Market may edge higher on steady-to-firm Asian equities

he market may edge higher tracking firm Asian markets. However, the upside may be capped due to due to recent FII sales/slowdown in FII inflow. There has been slowdown in FII inflow and also a bout of FII outflow since the past few days. As per provisional data, FIIs bought shares worth a net Rs 7.62 crore on Tuesday, 6 November 2007.

FIIs sold shares worth a net Rs Rs 656.90 crore on Monday, 5 November 2007, the day when Sensex had lost 385.45 points or 1.93% to 19,590.78 on renewed fears over the impact of US credit crisis after US financial giant Citigroup said it may suffer up to $11 billion in write-downs for subprime losses. FIIs had sold shares worth a net Rs 761.40 crore on Friday, 2 November 2007.

Recent FII sales/slowdown in inflow comes when Securities & Exchange Board of India (Sebi) put restrictions on issue of participatory notes (PNs) and it also directed unwinding of some exiting PNs within 18 months. The Sebi restrictions on use of PNs came into force from 25 October 2007.

Massive FII inflow had send the market surging in the last two months. FII inflow was a robust in the last two months - at Rs 16132.60 crore in September 2007 and Rs 20590.90 crore in October 2007. FII inflow had surged as huge liquidity infused by a steep 50 basis points cut in Fed funds rates in mid-September 2007 found its way into emerging markets.

The Q2 September 2007 results of India Inc.were decent to strong which means that strong fundamentals would support Indian equities at declines. At the macro level, the India’s economy is expected to post decent to strong growth for a long period of time, mainly due to favourable demographics. Mutual funds are said to be sitting on a strong cash pile of about Rs 14000 crore and they may step up buying if and when there is a steep correction on the bourses.

The Indian market had failed to participate in rally in Asian stocks on Tuesday, 6 November 2007, when Sensex lost 190.11 points or 0.97% to 19,400.67, in contrast to a 1% rise in MSCI's measure of Asia Pacific stocks ex-Japan.

Asian stocks extended gains on Wednesday, 7 November 2007. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.34% to 2%.

On Wall Street, energy stocks such as Exxon Mobil gained ground on Tuesday, 6 November 2007, helping send the blue chip Dow up 0.9%. The tech-heavy Nasdaq Composite Index advanced 1.1%.

US crude, trading at $97.07 a barrel in Asian trade, hit a life high of $97.10 after the US government predicted robust demand and tight output from OPEC would lead to a supply crunch in consumer nations this winter.