Market to remain volatile ahead of derivatives expiry

Volatility on the bourses may rise next week ahead of the expiry of March 2008 derivative contracts on Thursday, 27 March 2008.

The US Federal Reserve on Tuesday, 18 March 2008 cut its key interest rate by 0.75%. Wall Street expects the Fed to cut interest rates further next month, but any future cuts are likely to be smaller.

Marketmen are keenly awaiting Q4 and full year March 2008 results from Indian corporates. Robust corporate advance tax payments in Q4 March 2008 indicate that corporate profit growth will be strong in the quarter. Advance tax figures showed banks, hospitality and software firms are doing better than sectors like automobiles and cement.

A torrent of bad news such as meltdown in global markets, earnings downgrade recently by brokerages of ICICI Bank and Larsen & Toubro, lower-than-expected industrial production data for January 2008 and a surge in inflation created havoc on the bourses recently. Hike in short-term capital gains tax and alteration of tax treatment of the Securities Transaction Tax (STT) in Union Budget 2008-09 announced on 29 February 2008 had dented the sentiment earlier.

Market suffered losses for third straight week ended Wednesday, 19 March 2008 as selling pressure continued for pivotals on one side following global sell-off and budget blues and lack of buying on the other. The BSE Sensex lost 765.69 points or 4.85% to 14,994.83 for the week ended Wednesday, 19 March 2008. The S&P CNX Nifty slipped 171.85 points or 3.62% in the week.

The BSE Mid-Cap index lost 619.35 points or 9.40% to 5,964.10 for the week ended Wednesday, 19 March 2008. The BSE Small-Cap index slumped 857.30 points or 10.61% to 7,222.20 in the week.

The BSE Sensex has now lost 6,211.94 points or 29.29% from its all time high of 21,206.77 hit on 10 January 2008.

At current 14,994.83, Sensex trades at a PE multiple of 14.28 to 14.99, based on projected FY 2009 EPS of Rs 1000-to-Rs 1050 for 30 Sensex companies.

Inflation has risen above the Reserve Bank of India’s caution limit of 5%. Annual inflation rate based on the wholesale price index increased to 5.11% for the week ended 1 March 2008. Inflation rate stood at 6.51% for the corresponding week in the previous year.