Progress of monsoon, advance tax figures to dictate trend

The market is likely to move in sync with global markets in the coming week. Markets across the globe suffered severe setback in the past few days triggered by spiraling global commodity prices led by crude oil.

Fears of Reserve Bank of India (RBI) further hiking interest rates to check soaring mutli-year high inflation, which could choke overall growth of the economy, will continue to haunt investors.

Earnings downgrades by brokerages amid rising input and interest costs for India Inc and drying up of global liquidity due to credit crisis remain major concern for the Indian stock market. A further hike in rates would impact bottomline of Indian companies. Also high interest rates may delay expansion plans of corporates, which in turn may impact future earnings growth.

Foreign institutional investors (FIIs) have pressed heavy sales in the backdrop of a weakening rupee against the dollar. In June 2008, FIIs dumped shares worth Rs 6,463.20 crore (till 12 June 2008). FII outflow in calendar year 2008 totaled Rs 21,832.60 crore (till 12 June 2008). On the other hand, mutual funds were net buyers of shares to the tune of Rs 894.89 crore in the month of June 2008, till 11 June 2008

India’s economic growth has slowed down as a result of fall in consumer demand caused by rise in interest rates. Industrial output rose 8.1% in 2007/08 (April-March) compared with 11.6% growth in 2006/07.

The Indian Meteorological Department (IMD)’s second monsoon forecast for the crucial annual south-west monsoon (June-September) due this month which may indicate spatial rainfall distribution in the main sowing month of July 2008, will be keenly watched by market men. The IMD has forecast the 2008 monsoon rains would be near-normal and 99% of the average between 1941 and 1990.

Agricultural output in India depends on good rains. A well distributed monsoon, which will bolster food production, may help rein in inflation.

Market men will also watch corporate advance tax payments for the first installment that falls due on 15 June 2008, which will a give a cue on expected Q1 June 2008 numbers from top Indian corporates. The income tax law requires a company to 15% the estimated tax liability for the year as advance tax in the first installment. The advance tax payment by the corporate sector will give a cue on Q1 June 2008 results.

The BSE Sensex declined 382.56 points or 2.45% to 15,189.62 in the week ended 13 June 2008. The S&P CNX Nifty fell 110.70 points or 2.39% to 4,517.10 in the week.

The Sensex is now down 6,017.15 points or 28.37% from its all-time high of 21,206.77 hit on 10 January 2008.