Market may turn volatile after firm opening

The market is likely to open higher taking cue from steady to firm Asian markets. But according to a dealer with a domestic brokerage, the market may lose steam after a firm opening. He expects correction to continue on the bourses. A dealer with another brokerage expects mid-cap stocks to extend gains. A host of battered small-cap and mid-cap stocks had surged on Wednesday (13 December).

Though Sensex is sharply off its record high of above 14,000, equity valuations still remain steep. Sensex’s current PE multiple is 21.72 based on trailing 12-month September 2006 earnings. Indian market is most expensive compared to its regional and emerging market peers.

Sensex staged a recovery on Wednesday (13 December) gaining 186 points. A lower-than-expected industrial output growth for October 2006 caused a 404-point fall in the Sensex on Tuesday (12 December), after the barometer index lost 400 points on Monday (11 December) following a surprise hike in the cash reserve ratio (CRR) by the RBI, which raised fears of a rise in interest rates. Interest rates in the economy have already started firming up. On Wednesday, ICICI Bank raised lending rates by 50 basis points across the board.

After the latest economic data, market men will now be closely eyeing advance tax payment by corporates for the third installment, which is due on 15 December 2006. The corporate advance tax payment will provide a broad outline of Q3 corporate results. More so, given that strong earnings growth has been a key driver of the bull-run on the bourses.

Market men will also be watching FII allocations for India for calendar year 2007.

As per provisional figures, FIIs were net buyers to the tune of Rs 24.52 crore on 13 December, the day when the Sensex had risen 186 points. Their inflow was Rs 95 crore on 12 December, the day when Sensex had plunged 404 points.

Last few days witnessed substantial FII sales in index-based futures. FIIs were net sellers to the tune of Rs 284 crore in index-based futures on 13 December. Their net sales in index-based futures in four trading sessions between 8 December to 13 December totaled Rs 3036 crore. Last two days also witnessed substantial FII purchases in individual stock futures, worth Rs 780 crore (between 12 December to 13 December).

Asian markets were in the green on Thursday. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.4% to 0.7%.

US stocks closed little changed on Wednesday as surprisingly strong retail sales data raised hopes for the holiday season, offsetting a rise in oil prices that hurt industrial shares. The Dow Jones industrial average advanced 1.92 points, or 0.02 percent, to end at 12,317.50. The Standard & Poor's 500 Index rose 1.65 points, or 0.12 percent, to finish at 1,413.21. The Nasdaq Composite Index eked out a gain of just 0.81 of a point, or 0.03 percent, to close at 2,432.41.

US crude oil futures for January delivery rose 35 cents to settle at $61.37 a barrel on the New York Mercantile Exchange on Wednesday, after government data showed crude inventories fell more than expected in the latest week. NYMEX January crude futures hit a session high at $61.85.