Market seen volatile on derivatives expiry

Key benchmark indices are more likely to be influenced by global cues as they have been in the recent past. On the domestic front, expectations have risen that the central bank would again cut interest rates to shore up a faltering economy. Volatility may rise as derivative contracts for November 2008 series expire on Thursday, 27 November 2008.

Sustained selling by the foreign institutional investors (FII) to shore up resources to beat the global liquidity crunch, have weighed heavily on the bourses since 2008. FII outflow reached Rs 53,476.90 crore in calendar 2008, till 20 November 2008.

Indian markets will continue to be influenced by developments on the global front. Reports the US economy could shrink by 0.2% through 2009 and that US automakers, General Motors Corp, Ford Motor Co and Chrysler LLC are at risk of bankruptcy if a last-minute bail-out plan fails, sent the world stock indices to 5-1/2 year lows on 20 November 2008. The rising jobless claim, which rose to a 16-year high in the US, is expected to worsen the US economy further.

Back home, volatility is likely to remain high as derivative contracts for November 2008 series expire on Thursday, 27 November 2008. Nifty rollovers in the December 2008 series has been low, of about 4.70 million shares, as on 20 November 2008, which is substantially lower than a rollover of 14.22 million shares in the November 2008 series by this time last month.

Closer home, inflation has retraced sharply in the past two weeks raising hopes the central bank will cut interest rates further to shield the domestic economy from the global economic slowdown. Lower interest rates boost stocks as lower borrowing costs help lift corporate profits. The central bank is monitoring the liquidity situation on a real-time basis and would take the desired steps to boost further liquidity in the system if and when required, Reserve Bank of India (RBI) governor D Subbarao said on Tuesday, 18 November 2008.

Inflation based on the wholesale price index rose 8.90% in the 12 months to 8 November 2008, marginally below the previous week's annual rise of 8.98%, data released on Thursday, 20 November 2008 showed. Inflation has been softening after hitting a 16-year high at 12.91% on 2 August 2008.

The RBI has aggressively cut rates over the past two months to support growth and cushion the economy against the spreading global turmoil. The repo rate, the main short-term lending rate has been cut by 150 basis points to 7.5% since October 2008 and the cash reserve ratio, the proportion of deposits that banks have to keep with the central bank, has been reduced by 350 basis points to 5.5%.

India's economy is slowing down after growing at an annual rate of 9% or more in the past three years. The economic growth slumped to 7.9% in the April-June 2008 quarter from 9.2% in the same period last year. The Reserve Bank of India has downgraded its growth forecast to 7.5% to 8% for the current financial year.