Market may slip on weak global cues

The market may edge lower on weak cues from global equities. US stocks tumbled on Friday, 29 August 2008, led lower by tech shares after computer maker Dell warned that companies worldwide are cutting back on technology spending. The Dow Jones industrial average lost 171.47 points, or 1.46%, at 11,543.71. The Standard & Poor's 500 Index was down 17.93 points, or 1.38%, at 1,282.75. The Nasdaq Composite Index shed 44.12 points, or 1.83%, at 2,367.52.

Economic data added to the market's jitters ahead of the long Labor Day weekend. US market remains closed on Monday, 1 September 2008, for Labor Day holiday.

The Indian stock market surged on Friday, 29 August 2008, as data showing a slower-than-expected GDP growth in Q1 June 2008 and softening of inflation raised hopes for a pause in monetary tightening by the central bank. The BSE Sensex jumped 516.19 points.

India's gross domestic product (GDP) grew 7.9% in the June 2008 quarter from a year earlier, easing from the previous quarter's 8.8% rise as industrial activity slowed due to monetary tightening. The GDP growth in the first quarter of the current fiscal year was lower than market expectations of a rise of a little above 8%

According to a recent report by Goldman Sachs, the outcome of the southwest monsoon is key as 60% of India’s labour force is engaged in the agricultural sector and it has big knock-on effect on industry and services. The monsoon rains between 1 June 2008 to 24 August 2008 were near normal at 1% below the long-term average.

Annual wholesale price inflation rose 12.40% in 12 months to 16 August 2008, below the previous week's 12.63% but remained stuck at 13-year highs, data released by the government after trading hours on Thursday, 28 August 2008 showed. No conclusion can be drawn from one week's inflation number, Finance Minister P Chidambaram said. Inflation has nearly tripled from 4.39% a year ago and now is riding around the highest levels since the current inflation series began being compiled 13 years ago. It remains far above central bank’s target of 7%

Reserve Bank of India (RBI) after trading hours on Friday, 29 August 2008, said the inflation rates have hardened beyond tolerable levels and the monetary policy will continue to address aggregate demand pressures, which appear to be strongly in evidence. The central bank also said it had to ensure that the effectiveness of monetary policy was not diluted by fiscal expansion.

There were several risks to growth prospects of the economy in the short term, stemming from both global and local factors, the central bank said in its review of the year ended 30 June, 2008.

Concerns about populist measures by the government and their adverse impact on fiscal deficit will continue to haunt the bourses in the coming months ahead of the parliamentary elections which must be held by May 2009. Recently, the government approved an average 21% pay rise for central government employees and military personnel, the first revision of government salary scales in 12 years.

Meanwhile, equity mutual funds are sitting on large cash pile and deployment of cash by them may lend support to the stock market at declines. Equity funds are having 11% of assets in cash.

As per provisional data released by the stock exchanges, foreign funds on Friday, 29 August 2008, sold shares worth a net Rs 364.61 crore. Domestic funds bought shares worth a net Rs 281.07 crore.

Foreign institutional investors (FIIs) were net buyers of Rs 1,586 crore in the futures & options segment on Friday, 29 August 2008. According to the data released by the National Stock Exchange, FIIs were net buyers of index futures to the tune of Rs 1,015.19 crore and bought index options worth Rs 907.43 crore. They were net sellers of stock futures to the tune of Rs 447.61 crore and bought stock options worth Rs 110.53 crore.

In the next few days, the market will also closely watch developments on the Indo-US nuclear deal. A crucial two-day meeting of the Nuclear Suppliers Group (NSG) begins in Vienna on Thursday, 4 September 2008. India on Friday, 29 August 2008, made it clear that it will only accept a clean waiver without any conditions from the cartel that controls global export of nuclear fuel and know-how.

All 45 members of NSG must approve the nuclear accord, which the US Congress must also pass for the deal to come through. The last meeting of the NSG, held in Vienna on 20 August 2008-21 August 2008 ended on an inconclusive note with some countries in the NSG raising objections about some aspects of the India-US civil nuclear deal that they suspect can adversely affect global non-proliferation regime.