Market may extend gains

The market may extend Wednesday (2 April 2008)’s gains as Asian markets shrugged off overnight slide in US stocks. However, upside may be capped due to concerns of possible monetary tightening by the Reserve Bank of India and due to caution ahead of Q4 March 2008 results.

Prospects of further monetary tightening by the Reserve Bank of India (RBI) following a surge in inflation is a cause for concern at a time when the already high rates are pinching the domestic industry. The surge in inflation has triggered fears that RBI my raise cash reserve ratio (CRR). An increase in CRR would suck out liquidity immediately pushing up the cost of funds and thereby curbing demand.

The next major trigger for the market is Q4 March 2008 results of India Inc. As per market talks IT bellwether Infosys may issue muted guidance for the year ending March 2009 in the backdrop of a slowdown in the US economy. Infosys unveils Q4 results on 15 April 2008.

The market sentiment remains edgy as Indian companies are sitting on potential losses on account of the forex derivative transactions they undertook last year. A steep decline in the value of the US dollar against the Japanese Yen and the Swiss Franc has hit Indian corporates which have used these two currencies (Yen and Franc) extensively to swap their rupee denominated debt.

In Asia, the key benchmark indices in Hong Kong, Japan, South Korea, Singapore and China were up by between 0.55% to 0.8%.

US stocks declined on Wednesday after Federal Reserve Chairman Ben Bernanke said a recession was possible, spurring profit-taking a day after the market's biggest rally in two weeks. The Dow Jones industrial average shed 48.53 points, or 0.38%, at 12,605.83. The Standard & Poor's 500 Index lost 2.65 points, or 0.19%, at 1,367.53. The Nasdaq Composite Index was down 1.35 points, or 0.06%, at 2,361.40.

As per provisional data, foreign funds sold shares worth a net Rs 135.65 crore on Wednesday, 2 April 2008. Domestic funds bought shares worth a net Rs 264.37 crore.

Foreign funds were net buyers of Rs 1,773.24 crore in the futures & options segment on Wednesday. According to data released by the NSE, foreign institutional investors (FIIs) were net buyers of index futures to the tune of Rs 1,563.18 crore and bought index options worth Rs 43.98 crore. They were net buyers of stock futures to the tune of Rs 164.07 crore and bought stock options worth Rs 2.01 crore.

BSE Sensex rose 123.78 points or 0.79% at 15,750.40 on Wednesday on positive cues from the global markets.