Market may extend gains

The market may extend gains amid steady-to-firm Asian markets. Market men expect stepping up of buying by foreign institutional investors (FIIs). 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.

FIIs bought shares worth a net Rs 508.80 crore on Friday, 4 January 2008. But as per provisional data, FIIs sold shares worth a net Rs 1543.44 crore on Monday, 7 January 2008. Domestic funds bought shares worth a net Rs 327.64 crore on that day.

FIIs were net sellers to the tune of Rs 728.98 crore in the futures & options segment on Monday. According to data released by the NSE, FIIs were net buyers of index futures to the tune of Rs 716.51 crore and bought index options worth Rs 348.08 crore. They were net sellers of stock futures to the tune of Rs 1,762.35 crore and sold stock options worth Rs 31.22 crore.

The market has hit a record high at the onset of the New Year on expectations of FII inflows and also on expectations of good Q3 December 2007 results. Stock-specific activity may rule the roost in the near term based on expectations of results of individual firms. Earnings surprises hold the key for the market in the near term.

The 30-share BSE Sensex rose 125.76 points or 0.61% to 20,812.65, a record closing high, on Monday, 7 January 2008. Gains in index heavyweights Reliance Industries and ICICI Bank led the upmove.

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.

Meanwhile, Reliance Power, a 50% subsidiary of Reliance Energy (REL) will raise over Rs 11000 crore from India's biggest ever IPO scheduled to open for subscription next week.

Asian markets edged higher on Tuesday, 8 January 2008, recovering from Monday (7 January 2008)’s fall caused by fears that the US economy may be headed into a recession. Key benchmark indices in Hong Kong, China, Japan, South Korea, Singapore and Taiwan were up by between 0.18% to 1.5%.

The Dow industrials and the S&P 500 rose on Monday, 7 January 2008, led by health-care and consumer staple shares, as investors snapped up stock in companies seen able to withstand any economic slowdown following dismal employment data last Friday. But the Nasdaq finished lower, as technology shares with global exposure fell on concerns a US slowdown could damage the global economy. The Dow Jones industrial average ended up 27.31 points, or 0.21%, at 12,827.49. The Standard & Poor's 500 Index added 4.55 points, or 0.32%, at 1,416.18. The Nasdaq Composite Index fell 5.19 points, or 0.21%, to close at 2,499.46.

Recent economic data has raised concerns that the US economy may be headed towards a recession. A US recession may not impact India’s economic growth in a big way given that domestic demand is a key driver of the Indian economy. India's economy is expected to post strong growth for a long period due to favourable demographics. Economists also reckon that a healthy investment cycle will continue to support growth through a self-perpetuating cycle of income creation, savings and investment.

Though the Indian economy may be relatively insulated from the US recession, any risk aversion globally causing setback in global markets, may cast its shadow on the Indian bourses.