Market may extend gains

The upward momentum in the stock markets is expected to continue at least till the US Federal Reserve meeting on Tuesday, 11 November 2007 since Fed is expected to cut Fed funds rate by at least 25 basis points. Recent data showing strong job creation by the US private sector in November 2007 has eased US recession worries.

Signs that the US economy is not ailing as much as has been thought caused investors to scale back expectations of the extent of an interest rate cut when the Federal Reserve meets next Tuesday. Yet, market men hope that a further cut in interest rates by the Fed will boost FII inflow in India.

Brokerage Edelweiss Securities said in a report that the benchmark index was expected to find minor resistance around 20,200-20,500 and on the lower side it had strong support around 19,200-19,000.

However, a sharp fall is not expected due to tremendous liquidity waiting to enter at market. FIIs had been the key drivers of the recent rally. They pumped in Rs 20,591 crore in the month of October 2007. However FIIs pulled out Rs 5,849.90 crore in November 2007. FII inflow in calendar year 2007 totaled Rs 67,521.60 crore (till 5 December 2007). Any slowdown in inflow by FIIs may put brakes on the rally.

Meanwhile, a slowdown in Indian economy due to high interest rates, a firm rupee, surging global oil prices and fallout of the US sub-prime crisis dented business confidence in July-September 2007, a survey said on Wednesday. The survey of 321 companies was conducted by trade body, Federation of Indian Chambers of Commerce and Industry (FICCI).

Reemergence of political concern arising from the Indo-US nuclear deal may impact the market. The United Progressive Alliance government expressed its firm resolve to operationalise the Indo-US nuclear deal, rejecting opposition and Left front’s charges that it barred India from conducting nuclear tests and threatened the country’s independent foreign policy. Replying to the nuclear deal debate in the Rajya Sabha on Wednesday 5 December 2007, the external affairs minister, Mr Pranab Mukherjee, stuck to the government view that the deal was essential for India’s economic growth. The Left front continued its opposition to the deal in the debate in Rajya Sabha.

Annual inflation, based on the wholesale price index (WPI), dipped 3.01% in the week ended 24 November 2007 compared with a 3.21% rise in the week ended 17 November 2007. The market estimate stood at 3.20%.