Market may extend gains

Firm Asian stocks, resumption of buying by foreign funds and steps taken by the G20 leaders to revive the global economy may help Indian stocks extend recent solid gains. Expectations of a further easing of the monetary policy by the Reserve Bank of India (RBI) may support the market. Indian stocks have risen sharply in the past few days as a part of a solid rally in global stocks triggered by hopes the worst of the global economic recession may be over.

Foreign funds have resumed buying of Indian stocks. As per the provisional data foreign funds bought shares worth a net Rs 691.56 crore on Thursday, 2 April 2009. Foreign institutional investors (FIIs) bought shares worth a net Rs 234.80 crore on Wednesday, 1 April 2009. The resumption of buying by FIIs followed sales of a substantial 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.

However, a recent sharp volatility in the rupee may dissuade fresh buying by foreign funds. The rupee has bounced back after hit a record low beyond 52 per dollar early last month.

During the week ended 1 April 2009, emerging market equity funds witnessed net inflows of $1.2 billion, according to the US-based EPFR Global, which provides fund flows and asset allocation data to financial institutions. It seems that emerging markets have once again become attractive investment destinations, promising better growth prospects, says EPFR Global managing director Brad Durham.

In London, G20 leaders on 2 April 2009 agreed to provide a total of $1 trillion in resources to the International Monetary Fund (IMF) and other international institutions in an effort to confront a deep global economic downturn. The figure includes an agreement to boost the IMF's lending resources to $750 billion from the current level of $250 billion, the G20 leaders said in a joint statement issued at the end of a two-day emergency summit.

The G20 also agreed to provide $250 billion in trade-finance credits to combat a steep slump in global trade flows. "The global crisis is hitting emerging market and poor countries hard," said Dominique Strauss-Kahn, the IMF's managing director, in a statement. The G20 leaders have sent a powerful signal that the international community is committed to support these countries, including by ensuring that the IMF has the resources available, he said.

Citigroup Inc. economists Don Hanna and Jurgen Michels called the summit agreement “a boon to emerging markets” in a note to clients. The G-20 said they would couple the financing moves with steps to give emerging economic powerhouses such as China, India and Brazil a greater say in how the IMF is run.

Mexico said Wednesday, 1 April 2009, it will seek $47 billion from the IMF under the Washington-based lender's new Flexible Credit Line, which allows some countries to borrow money with no conditions.

Closer home, expectations of a further easing of the monetary policy by the Reserve Bank of India (RBI) remain with inflation near zero. Inflation as measured by the wholesale price index rose 0.31% in the 12 months to 21 March 2009, marginally above the previous week's annual rise of 0.27%, data released by the government during trading hours on 2 April 2009 showed.