Weakness may persist

Unwinding of long positions in derivative segment caused sharp fall on the bourses in the past two days. Open interest in derivatives segment declined by 2.4% on Monday (11 December) and it would have fallen further on Tuesday (12 December), dealers said. A lower-than-expected industrial output growth for October 2006 caused 404-point fall in Sensex on Tuesday, after the barometer index had lost 400 points on Monday (11 December) following a surprise hike in cash reserve ratio (CRR) by the RBI, which raised fears of rise in interest rates.

The near 1000-point fall in Sensex in the past three trading sessions has triggered fears of margin calls. Margin calls are normally triggered when markets show hyper volatility or witness abnormal slides.

During the current market fall, FIIs were net buyers in the cash segment even as they pressed heavy sales in index-based futures. As per provisional data released by stock exchanges, FIIs were net buyers to the tune of Rs 259 crore on Tuesday. Their net inflow was Rs 422 crore on Monday 11 December.

FIIs were net sellers to the tune of Rs 415 crore in index-based futures on Tuesday 12 December. In contrast, they made net purchases of Rs 480 crore in individual stock futures on that day. FIIs were net sellers to the tune of Rs 1250 crore in index based futures on 11 December. They were net sellers to the tune of Rs 1,087 crore in index-based futures on 8 December.

US stocks slipped on Tuesday after the Federal Reserve kept interest rates unchanged as expected, but its statement recognized a substantial cooling off in the housing market. The Dow Jones industrial average declined 12.90 points, or 0.10 percent, to clsoe at 12,315.58. The Standard & Poor's 500 Index slipped 1.48 points, or 0.10 percent, at finish at 1,411.56. The Nasdaq Composite Index dropped 11.26 points, or 0.46 percent, to close at 2,431.60.

Asian markets were mostly in the red in Wednesday. Key benchmark indices in Hong Kong, Japan, South Korea and Taiwan were down by between 0.04% to 1%.

On the New York Mercantile Exchange, US crude oil for January delivery fell 20 cents, or 0.33 percent, to settle at $61.02 per barrel on Tuesday.

India’s infrastructure sector output grew 9 percent in October from a year earlier, slower than revised annual growth of 9.6 percent in September. Output rose an annual 7.4 percent in October 2005. Infrastructure output in the April-October period rose 7.5 percent from a year earlier.