Domestic bourses to take cue from global equities

Recovery in the Indian and global economy and buying by foreign funds may support stocks which have witnessed a strong rally since mid-March 2009. Good Q4 March 2009 results by India Inc has supported the rally. However, political uncertainty may cap near term upside.

The market will react to the Q4 results of Reliance Communications, India's second biggest cellular services provider by market capitalization and India's biggest realty firm by market capitalization DLF when trading resume on 4 May 2009 after a four-day long weekend. Both the companies are announcing Q4 results on 30 April 2009. The stock market remains closed on 30 April 2009 on accounting of voting in Mumbai for the ongoing parliamentary elections. The market remains closed on Friday, 1 May 2009, for Maharashtra Day.

On Monday, 4 May 2009, India's biggest dedicated housing finance firm by revenue HDFC will unveil Q4 results.

Recent data slowing decline in housing prices and orders for US-made durable goods suggest the US economy is on a recovery path. US consumer confidence as measured by the Conference Board's sentiment index jumped more than forecast in April 2009. Consumer spending accounts for 70% of the US the economy. A US recovery augurs well for Indian IT stocks. US is the biggest market for Indian IT sector.

However, likely protectionist measures by the US may weigh on IT stocks. Two US lawmakers have introduced the H-1B and L-1 Visa Reform Act which stipulates that all employers who want to hire an H-1B guest worker should first make a good-faith attempt to recruit a qualified American worker. Employers would be prohibited from using H-1B visa holders to displace qualified American workers. It would also prohibit employers from hiring additional H-1B workers if more than 50% of their employees are H-1B holders. Top Indian IT firms have considerable workforce working on H-1B visas in the US.

US stocks have shown some resilience to bad news of late. There had been fears that the outbreak of swine flu will derail a global economic recovery. Nearly a week after the threat emerged in Mexico, where up to 159 people have died, US officials said on Wednesday, 29 April 2009, a 23-month-old child died from the virus in the state that borders Mexico.

Stress tests showed Bank of America needs billions of dollars of capital, according to a report by the Wall Street Journal which cited people familiar with the situation. The report also said Bank of America and Citigroup are both challenging the findings. The Wall Street Journal also said Wells Fargo & Co, Fifth Third Bancorp and Regions Financial Corp. are all expected to need more capital.

Meanwhile, a number of investment banks, including Goldman Sachs and Morgan Stanley, have recently raised their forecasts for China's growth for calendar 2009 citing the aggressive moves by the Chinese government to stimulate the economy.

India's economy also appears to be on a recovery path. India's industrial production may have risen 10% on a monthly basis in March 2009 as the effects of a recent spate of fiscal and monetary measures started showing up, Macquarie Research said in a recent note.

A lead economic indicator in India has climbed for three consecutive months pointing to a strong recovery in industrial activity by June 2009, UBS said in a note late on 24 April 2009. UBS said the key variables which have boosted its lead indicator index was the government bond yield spread, real (M1) money supply and a revival in foreign capital inflows. "Our base-case scenario is for the Indian economy and corporate earnings to bottom out by the second half of 2009/10 and for full recovery in 2010/11," it said. UBS said it is positive on the Indian stock market on a 12 month view with overweight recommendation for autos, metals, banks, real estate and conglomerates.

Property firm Unitech's Rs 1600-crore mop up through qualified institutional placement recently means that the credit crisis for the Indian corporate sector is over. The Unitech fund raising comes on the top of record quarterly collection through bond sales by the corporate India in Q4 March 2009.

Lack of easy availability of credit, the lifeline of business, had weighed heavily on the stock market sentiment until recently.

But political uncertainty may cap near term upside on the bourses with polling underway for India's 15th Lok Sabha. The month-long parliamentary elections that began on 16 April 2009 will conclude on 13 May 2009. Poll estimates point to a fractured mandate. Consumption and investment decisions will be significantly impacted by any signs that the new government is unstable. The counting of votes will take place on 16 May 2009. A party/alliance needs 272 seats in the 543-member parliament to claim power at the Centre.