Market to extend recovery on firm global bourses

The market is likely to extend Tuesday’s recovery tracking firm global markets, drop in crude oil prices and on decent to strong gains in Indian ADRs on Tuesday (3 April). However, it remains to be seen whether volumes pick up along with the recovery in share prices.

Volumes have declined on the bourses at the onset of this month. Volumes were low when the Sensex had tanked 617 points on Monday 2 April caused by RBI’s surprises hike in short term interest rate and CRR. Volumes remained muted when the market recovered on Tuesday 3 April. The volume of shares of 16.3 crore on BSE on Monday and 15.85 crore on Tuesday was much lower than the average daily volumes of 21.85 crore shares in March 2007 and 31.31 crore shares in February 2007.

Stocks in Asia climbed on Wednesday (4 April), with exporters leading the way after a rise in US home sales soothed concerns about the outlook for the key US market. Key benchmark indices in Japan, Hong Kong, South Korea, Singapore and Taiwan were up by between 0.5% to 1.7%

US stocks closed sharply higher on Tuesday as a drop in oil prices calmed worries about inflation and news of an unexpected rise in home sales raised hopes the housing market is stabilizing. The rally took the Dow and S&P 500 to their highest levels since 27 February 2007. Dow Jones Industrial Average gained 128 points or 1.03% at 12,510.30. Tech laden Nasdaq Composite index advanced 28.07 points or 1.16% at 2,450.33.

Indian ADRs put a strong showing on Tuesday. Key ADRs rose between 2.2% to 5.12%.

Of late, there is lack of clear direction with regard to FII inflows as there have been alternate days of inflow and outflow. FIIs were net sellers to the tune of Rs 473.50 crore on Monday, the day when Sensex had tumbled 617 points following RBI rate hike. They were net buyers to the tune of Rs 840.80 crore on Friday (30 April), the day when Sensex had risen 92 points.

The Reserve Bank of India (RBI) lifted its short-term lending rate by 25 basis points to 7.75%, its highest in nearly 4-½ years, after markets had closed on Friday (30 March) to fight inflation. It also raised the cash reserve ratio (CRR), or proportion of cash banks have to hold with the central bank on deposit, by half a percentage point to 6.5% in two stages to siphon out Rs 15500 crore from the banking system.

The major trigger for the market is FY 2008 (year ending 31 March 2008) guidance by IT bellwether Infosys, which will unveil its FY 2008 guidance along with the Q4 March 2007 results, on 13 April 2007. In a recent pre-guidance report on Infosys, Merrill Lynch placed a short-term 'sell' on the Sensex heavyweight expecting a conservative guidance from the company due to an uncertain US economic outlook, the appreciation of the rupee versus the dollar and other client-specific issues. Merill Lynch expects Infosys to give EPS growth guidance in the early 20s.

The Bank of England announces its decision on rates on Thursday (5 April).