FII activity holds key

The key trigger for the domestic market in the near term is earnings surprises. Some of the top brokerages expect slowdown in earnings growth of 30-Sensex firms in Q3 December 2007.

Interestingly, the market has been hitting record highs almost everyday notwithstanding an expected slowdown in earnings growth. Expectation of pick up in FII inflow is perhaps keeping the market firm.

With the beginning of the new calendar year, FIIs are expected to make fresh fund allocations. FIIs pumped in Rs 71486.50 crore or $17.23 billion in Indian equities in calendar year 2007.

As per provisional data, FIIs sold shares worth a net Rs 392 crore on Wednesday, 9 January 2008. Domestic funds bought shares worth a net Rs 85.51 crore on that day.

FIIs were net sellers to the tune of Rs 889.98 crore in the futures & options segment on Wednesday. According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 533.28 crore and bought index options worth Rs 195.28 crore. They were net sellers of stock futures to the tune of Rs 556.03 crore and bought stock options worth Rs 4.05 crore.

Even as Sensex has been hitting record highs, small-cap and mid-cap shares have witnessed profit taking in the last two days as investors are staying in cash to subscribe to the mega IPO of Reliance Power which opens for subscription next week.

Stock-specific activity may rule the roost in the near term based on expectations of results of individual firms. Telecom sector is expected to continue to post strong earnings growth in Q3 December 2007 on the back of rising new subscriber additions whereas healthy order book will ensure that capital goods firms such as Larsen & Toubro and Bharat Heavy Electricals will turn out good performance for yet another quarter.

Media sector, too, is expected to post decent to strong growth on the back of higher advertisement rates. On the other hand, the IT sector is likely to be hit by the appreciation of the rupee against the dollar.

Steel sector is expected to show strong growth on the back of volume growth and higher price realizations. The performance of the auto sector is expected to be sluggish due to sluggish sales and pressure on margins on account of higher input costs. The banking sector is expected see increase in margins due to cut in deposit rates, and higher fee based income. Increase in costs and dismal volume growth is expected to weight on the performance of the cement sector.

IT bellwether Infosys Technologies kickstarts the reporting season on Friday, 11 January 2008.

US stocks rose on Wednesday, 9 January 2008, and the Nasdaq broke an eight-day losing streak, as talk of recession pushed investors into health care and other defensive sectors seen as resistant to a slowdown. The Dow Jones industrial average surged 146.24 points, or 1.16%, at 12,735.31. The Standard & Poor's 500 Index rose 18.94 points, or 1.36%, at 1,409.13. The Nasdaq Composite Index surged 34.04 points, or 1.39%, at 2,474.55.

But key Asian stocks edged lower today, 10 January 2008. Hong Kong’s Hang Seng was down nearly 1% and the Nikkei 225 average in Japan was down 0.87%.