Market may drift lower on weak global cues

Weak Asian stocks may pull the market lower after last two days’ rebound from an earlier steep fall caused by global recession worries. Cautious outlook by IT firm Wipro at the time of announcing Q2 results today and sustained selling by foreign funds may continue to weigh on the sentiments. But short covering following the stock market regulator Securities & Exchange Board of India’s warnings to foreign funds against overseas lending of shares and signs of a soft credit policy may cap the downside.

At the time of announcement of Q2 September 2008 results just a while back, Wipro said the global economic environment has deteriorated significantly over the past couple of months, and our outlook is cautious in the near term given the extent of strain on the global economy. Wipro’s net profit rose 19% to Rs 978 crore on 36% growth in revenue to Rs 6507 crore in Q2 September 2008 over Q2 September 2007.

Asian stocks fell as poor US corporate results and falling commodity prices fanned worries of a protracted global economic slowdown. Key benchmark indices in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were down by between 0.9% to 3%.

Your Ad Here

Overnight, US stocks fell on an array of disappointing corporate results from companies such as industrial machine maker Caterpillar Inc and the largest publicly traded copper producer Freeport-McMoRan Copper & Gold Inc. The Standard & Poor's 500 index dropped 3.1%.

The market regulator Sebi, on Monday, 20 October 2008, said it has disapproved overseas lending and borrowing activity of foreign funds and the consequent selling pressure in the cash market in India. Sebi said this after data showed FIIs had lent equities worth Rs 348 crore to overseas entities for the purpose of short selling, during 10 October-14 October 2008.

Signs of a soft interest rate regime may support stocks as lower interest rates means lower borrowing costs for corporates. The Reserve Bank of India (RBI), on Monday, 20 October 2008, cut the repo rate, by 100 basis points to 8%, with immediate effect. 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.

Oil fell over $1 to around $71 a barrel on Wednesday, 22 October 2008, extending a 4% slide in the previous session, on mounting worries that output cuts by the oil cartel Organisation of Petroleum Exporting Countries (Opec) will not be enough to offset slackening energy demand in leading consumers.

The Sensex jumped 708.04 points or 7.09% in two trading sessions to 10,683.39 on Tuesday, 21 October 2008, from its close of 9,975.35 on 17 October 2008.