Global cues firm, inflation data eyed

Local equities may open firm today, extending yesterday’s gains tracking positive global cues. However caution may prevail at higher levels ahead of the release of inflation figures for the week ended 24 May 2008, by noon today. Inflation had surged to a 4 year high at 8.10% in the previous week. Also the revisions of provisional data for earlier week will be watch closely.

Analysts opine that higher inflationary expectations immediately gave rise to fears of a cash reserve ratio (CRR) or interest rate hike, which is a negative for markets. Reserve Bank of India governor YV Reddy yesterday, 5 June 2008 hinted at a possible increase in CRR in an attempt to curb inflationary expectations, which is likely to weigh on sentiment.

Worries of double-digit inflation, at 13-year high, after the fuel price hike announced on 4 June 2008, is still haunting minds of investors.

In coming weeks, markemen would be eyeing two things. One would be progress of monsoon and second would be the advance tax figures.

Most Asian markets were trading higher today, 6 June 2008. Japan's Nikkei gained 1.55% at 14,563.14, Hang Seng rose 1.06% at 24,511.24, Taiwan's Taiwan Weighted rose 0.63% at 8,793.60, Singapore's Straits Times advanced 0.88% at 3,171.41. However, China's Shanghai Composite declined 0.59% at 3,331.71.

US markets rallied yesterday, 5 June 2008 on stronger-than-expected May 2008 sales by Wal-Mart and other retailers and a surprising fall in weekly jobless claims, spurring optimism about the economy's health. The Dow Jones industrial average gained 213.97 points, or 1.73%, to 12,604.45. The S&P 500 index advanced 26.85 points, or 1.95%, to 1,404.05, and the Nasdaq Composite index surged 46.80 points, or 1.87%, to 2,549.94

Back home, frenzied buying coupled with short covering after three straight day's of fall triggered a solid rally yesterday, 5 June 2008. The 30-share BSE Sensex jumped 254.93 points or 1.64% at 15,769.72 and the broader based S&P CNX Nifty was up 91.35 points or 1.99% to 4,676.95, on that day.

As per provisional data, foreign funds sold shares worth a net Rs 1418.34 crore yesterday, 5 June 2008. Domestic funds bought shares worth a net Rs 570.03 crore on that day.

Foreign institutional investors (FIIs) were net buyers of Rs 1054.43 crore in the futures & options segment yesterday, 5 June 2008. They were net buyers of index futures to the tune of Rs 1035.25 crore and bought index options worth Rs 405.81 crore. They were net sellers of stock futures to the tune of Rs 402.85 crore and bought stock options worth Rs 16.22 crore.

Meanwhile, market regulator Securities and Exchange Board of India (Sebi) yesterday, 5 June 2008, ruled out relaxing curbs imposed last year on participatory notes (PNs), a derivative tool that enables unregistered foreign investors to invest in Indian stock markets. In October 2007, Sebi had imposed restrictions on Foreign Institutional Investors (FIIs) to issue PNs and asked FIIs and their sub-accounts not to issue fresh PNs against underlying derivatives and wind up their existing position in 18 months.

The European Central Bank said yesteday, 5 June 2008, it would keep key lending rates unchanged at 4%. The bank, however, anticipates inflation to be more persistent than previously anticipated. Also the Bank of England kept its benchmark interest rate unchanged at 5% yesterday, 5 June 2008.