Market may track weak Asian stocks

The market is likely to extend Monday’s (6 October 2008) steep fall on weak Asian stocks. Asian stocks fell today, 6 October 2008, led by shares of exporters, after a hectic weekend in Europe as the financial crisis gathered steam there, knocking the euro to the lowest in a year. Fears that damage from dysfunctional financial systems in developed economies would almost certainly push them closer to recessions, weighed on Asian stocks. Key benchmark indices in Hong Kong, China, Japan, South Korea, Singapore and Taiwan were down by between 3% to 4%.

Germany gave blanket bank deposit guarantee on Sunday, 5 October 2008, to prevent panic as officials clinched deals to rescue Germany's Hypo Real Estate -- after an initial bailout failed -- and recapitalize two other European banks.

US stocks declined in volatile trade on Friday, 3 October 2008, on concerns whether the $700 billion rescue plan, which was approved by the US Congress would be quickly implemented and whether it would be enough to shore up the economy. The Dow Jones Industrial Average slid 157.47 points or 1.5% at 10,325.38. The tech laden Nasdaq Composite index shed 29.33 points or 1.48% at 1,947.39.

Back home, inflation based on the wholesale price index rose 11.99% in 12 months to 20 September 2008, below the previous week's annual rise of 12.14%, government data released after trading hours on Friday, 3 October 2008, showed. Inflation for the week ended 26 July 2008 was revised upwards to 12.53% from 12.01%.

The market regulator Securities & Exchange Board of India (Sebi) is expected to review restrictions on issue of participatory notes (P-Notes) at a board meeting today, 6 October 2008. Reports suggest that Sebi may ease restrictions on P-Notes. However, the Reserve bank of India has always been against allowing investments through P- Notes. P-Notes are derivative instruments issued by foreign institutional investors (FIIs) to other overseas investors seeking to invest in Indian securities, but are not registered with the stock market regulator Securities & Exchange Board of India (Sebi) either out of choice or regulatory issues.

As per provisional data released by the stock exchanges, foreign funds sold shares worth a net Rs 1,662.26 crore on Friday, 3 October 2008. Domestic funds bought shares worth a net Rs 56.75 crore.

Foreign institutional investors (FIIs) have been pulling out their investments from India and other emerging markets to shore up resources to beat the global liquidity crunch. In India, FIIs sold shares worth a net Rs 8278.10 crore last month. The outflow has reached Rs 36991.70 crore in calendar year 2008 (till 1 October 2008).

With the end of third quarter of the calendar year 2008 on Tuesday, 30 September 2008, hedge fund are bracing for heavy redemption amid US financial sector crisis which has already spread to Europe. Investors in hedge funds are usually allowed to exit funds only on the final day of the financial quarter. Large-scale investor redemption in hedge funds may trigger further selling by foreign funds in India. Hedge funds mainly operate through the participatory notes route in India. However, there is no data available on the quantum of hedge funds’ investment in India.

The next major trigger for the market is Q2 September 2008 results. IT bellwether Infosys kickstarts the reporting season on 10 October 2008.

Oil prices fell around $2 to just below $92 a barrel dragging down prices of metals and grains.

Last-minute administrative hitches forced Condoleezza Rice, US secretary of state, to leave New Delhi at the weekend without signing the US-India nuclear deal to end more than three decades of isolation for India's nuclear programme. The deal is now expected to be signed by US president George Bush on Wednesday, 8 October 2008. Cautious Indian negotiators have been keen for Bush to sign the deal into US law and to publish a presidential statement before signing the agreement themselves.

The agreement allows US companies to provide India with technology for its civilian nuclear programme, ending an embargo in place since India tested a nuclear weapon in 1974. It also gives India international status as an acceptable nuclear power, even though it is not a signatory to the Nuclear Non-proliferation Treaty.

The BSE 30-share Sensex plunged 529.35 points or 4.05% to 12,526.32, on Friday, 3 October 2008, its lowest closing in 18 months.