Market may extend gains

The market may build last week's solid surge on signs of a recovery in the domestic economy, buying by foreign funds and higher Asian stocks. However, political uncertainty ahead of elections will cap upside in the coming months. The BSE Sensex jumped 5.17% in the week ended 13 March 2009, boosted by a strong global rally in world markets.

Corporate advance tax numbers for the fourth installment of 15 March 2009 will influence trade. The data will be out today. Companies have to pay 25% of their annual tax bill in the March installment. Despite the economic slowdown, the Income Tax department expects advance tax collections to be marginally better than the collections in the third quarter. Corporate India had paid Rs 45400 crore as the third tranche of advance tax by 15 December 2008, much lower than the Rs 54900 crore companies shelled out in the third tranche a year before.

After heavy outflow over the past few days, there has been reduction in selling vigor of foreign funds. They, in fact, were net buyers on Friday, 13 March 2009. As per the provisional data released by the stock exchanges, foreign funds bought shares worth a net Rs 299.23 crore on Friday.

Meanwhile, there are signs that the stimulus packages announced by the government since December 2008 and an aggressive rate cuts announced by the central bank since October 2008 have started having some positive impact - lower interest rate have helped automobile sales rebound in the past few months. Interest rates have dropped drastically over the past few months.

A pick up the production of consumer goods and capital goods point to a rise in investment and consumption demand. Government data released during trading hours on Thursday, 12 March 2009, showed consumer durables output rose 2.5% in January 2009, moving into positive territory after three months of decline on the back of high growth in automobile sales. The capital goods sector saw strong growth, with output rising 15.4%, led by an impressive expansion in production of machinery and equipment. The pick up in production in these two segments also indicates that there is an improvement in the credit availability to the industry.

Further, a large government spending plan may help pump-prime the economy. The economy will also get another stimulus in the form of a huge spending by the political parties for the forthcoming Lok Sabha elections. As per reports, around Rs 6,000 crore would be pumped into the system as political parties and candidates splurge on their campaign and the Election Commission pays a huge bill for conducting the election. And the main beneficiary would be the services sector that often spurs growth.

Another plus point is that prospects look bright for the Rabi harvest in contrast to the previous kharif harvest which saw coarse grains recording lower output. Agriculture remains the mainstay of the economy and if rabi output increases as has been projected, rural demand may rise in the coming months, though perhaps not as much as had been hoped.

Asian stocks rose, led by financial companies and automakers, on heightened optimism government stimulus measures will help revive global economic growth.

The global financial crisis has prompted governments from the US to China and Japan to widen measures to stimulate growth. Federal Reserve Chairman Ben S. Bernanke on Sunday, 15 March 2009, said the risk of depression has been averted.

Group of 20 finance ministers meeting at the weekend pledged to combat the global recession and restore the financial system to health. The key priority now is to restore lending, a G- 20 statement on 14 March 2009 said.

The Bank of Japan is considering buying subordinated debt from banks, the Nikkei reported today. The purchases may help the banks offset losses caused by writedowns on shareholdings and bolster their capital, the report said

Meanwhile, the Organization of Petroleum Exporting Countries left its production quotas unchanged at a weekend meeting. Oil prices tumbled as much as 5.2% to $43.85 per barrel in trading today.