Market may remain under selling pressure

The market is expected to remain under selling pressure, as profit booking might continue. A host of factors including lack of inflows at higher levels, the surprise CRR-hike, high valuations, rising inflation and rising interest rates, fears of an earnings slowdown in the coming quarters kept the sentiment edgy all along.

The defeat of the Congress in Uttarakhand and Punjab, weak global markets and profit-taking at higher levels have also plagued the market lately.

The latest and most dreadful demon to strike was unwinding of “yen-carry trade”, which had severely affected the Chinese bourse in particular, but the correction was widespread across global markets. This is expected to weight on the sentiment for few more weeks, as further possible repatriation of overseas profits by Japanese banks and companies, ahead of the country’s fiscal ending 31 March 2007, could lead to further rise of the Japanese currency against the US dollar and a resultant sell-off in shares.

Carry trades involve borrowing in a low-interest rate currency and investing the proceeds in higher yielding assets. In Japan, investors took advantage of the near-zero interest rate in the past many years by borrowing yen, converting them into dollars and investing in higher-yielding assets including overseas equities.

Analysts said some hedge funds, which have indulged in yen-carry trade over the past couple of years, are reviewing options about investments in some emerging market equities, including India due to doubts about scope of appreciation in them hereon.

Inflation has been a cause of concern. India's wholesale price index rose 6.10% in the 12 months to 24 February 2007, little changed from the previous week's annual increase of 6.05%, latest data released showed on Friday (9 March 2007). Any increase in this figure will dampen the sentiment, and may spook a sell-off.

Also any sharp spurt in crude oil prices, which are hovering around the $61 per barrel mark, may also affect the sentiment significantly.

Grindwell Norton and Motor Industries Company (MICO) will announce their results in the coming week.