Market may recover in Asian rebound

The market is likely to edge higher tracking recovery in Asian stocks. However, upside may be capped due to FII sales/slowdown in FII inflow.

FIIs have turned sellers in equities recently after a slowdown in their inflow was witnessed at the fag end of October 2007 and at the onset of this month. As per provisional data, FIIs sold shares worth a net Rs 1093.16 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.

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.

At current 19,590.78, Sensex traded at a PE multiple of 18.65 to 19.59 based on projected FY 2009 EPS of Rs 1000-to-Rs 1050 for 30 Sensex companies.

Asian stock markets rebounded today, 6 November 2007, from Monday (5 November 2007)’s fall caused by US credit market fears. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.36% to 1.1%.

US stocks wilted on Monday, 5 November 2007, after Citigroup warned of billions of dollars in loan losses, reigniting fears about the health of financial firms and the broader US economy. Dow Jones Industrial Average lost 51.70 points or 0.38% to 13,543.40. The tech-laden Nasdaq Composite index lost 15.20 points or 0.54% to 2,795.18.

Citigroup's chairman and chief executive, Charles Prince, resigned on Sunday, 4 November 2007, after the largest US bank said it may write off up to $11 billion of subprime mortgage losses, on top of a $6.5 billion write-down last quarter.