The Government appears to be in a conciliatory mood. Reports suggest it could settle the tax row with Vodafone by waiving penalty. This will be a positive development if indeed it happens. The next on the FII watch list is the GAAR proposal, which will be taken up by the parliament next week along with the Finance Bill.

Meanwhile, the renewed weakness in the rupee is eroding FII investments in shares and debt. FIIs turned net sellers in April after a strong first quarter mainly due to the controversy over GAAR provisions and Vodafone tax disputes. The sentiment towards Indian markets will improve if the two thorny tax issues are addressed amicably.

We expect a slightly lower start today on account of sluggish global cues. US stocks recovered from session lows, but European indices slipped on downbeat data. All eyes will be on the ECB policy meet later today. Asian markets are mostly in red.

Banks will be in focus after the RBI announced guidelines on implementation of Basel III capital rules. Sugar counters will also be in the spotlight after the Government removed the cap on exports.

The Indian markets failed to capitalize on a positive start on Wednesday, as renewed selling pressure near 5280 levels dragged the Nifty below 5250 levels. Every rise has been met with distribution at higher levels and a move below 5120 could lead to further selling in the near term.

Key Results Today: Aventis Pharma, Finolex Cables, Great Eastern Shipping, Gujarat Pipavav Port, Ingersoll Rand India, KEC International, Marico, NDTV, Piramal Healthcare and Nitco.

Trend in FII flows: The FIIs were net buyers of Rs 2.37bn in the cash segment on Wednesday while the domestic institutional investors (DIIs) were net buyers of Rs 711.2mn, as per the provisional figures released by the NSE.

The FIIs were net buyers of Rs 1.48bn in the F&O segment on Wednesday, according to the provisional NSE data.

The foreign funds were net buyers of Rs 5.40bn in the cash segment on Monday, according to the SEBI figures.

Global Data Watch: UK Nationwide Housing Prices (Apr), UK Purchasing Manager Index Services (Apr), EU Producer Price Index (Mar), ECB Interest Rate Decision, ECB President Draghi’s speech, US Initial Jobless Claims (Apr 28), US Continuing Jobless Claims (Apr 21), US Nonfarm Productivity (Q1), US Unit Labor costs (Q1), US ISM Non-Manufacturing (Apr), US Fed’s William Dudley’s speech, US Fed’s Lockhart’s speech and US Philadelphia Fed’s Plosser’s speech.