two US Congressmen have reintroduced a bill to curb the use of H-1B visas, on which the Indian IT sector is particularly dependent. The new bill would require workers on the H-1B visa pay a minimum of $100,000, up from $60,000 currently. However, losses remained capped in local markets with the report of Financial Stability and Development Council (FSDC), headed by Finance Minister Arun Jaitley indicated that India appears to be much better placed with improved macro-economic fundamentals, as measures to eliminate shadow economy and tax evasion are expected to have positive impact on GDP. India expects to grow at around 7 percent in the first half of the next financial year. Market participants got some relief with the report that Reserve Bank of India (RBI) replaced as much as 44% of the currency extinguished by demonetisation with new notes by December 30, 2016. The report also expresses hopes that India's currency supply is likely to return to near normal by February end and growth, which has been hit by the withdrawal of Rs 500 and Rs 1,000 notes, is likely to bounce back faster than earlier expected. Finally, the BSE Sensex declined 119.01 points or 0.44% to 26759.23, while the CNX Nifty was down by 30 points or 0.36% to 8,243.80.  

The US markets closed higher on Friday, with Dow ending a fraction below the closely watched 20,000 level, following a December US jobs report that investors interpreted as generally positive. All three benchmarks posted solid weekly gains, continuing the post-election rally on Wall Street. On the economy front, the US added 156,000 new jobs in the final month of 2016 and worker pay rose at the fastest pace since the Great Recession, reflecting a surge in employment over the past six years that's left many companies complaining about a shortage of skilled labor. The increase in hiring last month was spearheaded by health-care providers, financial firms, manufacturers, restaurants and shipping companies. The unemployment rate, meanwhile, edged up to 4.7% from 4.6% as more people entered the labor force in search of work. The steady gains in employment have finally started to push worker pay higher over the past year and a half. Average hourly wages jumped 0.4% in December to push the annual gain in 2016 to 2.9%, marking the fastest increase since a recovery that began in mid-2009. The Dow Jones Industrial Average added 64.51 points or 0.32 percent to 19,963.80, Nasdaq gained 33.12 points or 0.60 percent to 5,521.06, while S&P 500 was up by 7.98 points or 0.35 percent to 2,276.98.

Crude oil futures strengthened further on Friday, on reports that Saudi Arabia cut production, as promised and Kuwait was also enforcing quotas on production. Traders overlooked the report of rise in rig counts. Oil-field services company Baker Hughes Inc. reported that the number of rigs drilling for oil in the US rose by four in the past week to 529. The rig count is up ten straight weeks, as U.S. producers are getting more active amid stable oil prices. However, the strong U.S. dollar limited price gains to some extent.

Benchmark crude oil futures for February delivery was up by $0.15 or 0.30 percent to $53.90 on the New York Mercantile Exchange. In London, Brent crude for March delivery ended lower by $0.09 or 0.19 percent at $56.78 on the ICE.

Indian rupee ended unchanged compared to its previous close as traders turned cautious ahead of the release of US employment and payrolls data on January 6, 2017. Sentiments remained dampened with the report of Financial Stability and Development Council (FSDC), headed by Finance Minister Arun Jaitley indicated that India appears to be much better placed with improved macro-economic fundamentals, as measures to eliminate shadow economy and tax evasion are expected to have positive impact on GDP. Some pessimism also came with President Pranab Mukherjee issuing a note of caution that the Narendra Modi government's demonetization decision could likely lead to a temporary slowdown in the economy and hurt the poor. Besides, dollar's strength against other currencies overseas, along with some losses in the domestic equity market also weighed on the rupee sentiments. Finally, the rupee ended unchanged from its previous close of 67.96 on Thursday.

The FIIs as per Friday's data were net sellers in equity segment, while they were net buyers in debt segment. In equity segment, the gross buying was of Rs 4542.95 crore against gross selling of Rs 4585.82 crore, while in the debt segment, the gross purchase was of Rs 1829.51 crore with gross sales of Rs 1079.02 crore.

The US markets ended higher following the release of the Labor Department's closely watched monthly employment report for December. Though the report showed weaker than expected job growth during the month, it also showed a significant acceleration in the pace of wage growth. The Asian markets have made a firm start, following the Dow Jones coming within inches of hitting the 20,000 mark at the close of trade last week. The Indian markets despite a good start lost its momentum and ended with around half a percent of losses in last session mainly due to slump in IT stocks. Today the start is likely to be on a positive side amid firm global cues. Traders will take some support with Finance minister Arun Jaitley's statement that the impact of demonetization on the economy would be transient but in the medium and long run, the GDP would be bigger and cleaner and it will also help lower interest rates. However, traders will be concerned with the first advance estimates, released by the Central Statistics Office (CSO) on Friday that the economic growth is expected to be 7.1 percent in FY 2016-17 as compared to the growth rate of 7.6 percent in FY 2015-16. Manufacturing sector is estimated to grow by 7.4 percent as compared to growth of 9.3 percent in 2015-16. The growth rate in per capita income is estimated at 5.6 percent during 2016-17, as against 6.2 percent in the previous year. Sugar stocks will remain in focus on report that the government does not have any immediate plans to cut import duty on sugar as the country would have sufficient supply of the sweetener considering fall in consumption this year and a likely bumper crop next year.

Support and Resistance: NSE (Nifty) and BSE (Sensex)

Nifty Top volumes

• Tata Motors has inked a three-year agreement with Castrol under which the lubricants maker would supply commercial vehicle oils to the homegrown auto major in over 50 markets.
• Axis Bank has launched its path breaking, first of its kind Academies with best in class partners to build proficiency for its 56,000 workforce.
• Mahindra and Mahindra's South Korean subsidiary SsangYong Motor, has sold a total of 16,705 units in December 2016.
• Kotak Mahindra Bank has revised its Base Rate downwards by 10 basis points to 9.30% per annum with effect from January 6, 2017.
• Coal India's production is likely to be set at 660 million tonnes (MT) for 2017-18.