Market may take a breather after solid rebound

The market may move in a narrow range today as investors may stay on the sidelines ahead of a key event viz. the outcome of the policy meeting of the US Federal Reserve, later in the day. The market expects the Fed to cut interest rates by 25 basis points to 2% and then signal that its rate-cutting cycle may be over for now in the face of mounting global energy and food inflation pressure. Indian stock market remains closed tomorrow, 1 May 2008, on account of Maharashtra Day.

Inflation remains the biggest concern for the Indian stock market. The measures taken by the Union government to control inflation have also added to uncertainty on corporate profit. Finance Minister P Chidambaram yesterday, 29 April 2008, said government will impose export tax on basmati rice and some steel products, and cut import duties on key inputs like ferro alloys and metallurgical coke. He said the measures were being taken to improve domestic supplies and to moderate prices. The government has already banned export of cement and non-basmati rice.

Given that parliamentary elections are scheduled next year (in May 2009), the government may leave no stone unturned in its attempt to rein in inflation. This is bad news for commodity scrips like cement, steel etc.

In a bid to rein in inflation, the Reserve Bank of India, on Tuesday, 29 April 2008, raised cash reserve ratio (CRR) by 25 basis points to 8.25%, to suck out excess liquidity in the banking system, in its annual monetary policy review. The policy stance of the central bank continues to be hawkish. The market shrugged off further monetary tightening by RBI as Sensex rose 362.50 points or 2.13% on Tuesday to settled at 17,378.46. The market took solace in the central bank keeping the key interest rates – repo rate, reverse repo rate and bank rate, unchanged. The RBI governor Y V Reddy expects inflation to moderate in the next 2-3 months.

Sensex is currently near a two-month high, having risen 2568.97 points or 17.34% from a low of 14809.49 on 17 March 2008. Good Q4 results March 2008 results and firm global markets, triggered a solid rebound in the Indian market over the past few days. Buying by domestic institutions has supported the market.

The structural growth drivers of the Indian economy remain intact – India’s economy is expected to witness a decent-to-strong growth for a long period of time due to favourable demographics. Rating agency CRISIL in its latest outlook for Indian economy for the year through March 2009 has stated that the overall growth scenario is expected to remain strong with investment as the main driver.

Another pointer to the fact that the long term India growth story remains intact is the outcome of the latest 2008 US-India Business Council (USIBC) survey, according to which, India is, and will continue to be, a premier destination for investment by US firms, with a large number of respondents rating future economic growth in India as highly sustainable

As per provisional data, foreign institutional investors (FIIs) bought shares worth a net Rs 232.18 crore on Tuesday, 29 April 2008. Domestic funds bought shares worth a net Rs 403.27 crore.

FIIs were net buyers of Rs 802.65 crore in the futures & options segment on Tuesday. According to data released by the NSE, FIIs were net buyers of index futures to the tune of Rs 548.61 crore and bought index options worth Rs 496.73 crore. They were net sellers of stock futures to the tune of Rs 228.72 crore and sold stock options worth Rs 13.97 crore.

On Wall Street, stocks ended little changed on Tuesday, 29 April 2008, as setbacks for two drugs weighed down the pharmaceutical sector, offsetting the relief from a retreat in record high crude oil prices.

Asian markets were mostly in the green today. Key benchmark indices in China, Japan, South Korea, Singapore and Taiwan were up by between 0.2% to 3.8%.