Market may remain firm on strong FII inflow

The market sentiment holds firm due to strong FII inflow and robust Q2 results. Firm Asian markets and cheaper oil price may boost domestic bourses further today. Strong FII inflow and revision in earnings estimates by brokerages for companies following strong Q2 results has fuelled renewed surge on the bourses - Sensex has gained 261.51 points in the past two trading sessions to a lifetime closing high of 13,399 on Monday (13 November).

Asian markets edged higher on Tuesday (14 November). Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.2% to 1.6%.

US stocks advanced on Monday as investors bet that falling crude oil prices would support corporate earnings growth, pushing up shares of industrial bellwethers such as General Electric Co. But nervousness about this week's inflation reports, which could determine the course of interest rates, curbed a broader market advance. The Dow Jones industrial average rose 23.45 points, or 0.19 percent, to close at 12,131.88. The Standard & Poor's 500 Index edged up 3.52 points, or 0.25 percent, to finish at 1,384.42. The Nasdaq Composite Index ended up 16.66 points, or 0.70 percent, at 2,406.38.

US crude oil for December delivery extended Friday's 2.6 percent drop on expectations that mild US Northeast weather would slow heating demand. It ended down $1.01 at $58.58 a barrel on the New York Mercantile Exchange on Monday.

With expectations that the momentum of earnings growth would be sustained, FIIs have stepped up buying of Indian equities. Strong global liquidity has aided the surge in inflows. Buying is happening from new FIIs entering the Indian markets. By the first few days of November 2006, FII inflow has reached Rs 2816 crore (till 10 November). In the month of October 2006, when the earnings poured in, their net inflow totaled Rs 8013 crore compared to an inflow of Rs 4643 crore in August and Rs 5428 crore in September. FII-inflow in calendar 2006 so far has reached $7.3 billion. In calendar 2005, FII inflow was a record $ 10.7 billion.

A section of the market attributes the solid surge on the Indian bourses to increasing recognition of India’s long-term growth prospects. From 4,644 on 23 June 2004, it has galloped 188.5% in less than two and a half years.

The open interest in the derivatives segment is on the rise and it may trigger short-term volatility on the bourses.