Market may extend losses on weak global cues

Market is likely to extend Friday’s steep losses as share markets in the United States and Asia continued to slide amid worries over a possible US recession. In Asia, key benchmark indices in Hong Kong, China, Japan, South Korea and Taiwan were down by between 0.3% to 3.5%.

US stocks tumbled for a fourth day on Friday, 18 January 2008, to close out the worst week for the S&P 500 in five years on worry that a White House effort to boost the economy may not prevent a recession. Financial firms absorbed the brunt of the selling, again, on worries over spreading subprime mortgage fallout, and were joined in the rout by telecommunications companies after Sprint Nextel announced big subscriber losses and thousands of layoffs.

The Dow Jones industrial average lost 59.91 points, or 0.49%, at 12,099.30, its lowest close in 10 months. The Standard & Poor's 500 Index was down 8.06 points, or 0.6%, at 1,325.19, a 16-month low. The Nasdaq Composite Index lost 6.88 points, or 0.29%, at 2,340.02, a 10-month low.

Bush called for a package of tax cuts and other measures totaling around 1% of US gross domestic product, or up to $150 billion, after weak recent reports on employment, retail sales, factory activity, and housing construction this month suggested the United States -- the world's largest economy --may be heading into recession. Under consideration in the package announced by Bush are ideas like tax rebates, incentives for businesses, and extensions of unemployment insurance.

Huge writedown by Citigroup and Merrill Lynch on its portfolio of investments in high-risk sub-prime mortgages and weak US economic data spooked US market last week.

FIIs have pressed heavy sales in the recent trading sessions. As per provisional data, FIIs sold shares worth a net Rs 2146.92 crore on Friday. FIIs pulled out a net Rs 4465.60 crore in two trading sessions from 16 January 2008 and 17 January 2008.

FIIs sold index futures worth Rs 2455 crore on Friday. They sold index options worth a net Rs 138.42 crore. FIIs sold individual stock futures worth Rs 373.76 crore on that day.

Domestic funds bought shares worth a net Rs 695.56 crore on Friday, as per provisional data,

The recent sharp fall on the domestic bourses may trigger margin calls. This, in turn, may accelerate the decline. A margin call is triggered when shares that an investor had bought with borrowed money decrease in value. If the investor is not able to put up additional margin, the broker/financer will resort to sale of shares.

Sensex plunged 687.12 points or 3.49% to 19,013.70 on Friday, 18 January 2008, led by fall in index heavyweight Reliance Industries. The barometer index lost 1,813.75 points or 8.71% to 19,013.70 in the week ended Friday, 18 January 2008.

On the flip side, collections from new funds offers (NFOs) of mutual funds may provide support to the market at declines as the funds deploy the money in the market. A total of 10 new funds offer are currently on which include Reliance Natural Resources Fund, AIG Infrastructure & Economic Reforms Fund, HDFC Infrastructure Fund, ICICI Prudential Fusion Fund – Series III, among others.