Market may extend gains; volatility to remain

The market may open on a firm note with provisional data showing robust FII inflow on Thursday’s trading. However, volatility may remain ahead of next week’s expiry of March 2007 derivatives contracts. Rollover has already started to April 2007 contracts from March 2007 contracts. With the market scheduled to remain closed next Tuesday (27 March) for a public holiday, only four trading sessions are left before the expiry of the March 2007 contracts.

The key data today is the weekly inflation figure. There is lack of direction today from Asian markets which are mixed.

As per provisional data, FIIs were net buyers to the tune of a massive Rs 712.70 crore on Thursday 22 March 2007, the day when Sensex had surged 362 points in a global rally that was triggered by expectations of a cut in interest rates by the US Federal Reserve. FIIs were net buyers to the tune of Rs 1848 crore in index based futures on Thursday. They were net buyers to the tune of Rs 134 crore of individual stock futures on that day.

The US Federal Reserve policy-setting meeting on Wednesday dropped an explicit reference to the possibility of taking rates higher in its statement, sparking talk abut the next move of a cut. But a day later i.e. on Thursday investors soon started to consider that the US central may not be in a hurry to cut rates and that the dollar might be oversold, as the Fed also reiterated that inflation was still its main concern.

The Fed left interest rates unchanged at 5.25% on Wednesday. Rate hikes in the United States tend to drain cash from emerging markets, but rate cuts tend to swell flows of dollars to developing economies such as India.

Market expectations peg India’s wholesale price inflation rate at 6.51% for the 12 months to 10 March 2007, up from an annual rise of 6.46% a week earlier. The data will be released around noon today. The annual rate hit 6.73% on 3 February 2007, its highest in more than two years, but has moderated after the central bank tightened policy and the government cut duties on a range of items to rein in prices.

Indian bourses are set to record its first weekly gain after five consecutive weekly losses till the week ended 16 March 2007. The next major trigger for the domestic bourses is Q4 March 2007 earnings, reports of which by corporates will start next month. Analysts expect Q4 results to be strong. Market men will closely watch what company managements have to say about the outlook for FY 2008.

Asian markets were mixed on Friday. Key benchmark indices in Hong Kong, Japan, and Taiwan were up by between 0.1% to 0.5%. Key benchmark indices in China, South Korea and Singapore were down by between 0.1% to 0.8%.

US stock indexes ended Thursday's session little changed after a profit warning from Motorola Inc. knocked tech shares lower, stalling a global equities rally sparked by the Federal Reserve's signal that it was less inclined to raise interest rates. The Dow Jones industrial average gained 13.62 points, or 0.11 percent, to end at 12,461.14. But the Standard & Poor's 500 index dipped 0.50 of a point, or 0.03 percent, to finish at 1,434.54. The Nasdaq composite index slipped 4.18 points, or 0.17 percent, to 2,451.74.