Weakness may persist on heavy derivative sales by FIIs

A surge in sales by FIIs in the derivatives segment may weigh on the bourses today. Mostly weak Asian markets may not provide respite after Monday (12 February)’s sharp fall. Data showing a substantial inflow of Rs 560 crore in index-based futures from foreign funds on 9 February 2007, concerns about rise in interest rates and weak Asian markets spooked the bourses on Monday, the Sensex tumbling 348 points.

Data released on 9 February 2007 showed that the wholesale price index rose 6.58% in the 12 months to 27 January 2007, the biggest rise in more than two years, fanning concerns of a further rise in interest rates.

FIIs were net sellers to the tune of Rs 1204 crore in index-based futures on 12 February, the day when the Sensex had lost 348 points. They were net sellers to the tune of Rs 401 crore in individual stock futures that day. In the cash segment, FIIs were net buyers to the tune of Rs 100 crore as per provisional figures.

The turnover in NSE’s derivatives segment surged to Rs 39996 crore on 12 February compared to a turnover of between Rs 26682.02 crore and Rs 32219 crore from 1 February 2007 to 9 February 2007. Nifty February futures settled at 4053.60, a discount of 4.70 points over the spot closing of 4058.30. The market-breadth has been quite weak in the past two trading sessions.

The sharp market fall on Monday materialized after a solid surge that took the benchmark to all-time highs. From 14,090.92 on 31 January 2007, the Sensex spurted 561.17 points (3.9%), to a lifetime closing high of 14,652.09 on 8 February 2007. Strong Q3 results and the stepping up of buying by FIIs, following an upgrade in India’s rating to investment grade by Standard & Poor's, had triggered this solid surge.

Barring Japan, Asian markets were in the red on Monday. Key benchmark indices in Hong Kong, Singapore, South Korea and Taiwan were down between 0.1 - 1%. Japan’s Nikkei 225 average was up 0.6%.

US stocks slipped on Monday after a 3.5% drop in oil prices hit energy companies' shares, while worries about rising mortgage defaults spilled over to the banking and housing sectors for the third day. Investors also were concerned that comments expected later this week from Federal Reserve Chairman, Ben Bernanke, could signal a more aggressive stance on inflation. The possibility that the central bank may resume raising interest rates if needed, cannot be ruled out.

The Dow Jones industrial average slipped 28.28 points, or 0.22%, to end at 12,552.55. The Standard & Poor's 500 Index declined 4.69 points, or 0.33%, to finish at 1,433.37. The Nasdaq Composite Index dropped 9.44 points, or 0.38%, to close at 2,450.38.