Market to extend gains; inflation data eyed

The market which has witnessed a solid surge over the past few days is set to extend the rally on positive cues from global equities and with latest batch of corporate results coming in strong. Data showing top auto firms reporting strong sales in April 2008 may also lift sentiment. On Wednesday, 30 April 2008, Reliance Communications and HDFC reported strong Q4 March 2008 results. The results were announced during trading hours on that day.

US stocks rose on Thursday, 1 May 2008, as a rebound in the dollar and retreating oil prices calmed fears about inflation, renewing investors' appetite for riskier assets, including undervalued technology shares. The Dow Jones industrial average shot up 189.87 points, or 1.48 percent, to 13,010.00. The Standard & Poor's 500 Index surged 23.75 points, or 1.71 percent, to 1,409.34. The Nasdaq Composite Index climbed 67.91 points, or 2.81 percent, to 2,480.71.

All these three major indexes closed at the highest level since the first half of January 2008 as equities extended a rally started in mid-March 2008 on optimism that credit markets and the economy have begun to stabilize.

In Asia, key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were up by between 0.4% to 2.3%.

Earlier, the US Federal Reserve on Wednesday, 30 April 2008, cut Fed Funds rate by 25 basis points to 2% and hinted at a pause in its recent campaign to lower borrowing costs.

Back home, data on inflation for the year through 19 April 2008 will be released by the Indian government at 12:00 IST. 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 on Tuesday, 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. While the central bank has mentioned price stability as its key priority, the overall undertone of the policy is not as hawkish as market had feared. That in turn boosted the bourses with Sensex jumping 362.50 points or 2.13% on that day to settle at 17,378.46. The RBI governor Y V Reddy expects inflation to moderate in the next 2-3 months.

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.