Market may drift lower on weak Asian stocks

The market may edge lower at the opening bell on continued slide in Asian stocks caused by global recession worries which had caused a sharp slide on the domestic bourses in the past few days. Volatility may continue due to uncertainty on the final order with regard to short sales. RBI’s monetary policy announcement due at 12:00 IST will be in focus. Reliance Industries (RIL) may recover on better-than-expected Q2 September 2008 results unveiled after trading hours on Thursday, 23 October 2008.

The market sentiment remains edgy due to sustained selling by foreign funds. FIIs have pulled out Rs 48527.90 crore from Indian stocks in 2008, so far. The Indian rupee opened trade at a record low of 50.15 per dollar today, weighed down by heavy losses in Asian stocks which raised worries of more outflows from the local share market.

Japanese and South Korean stocks, which were down by 7% and 7.8% respectively, led fall in Asian stocks, as the global economic slowdown slashed earnings prospects for an array of companies, forcing investors to look to safer government bonds. Key benchmark indices in Hong Kong, China, Singapore and Taiwan were down by 0.5% to 4.3%.

The slide in Asian stocks was despite recovery in US stocks overnight which was led by a bounce in energy and health-care stocks on rebound in oil from a 16-month trough and reassuring earnings from top pharmaceutical companies. The Dow Jones industrial average rose 172.04 points, or 2.02%, to 8,691.25, while the Standard & Poor's 500 Index gained 11.33 points, or 1.26%, to 908.11. The Nasdaq Composite Index, however, was down 11.84 points, or 0.73%, at 1,603.91.

After trading hours on a finance ministry official that only those transactions of foreign funds in which shares were lent after 20 October 2008 will have to be reversed. Finance minister P Chidambaram’s comments during trading hours that the Securities & Exchange Board of India (Sebi) has asked foreign institutional investors (FIIs) to reverse short positions on borrowed shares had triggered strong intraday rebound on the bourses on Thursday, 23 October 2008.

Early this week, Sebi had disapproved overseas lending of shares by foreign funds after data showed that FIIs had lent equities worth Rs 348 crore to overseas entities for the purpose of short selling, during 10 October-14 October 2008. The data had later showed that their FIIs had lent equities worth Rs 1000 crore between 10 October-17 October 2008.

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The central RBI may announce more measures to boost liquidity though a further cut in rates after a steep 100 basis points in repo rate cut early this week, appears unlikely. The repo rate is the rate at which the RBI provides funds to banks against the collateral of government bonds for a day to three days.

Light, sweet crude rose $1.09 to settle at $67.84 on the New York Mercantile Exchange on Thursday, 23 October 2008. The contract had tumbled to a 16-month low on Wednesday, 22 October 2008, as an increase in US crude and gasoline stocks fed beliefs that weakness in the economy is eroding demand for energy.