Market may extend gains on buying by foreign funds

Buying by foreign funds and expectations of a further easing of the monetary policy by the central bank may help domestic bourses extend recent solid gains. The Q4 March 2009 results of India Inc would start trickling in soon and investors
will closely watch the future outlook provided by the management. IT bellwether Infosys Technologies kickstarts the earnings reporting season on Wednesday, 15 April 2009.

Consensus earnings expectations have been consistently revised downwards. There could be further earnings downgrades if the macroeconomic situation does not improve materially, analysts reckon.

Signs of an improvement in the Indian economy triggered a solid rally on the domestic bourses in the past few days. The rally was also a part of a sharp surge in global equities triggered by hopes the worst of the global economic recession may be over. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex jumped 2,643.46 points or 32.39% to 10,803.86 on 9 April 2009, its highest closing since 15 October 2008. The rally was broad-based with stocks across market-cap and sectors surging.

Near zero WPI inflation and weak industrial production data have raised expectations of a further easing of the monetary policy by the Reserve Bank of India (RBI) to revive slowing economic growth. RBI governor D Subbarao said policy will be tailored to arrest a steeper-than-estimated moderation in growth.

Inflation based on the wholesale price index (WPI) rose 0.26% in the year through 28 March 2009, lower than previous week's 0.31% rise, data released by the government on 9 April 2009 showed. It was the lowest growth in WPI inflation in at least two decades. Another data showed India's industrial production declined 1.2% in February 2009 compared to a 0.4% rise in January 2009. The government revised upwards the January 2009 industrial production to 0.4% from a provisional fall of 0.5%.

Foreign funds have resumed buying of Indian stocks. Foreign funds bought shares worth Rs 1103.40 crore in three trading sessions from 1 April 2009 and 6 April 2009. The inflow followed heavy sales in the preceding three trading sessions. Foreign funds dumped stocks worth a net Rs 1266.70 crore in three trading sessions from 27 March 2009 to 31 March 2009. Before the selling, foreign institutional investors had mopped up stocks worth Rs 3635 crore in a short span from 17 March 2009 to 26 March 2009.

Domestic institutional investors had absorbed heavy selling by foreign funds witnessed in first two months of calendar year 2009