Profit taking may cap upside

A near term upside on the domestic bourses is capped as traders may cash in on gains after a recent solid surge in share prices. According to reports, Indian mutual fund managers are in no hurry to cut cash levels ahead of a general election in April-May 2009.

The BSE Sensex jumped 1888.09 points or 23.13% in twelve trading sessions to 10,048.49 on 27 March 2009 from a three-year closing low of 8,160.40 on 9 March 2009.

The strong surge was partly due to hectic short covering ahead of the expiry of the near-month March 2009 derivative contracts on 26 March 2009.

Parliamentary elections will be held between April-May 2009, with little prospect of a single party winning a majority on its own. Marketmen feel the possibility of a disparate coalition government was a potential risk, and could worsen an economic slowdown. Election results will be announced on 16 May 2009.

Experts are worried about India's widening fiscal deficit and exports that have dipped sharply. Arvind Virmani, chief economic adviser in the finance ministry, said on 27 March 2009, India's fiscal deficit may reach 6.5%-7% of gross domestic product in the fiscal year 2009/10.

Indian exports are likely to post a near-flat growth in 2009-10, according to Commerce Secretary Gopal K Pillai. Exports have been declining since October 2008 as the global economic slowdown trimmed demand from major markets.

As per initial estimates available with the commerce ministry exports dropped 13.7% in February 2009, registering fall for the fifth consecutive month.

Meanwhile, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on 27 March 2009, India's economy would be significantly worse in 2009 than in the previous year and the woes would not end in the fiscal year ending March 2010.

On the positive side, foreign institutional investors (FIIs), who were continuously selling for last several months, picked up shares worth approximately Rs 2300 crore in seven sessions between 18 and 25 March 2009. However, they still remain net sellers in this month and year as their outflow totaled Rs 51.70 crore in March 2009 and Rs 6733.50 crore in calendar year 2009 (till 25 March 2009).