Market to drift lower

The market may edge lower tracking overnight fall in US stocks. US stocks tumbled on Tuesday, 8 January 2008, after a warning by phone company AT&T of soft consumer spending sparked a new round of recession fears. In addition, Countrywide Financial shares plummeted on growing alarm about the No. 1 mortgage lender's financial health, dragging down shares in the financial sector.

The Dow Jones industrial average plunged 238.42 points, or 1.86%, at 12,589.07. The Standard & Poor's 500 Index lost 25.99 points, or 1.84%, at 1,390.19. The Nasdaq Composite Index shed 58.95 points, or 2.36%, at 2,440.51.

Asian markets were mostly lower today, 9 January 2008. Key benchmark indices in Hong Kong, Japan, Singapore and South Korea were down by between 0.5% to 0.9%. Key benchmark indices in China and Taiwan were up by between 0.16% to 0.54%.

Crude oil futures settled $1.31 higher at $96.40 a barrel on Tuesday, 8 January 2008.

The 30-share BSE Sensex rose 60.68 points or 0.29% to 20,873.33, a record closing high, on Tuesday, 8 January 2008. However, small-cap and mid-cap stocks which had surged sharply over the past few weeks tumbled. The BSE Small-Cap index lost 3.28% to 13,516.13. The BSE Mid-Cap index lost 2.82% to 9,817.07.

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.

As per provisional data, FIIs bought shares worth a net Rs 570.65 crore on Tuesday, 8 January 2008. Domestic funds bought shares worth Rs 92.08 crore on that day.

FIIs were net sellers to the tune of Rs 147.92 crore in the futures & options segment on Tuesday. According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 629.39 crore and bought index options worth Rs 259.54 crore. They were net buyers of stock futures to the tune of Rs 232.42 crore and sold stock options worth Rs 10.49 crore.

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.

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.

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.