Political concerns, weak global equities may weigh on domestic bourses

The market on Monday, 8 September 2008, will react to the outcome of the two-day meeting of the Nuclear Suppliers Group (NSG) in Vienna on the Indo-US nuclear deal. The two-day NSG meet ends on Friday, 5 September 2008. The market will also react to a crucial US job data due on Friday, 5 September 2008, after Indian markets closed. A sharp slide in global crude oil prices and reports of a satisfactory distribution of monsoon bodes well for equities. But a latest controversy on the Indo-US nuclear deal may cause political worries which may weigh on the bourses in the near term.

A softening of inflation for a second consecutive week has raised hopes that we may in the last lap of the interest rate hike cycle. Annual inflation rose 12.34% in the year through 23 August 2008, lower than previous week’s 12.40% rise, data released by the government after trading hours on Thursday, 4 September 2008 showed. Food prices for staples like lentils and vegetables eased while fuel prices remained flat, the data showed.

Inflation, however, remains far above central bank’s target level of 7% towards the year ending March 2009. According to domestic brokerage Edelweiss Securities it is too early to call a softening in inflation this month as a trend because manufactured products inflation is still on the rise.

The sharp fall in oil prices from a record high of $147.27 a barrel struck on 11 July 2008 augurs well for the global economy. Oil settled at $107.89 a barrel on Thursday, 4 September 2008, the lowest level in five months. The sharp fall in oil prices will help reduce inflation worries.

A key near term trigger for oil price is a meeting of the Organization of Petroleum Exporting Countries (Opec) in Vienna on Tuesday, 9 September 2008. The cartel will decide whether to cut production at today’s elevated levels or leave it unchanged. Opec’s 13 members account for about 40% of the world’s oil production

However, political worries may weigh on the domestic bourses with a latest controversy sparked by the disclosure of correspondence between the Bush administration and US Congress that the Indo-US nuclear pact would be off if India conducted a nuclear test. The opposition BJP on Thursday, 4 September 2008, accused Prime Minister Manmohan Singh of misleading Parliament and the country on the nuclear deal issue and demanded the resignation of the Manmohan Singh government.

Senior BJP leader Yashwant Sinha said, in view of the gross breach of privilege of both the Houses of Parliament an immediate session of Parliament should be convened within the shortest possible time to enable BJP to move a privilege motion against the Prime Minister if the UPA did not quit.

The 45-members nuclear suppliers group (NSG) is currently debating on whether to allow a waiver to India for nuclear commerce, a decision that can take the Indo-US nuclear deal forward.

Weak global markets may continue to weigh on domestic bourses. Stocks across the globe fell sharply, last week, on global economic growth worries. In Europe, investors fretted over European Central Bank projections that showed an increase in inflation forecasts and a cut in growth expectations compared with their last prognosis three months ago.

Wall Street suffered its worst decline in more than two months on Thursday, 4 September 2008, hurt by more signs of weakness in the labour market and the growth fears. Global stocks will react to the influential US non-farm payroll data due on Friday, 5 September 2008, for August 2008, which is expected to show the eighth consecutive decline, with 75,000 jobs lost in the month. Asian shares were sharply lower on Friday, 5 September 2008.

Back home, the delay in the withdrawal of the monsoon is expected to benefit crops in the current kharif as well as in the ensuing rabi season. The region-wise distribution of rains, was satisfactory for agriculture, till August 2008 end, reports suggest.

Equity mutual funds are sitting on large cash pile and the market may find support once mutual funds start deploying the idle cash.