Market may remain firm

The near term trigger for global markets is US Federal Reserve’s policy meeting on 18 September 2007. There are hopes that the US Federal Reserve will cut the fed funds rate by at least a quarter percentage point on 18 September 2007. An aggressive rate cut by the Fed in the coming months, will inject liquidity which in turn may lead to a surge in inflow by FIIs in emerging markets including India.

Meanwhile, strong domestic liquidity will support the market at declines. Domestic private insurance firms have been channelising money raised through unit-linked insurance plans (with a high weightage for equities).

The barometer index BSE Sensex is 265.05 points away from all-time high of 15,868.85 it had struck on 24 July 2007

The market will be keenly watching developments on the political front as the government wants the Indo-US nuclear deal to go through. While the operationaslisation of the Indo-US deal has been put on hold by the government pending the findings of a committee, it cannot be stalled forever. A flashpoint may come sooner or later. The four Communist parties have 60 members of parliament (MPs) in the 545-member lower house of parliament. Prime Minister Manmohan Singh's government could fall or be reduced to a minority if the Left withdraws support.

Yet, analysts reckon that political turmoil arising from nuke deal will not impact India’s basic economic fundamentals though some infrastructure projects may get delayed. India’s economy is expected to post strong growth for a long period of time mainly due to favourable demographics.

Further, a US recession is unlikely to impact India in a big way given that the Indian economy is driven by domestic demand. Exports to US account for just about 2% of India’s GDP.