Market may remain volatile

Continued uncertainty as to how bad the credit crisis will become and how long it will last, will ensure that the domestic bourses remain volatile next week. The resurgence of tension between the Congress Party and the Left parties over the Indo-US nuclear deal might lead to fears of mid-term election, resulting in political uncertainty. The stock market will remain closed on Thursday (20 March 2008) on account of Id-E-Milad and on Friday (21 March 2008) on account of Good Friday.

The US Federal Reserve is expected to lower the Fed rate by 75 basis points in its meeting on 18 March 2008. This act could provide a trigger to global markets. If US fed actually cuts rate further it would widen the spread between the US and India's main short-term lending of 7.75%, and could encourage flows to higher-yielding Indian assets. But the Reserve Bank of India (RBI) is unlikely to follow suit and lower domestic rates, which have been held steady for nearly a year, as the rising inflation still remains a concern.

The United Progressive Alliance (UPA)-Left committee on the Indo-US nuclear deal will meet on 17 March 2008 in the face of an ultimatum by the Government's Communist allies to make its stand clear on the controversial agreement. The Government is likely to present the draft of the India-specific Safeguards Agreement reached with the International Atomic Energy Agency (IAEA) at the meeting, which comes at a time when there is a further strain in UPA-Left ties.

Apart from US economy some other global factors that need to be watched are the Japanese Yen. The continued flow of negative news from the US has caused Japanese yen to appreciate against the dollar. Yen is an important source of liquidity globally.

Corporate tax payments ahead of fourth quarter 2008 results will provide some stimulus to the market.

The 30-share BSE Sensex lost 215 point or 1.35% to 15,760.52 in the week. The broader CNX S&P Nifty shed 25.8 points or 0.54% to 4745.80.

The BSE Mid-Cap lost 220.94 points or 3.25% to 6,583.45 and the BSE Small-Cap index slipped 329.68 points or 3.92% to 8,079.50.

Inflation based on the wholesale price index (WPI) rose 5.11% in the 12 months to 1 March 2008, higher than the previous week's rise of 5.02%, government data showed on Friday, 14 March 2008. The rate was the highest since 26 May 2007.