Market may take cue from global equities, oil price

With the Q1 June 2008 earnings season over, there is lack of any major near term trigger for the domestic bourses. The market will now closely watch movement in crude oil prices and global stock markets. A further slide in oil price may boost investor confidence in the short term. On Thursday, 31 July 2008, the front-month US crude oil contract settled at $124.08, down $2.69 for the day and off sharply from a record above $147 a barrel on 11 July 2008.

The highly volatile July 2008 series of derivative contracts expired on Thursday, 31 July 2008 with poor rollovers. As per reports, Nifty rollover of positions from July 2008 series to August 2008 series stood at 65.05% as compared to 70.07% in the previous series. Even in single stock futures, rollovers were relatively muted at 79.19% compared to 82.05% in the previous series.

Marketmen will be keenly watching the International Atomic Energy Agency (IAEA) meet, scheduled on Friday, 1 August 2008 to consider the India-specific safeguards agreement, which will be a key step for the operationalisation of the Indo-United States nuclear deal. If the deal moves ahead, it could boosts power and capital goods sector stocks.

Stubbornly high inflation still remains a concern. The wholesale price index rose 11.98% in the 12 months to 19 July 2008, above the previous week's reading of 11.89%. The Reserve Bank of India (RBI) hiked repo rate by 50 basis points (bsp) and cash reserve ratio (CRR) by 25 bps at its quarterly policy review on Tuesday, 29 July 2008. Repo rate has now reached 9%, a level last seen in October 2000. CRR is also at 9%, for the first time since November 1999.

In the near term, the market trend is likely to dictated by the progress of the monsoon. India's annual monsoon rains from 17 to 23 July were 33% below the long-term average, the Indian Meteorological Department. Rainfall since 1 June 2008 has been 2% below the same average.

Stocks of the public sector units will continue to remain in focus as there are expectations that the government may push forward some economic reforms, which were stalled over the past four years due to opposition from Left parties. Left parities had stalled privatisation of state-run firms, pension reforms, higher foreign limits in insurance and more liberal norms for foreign bank.

Some analysts, however, feel that a major big-bang push to reforms is unlikely as the government will focus primarily on bringing down inflation ahead of key state polls and parliamentary elections, which are due in May 2009.

Foreign institutional investors (FIIs) sold shares worth Rs 1836.80 crore in the month of July 2008. FIIs sold shares worth Rs 26705.10 crore in the calendar year 2008. Mutual funds have bought shares worth Rs 1223.50 crore in the month of July 2008, till 30 July 2008.