Market to extend losses on weak global cues

The market is likely to extend recent steep losses on concerns about the weakening domestic and global economy and selling by foreign funds. Fears of another wave in the global credit crisis have resurfaced following a meltdown in the US commercial real estate market. The weekly inflation data will be keenly watched as a further fall in inflation may provide leeway to the government to take steps to shield the domestic economy from the global economic slowdown.

Foreign funds are dumping stocks in Indian and other emerging markets to shore up resources to beat the global liquidity crunch. As per the provisional data released by the stock exchanges, foreign institutional investors (FIIs) on Wednesday, 19 November 2008, sold shares worth a net Rs 264.98 crore. FII outflow reached Rs 52,612.70 crore in calendar 2008, so far, till 18 November 2008, as against an inflow of a huge Rs 71,466.90 crore in the corresponding period last year.

Asian shares tumbled as economic data indicated a global recession could get even uglier. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down by between 1.1% to 5.3%. Japan today, 20 November 2008, said exports logged their biggest annual decline in seven years in October 2008.

Federal Reserve officials on Wednesday, 19 November 2008, pared their outlook for growth in the world's biggest economy to minimal levels. The weaker forecast came on a day in which data showed US consumer prices in October 2008 posted their biggest drop since monthly records began in 1947, while new-home buildings slumped to fresh lows.

US stocks plunged to their lowest in five-and-a-half years on Wednesday, 19 November 2008, as investors girded for a lengthy economic downturn and automotive executives predicted a far-reaching calamity without a government lifeline. The Dow Jones industrial average tumbled 427.47 points, or 5.07%, to 7,997.28. The Standard & Poor's 500 Index fell 52.54 points, or 6.12%, to 806.58. The Nasdaq Composite Index lost 96.85 points, or 6.53%, to 1,386.42.

Turmoil in the US commercial real estate market deepened as securities backed by loans on commercial properties such as office buildings fell in value. Citigroup shares tumbled to a 13-year low as investors questioned survival prospects.

Closer home, given that parliamentary elections must be held before May 2009, the government will like to see that inflation is falling/under control before taking steps to revive the domestic economy. A cut in fuel prices in end-December 2008 after the ongoing assembly elections may help inflation to slide further. Inflation, as measured by the wholesale price index, declined sharply to 8.98% in the week ended 1 November 2008 from 10.72% in the previous week mainly due to sharp drop in oil prices.

Fears of a global recession, slowdown in the domestic economy and selling by foreign funds have pulled the Sensex down 1,762.78 points or 16.72% in the last six trading sessions to 8,773.78 on Wednesday, 19 November 2008, from 10,536.16 on 10 November 2008.

The rupee opened at a record low of 50.50 per dollar as a sharp fall in Asian share prices raised worries of foreigners cutting local equity holdings and repatriating the funds. At 9:01 IST, the partially convertible rupee was at 50.45/47 per dollar. Its previous record low was 50.29, which was hit in late October 2008. It had closed at 50.02/03 on Wednesday, 19 November 2008.

Oil prices dropped for a fifth straight session to below $53 a barrel. Oil on Wednesday, 19 November 2008, fell to its lowest settlement since late January 2007 as investors expect a sharp slowdown in demand for a commodity that just in July this year hit a record high at about $147 a barrel.