Market may extend losses

The market may edge lower as US stock indexes dropped for a third straight session on Wednesday, 6 February 2008, after US Federal Reserve officials cast doubt on the outlook for more interest rate cuts, driving the Nasdaq into bear market territory. Most of the Asian markets are closed today and tomorrow for the Lunar New Year holiday.

Sensex had plunged 523.67 points or 2.81% at 18,139.49 on Wednesday as Asian markets tumbled after another recessionary piece of US economic data sent Wall Street shares down nearly 3% on Tuesday, 5 February 2008. Wednesday’s sharp fall on the bourses was despite a boost in liquidity in the secondary markets as investors have started getting refund of excess application money in Reliance Power IPO. It, however, remains to be seen how much money from Reliance Power IPO refunds actually comes to the secondary market in the light of immense volatility witnessed on the bourses last month.

Reliance Power, which raised a record $3 billion in its initial share sale in January 2008, said on Friday, 1 February 2008, it had begun refunding excess application money to investors. The initial public offer had received bids for $190 billion.

It also remains to be seen if the strong domestic liquidity will offset selling by FIIs. FIIs sold shares worth a huge Rs 13035.70 crore last month amid ongoing credit crisis in the US and in the backdrop of US recession fears looming large.

As per provisional data, FIIs sold shares worth a net Rs 485.94 crore on Wednesday, 6 February 2008. Local funds bought shares worth a net Rs 357.32 crore on that day.

FIIs were net sellers to the tune of Rs 2,086 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 1,728.59 crore and bought index options worth Rs 75.18 crore. They were net sellers of stock futures to the tune of Rs 428.65 crore and sold stock options worth Rs 3.50 crore.

In US on Wednesday, the Dow Jones industrial average lost 65.03 points, or 0.53%, at 12,200.10. The Standard & Poor's 500 Index lost 10.19 points, or 0.76%, at 1,326.45. The Nasdaq Composite Index shed 30.82 points, or 1.3%, at 2,278.75.

The Nasdaq's woes worsened after the bell, with network equipment maker Cisco Systems dropping more than 7% after the tech bellwether forecast disappointing third-quarter revenue growth, citing economic concerns. That news spurred an after-hours sell-off in other big technology companies, including Apple and Intel and drove stock index futures lower.

Japan’s Nikkei 225 average was down 0.19%. Markets in China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea and Taiwan are closed today, 7 February 2008 and tomorrow, 8 February 2008, for the Lunar New Year holiday.

Even if the US goes into the recession, it 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. Moreover a healthy investment cycle will continue to support India’s growth through a self-perpetuating cycle of income creation, savings and investment. The government will today unveil its forecast on GDP growth in the current fiscal year. The announcement is expected at about 11:00 IST.

Corporate earnings growth remains decent. Deutsche Bank expects 20% compounded annual growth rate in earnings of 30-Sensex firms during the period from FY 2007 (year ended 31 March 2007) to FY 2009 (year ending 31 March 2009).