Caution may prevail

Caution may prevail on the bourses ahead of expiry of March 2007 derivatives contracts today. Short positions continued to be carried forward to the April 2007 series, ahead of the expiry of March 2007 contracts on Thursday. As per estimates, the market-wide rollover from March 2007 contracts to April 2007 contracts so far (at end of Wednesday 28 March) has been pegged at 46 to 48%, similar to the trend seen in the previous expiries.

Trend in global markets is having a strong impact on domestic bourses since the past few weeks. Most Asian markets were in the green on Thursday and this may provide support to domestic bourses today. Sensex’s 240 points fall on Wednesday 28 March 2007 was largely due to weakness in global markets. European and Asian stocks had slipped on Wednesday and the yen had risen against higher-yielding currencies as Iran nerves prompted investors to ditch risky carry trade' positions based on cheap borrowing in the Japanese currency.

The fresh risk aversion was spurred by tensions over Iran. US crude jumped $5 to a six-month high of more than $68 a barrel late on Tuesday, on rumours of a military clash between Iran and the US navy. Oil prices relented on Wednesday after Washington dismissed the talk, but stayed up by nearly $1 for the day.

On Thursday 29 March, key benchmark indices in Hong Kong, China, South Korea, Singapore and Taiwan were up by between 0.1% to 2.2%. But barring China’s Shanghai Composite index which was up 2.2%, gains were muted at between 0.1% to 0.3% in key benchmark indices in Hong Kong, South Korea, Singapore and Taiwan. Japan’s Nikkei 225 average was down nearly 1%.

US stocks fell on Wednesday as escalating tensions with Iran sparked a fresh wave of risk-aversion. Investor unease grew further after Federal Reserve Chairman Ben Bernanke told Congress that US economic uncertainties had increased but warned that inflation remained a concern. The Dow Jones industrial average closed down 96.93 points, or 0.78 percent, at 12,300.36. The Standard & Poor's 500 Index closed down 11.38 points, or 0.80 percent, at 1,417.23. The Nasdaq Composite Index closed down 20.33, or 0.83 percent, at 2,417.10. A report on US orders for big ticket items such as computers and appliances on Wednesday failed to live up to economists' forecasts, further underscoring weakness in the world's largest economy.

Back home, FIIs have remained buyers of Indian equities over the past few days notwithstanding volatility on the bourses. FIIs were net buyers to the tune of Rs 80.50 crore on Monday (26 March 2007). The inflow on Monday was however much muted coming in after a recent surge, when FIIs had pumped in a net Rs 713.10 crore on 22 March 2007, followed by an inflow of Rs 678.50 crore on 23 March 2007. As per provisional data, FIIs were net buyers to the tune of Rs 290 crore on Wednesday 28 March, the day when Sensex had lost 240 points.

The next major trigger for the market is Q4 March 2007 results. Growing concerns that the US economy is cooling faster than previously forecast alongwith the recent surge of rupee versus the dollar has ignited market talks that IT bellwether Infosys’ FY 2008 (year ending 31 March 2008) may be conservative. Infosys unveils its full year guidance at the time of announcing fourth quarter and annual results in April.