Market to see volatility

The market may turn volatile in the coming week as the FII selling may continue in the near term as they may resort to year-end profit taking. FIIs follow calendar year as their accounting year. FIIs had been the key drivers of the recent rally. They had pumped Rs 66,079.70 crore in the Indian equity market for the calendar year 2007 till on 13 December. So far, till 13 December 2007, FIIs have been net buyers to the tune of Rs 4573.50 crore.

The 30-share BSE Sensex rose 64.83 points or 0.32% to 20,030.83 in the week ended 14 December 2007. The S&P CNX Nifty gained 73.40 points or 1.22% to 6047.70 in the week.

However small and mid-cap stocks may continue their rally on momentum buying, as indicated by strong market breadth in the past few days. The BSE Small-Cap index surged 853.23 points or 7.52% to 12,195.50 in the week. The BSE Mid-Cap index rose 449.98 points or 4.99% to 9,471.94 in the week. Both these indices outperformed the Sensex.

Reemergence of political concern arising from the Indo-US nuclear deal may impact the market. Prime Minister Manmohan Singh brushed aside on Tuesday, 11 December 2007, a new threat from his communist allies to force early elections over a controversial nuclear deal with the United States.

Off late, global markets have come under selling pressure on concerns that credit market crisis may intensify further. Any majot sell-off there may cast its shadow here as well.

The Index of Industrial Production (IIP) jumped 11.8% in October 2007 from 4.5% in October 2006. IIP stood at 9.7% in April-October 2007 compared with 10.1% in April-October 2006. Industrial output data for September 2007 was revised upwards to 6.8% from 6.4%. The government released the IIP data early afternoon today, 12 December 2007.

Meanwhile, the Government of India has reportedly allowed the Postal Life Insurance Fund (POLIF) and Rural Postal Life Insurance Fund (RPOLIF) to enter the stock markets through investments in public sector mutual funds. The Union Cabinet on Thursday, 13 December 2007 appointed UTI MF and SBI MF as managers for the over Rs 10,000-crore corpus of these two funds.