FII activity, global equities to dictate trend

Stock prices
likely to be influenced by movements in global equities
and foreign institutional investor activity in the near term. Turnover may take a hit next week which has only three trading sessions. The market remains shut on Tuesday, 10 March 2009 for Id-E-Milad and Wednesday 11 March 2009 for the Holi festival.

World stocks
tumbled in the week ended 6 March 2009 to hit six-year low on grim global economic data. Mortgage delinquencies in the US climbed to the highest level on record, the Mortgage Bankers Association said on Thursday, 5 March 2009. More than 600,000 Americans filed claims for jobless benefits for the fifth-straight week, the worst performance since 1982, Labor Department figures showed on Thursday.

The European Central Bank (ECB) on Thursday, 5 March 2009, cut its main interest rate by a half point to 1.50%, and ECB chief Jean-Claude Trichet said it could well go even lower. On the same day, the Bank of England (BOE) cut its main lending rate by half a point to 0.50%, an all-time low for the 315-year-old institution, and said it would create fresh funds to spur activity, a method known as quantitative easing.

ECB cautioned that global demand is likely to remain very weak this year adding that the world economy has weakened substantially in recent months due to financial market turmoil.

Meanwhile, investors will closely watch the US jobs data to be unveiled on Friday, 6 March 2009. Economists predict job losses in the United States to accelerate from last month and the unemployment rate is likely to surge to a 25-year high as recession-hit companies took drastic steps to cut costs.

Closer home, foreign institutional investors (FIIs) have pressed heavy sales this year. Their outflow in February 2009 totaled Rs 2707 crore. FII outflow in calendar year 2009 stood at Rs 8519.30 crore (till 4 March 2009).

Globally, investors are pulling out money from hedge funds, forcing hedge fund managers to dump assets. At the same time, global banks and insurers are selling assets after amassing $1.2 trillion of credit losses and writedowns since the start of 2007. More recently, fears have intensified about the exposure of Western European banks and companies to deteriorating economic conditions in Eastern Europe.

A section of the market expects further rate cuts by the Reserve Bank of India. Foreign securities firm Nomura expects another 100 basis points cut in both the repo and reverse repo rates each from the Reserve Bank of India (RBI) by mid-2009. RBI after market hours on 4 March 2009, cut the repo rate and reverse repo rate by 50 basis points each, with immediate effect. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks.