Market may extend losses

The key benchmark indices may extend yesterday (20 May 2009)'s losses as investors may resort to profit booking after the recent solid surge. The weak global cues may further weigh on the sentiment.

Asian stocks retreated today, dragging the MSCI Asia Pacific Index from a seven-month high, as the stronger yen diminished earnings prospects in Japan and the U.S. Federal Reserve projected a deeper recession. Key benchmark indices in China, Hong Kong, Japan, Singapore, South Korea and Taiwan fell by between 0.05% to 1.61%.

Singapore's economy shrank less than initially estimated in the quarter ended March 2009, signaling the nation may be past the worst of its deepest recession since 1965. Singapore's gross domestic product declined 14.6% in quarter ended March 2009 over quarter ended March 2008 after shrinking 16.4% between October and December 2008.

The US markets ended lower on Wednesday 20 May 2009 as banking and technology stocks pulled back and comments from the US Federal Reserve dampened the market's optimism.At the closing bell, the Dow Jones Industrial Average shed 52.81 points or 0.62%, to 8,422.04. The S&P 500 lost 4.66 points or 0.51%, to 903.47 and the Nasdaq Composite fell 6.70 points or 0.39%, to 1,727.84. In fresh quarterly forecasts, the Fed projected the US economy would contract between 1.3 % and 2 % this year, with the unemployment rate rising to between 9.2 % and 9.6 %.

Minutes of the Fed's 28-29 April 2009 meeting released yesterday showed some policy makers said “a further increase” in the total amount of asset purchases may be needed to speed a U.S. economic recovery. Fed governors and district-bank presidents foresaw a deeper contraction this year and a weaker recovery next year.

Back home, inflation data for the year through 9 May 2009 will be announced by the government today. Inflation based on the wholesale price index rose 0.48% in the year through 2 May 2009, lower than previous week's annual rise of 0.7%

In the political news, the Congress party-led coalition has the support of 322 lawmakers, Prime Minister-elect Manmohan Singh said on Wednesday, giving it a clear majority in a new government. Singh and Congress party chief Sonia Gandhi met President Pratibha Patil to seek approval to form a new government. President Pratibha Devisingh Patil on Wednesday appointed Manmohan Singh Prime Minister and invited him to name his Council of Ministers.

The invitation to form the government came after Dr. Singh and Congress president Sonia Gandhi staked claim with letters of support from 274 members of the 15th Lok Sabha. In addition, the Bahujan Samaj Party, the Samajwadi Party and the Rashtriya Janata Dal sent letters of support for a Manmohan Singh-led government directly to the President, taking the support base to 322.

Dr Singh, the 76-year-old economist-turned-politician, will be sworn in as Prime Minster of India for the second term on Friday 22 May 2009, a day after the 18th death anniversary of Rajiv Gandhi. Dr Singh was renominated as Congress Parliamentary Party leader on Tuesday (19 May 2009).

Meanwhile, as per media reports key government departments have drawn up a slew of proposals to populate an ambitious reform agenda for the first 100 days of Dr Singh's second term as the PM, aimed at giving economic growth a leg-up. PM has already prepared the broad contours of an economic revival plan to be taken up soon after the new government is formed, reports suggest While recommendations to revive growth and ease the credit squeeze are likely to find a place in the plan, tax proposals are expected to be taken up as budget recommendations. The telecom ministry has prioritised the much delayed auction of 3G airwaves and WiMAX spectrum. It has also prioritised introduction of a new spectrum policy.

The petroleum ministry is aiming for increased domestic output and a targetted-delivery system for the poor

The new government is also likely to pursue disinvestment of state-run undertakings, reports suggest. The disinvestment department under the finance ministry is reportedly working on expanding the list of companies in which the government could reduce its stake. Among these are Power Grid Corporation, Cochin Shipyard, and Rashtriya Ispat Nigam.

The Congress-led UPA defied predictions of a tight election and was only about 11 seats short of an majority from the 543 seats at stake in the recently concluded Lok Sabha election. Congress' alliance took 261 seats, sweeping aside its nearest rival, the bloc led by the Hindu-nationalist Bharatiya Janata Party (BJP), which won only 159 combined. Congress, which alone won 205 seats, needs a handful of partners to reach the 272 seats needed to take power, and is expected to seek the support of more smaller parties or independents.

Financial sector reforms are likely to get a push in the coming days, which were relegated to the back seat due to persistent opposition from the Left parties.

Meanwhile, the stock market will keep a close eye on the allocation of portfolios in the new government. It remains to be seen who gets the key ministries viz. power, transport and education sectors likely to be decided at the crucial UPA meet scheduled to be held in New Delhi today. Analysts say growth in these three sectors are key for India to achieve strong economic growth. If those seen as strong performers are given charge of these three ministries, the market may extend gains.

As per reports, Congress's strong showing in election means reformers will almost certainly be named to key ministerial portfolios viz. finance, trade, defence and foreign affairs. The ministers should be named this week. Fresh reformist faces may also join the cabinet for the first time, including Rahul Gandhi, heir to the powerful Gandhi dynasty and seen as pushing a new generation of leaders into the Congress.

Among the contenders for the post of the finance minister are C Rangarajan, an economic adviser to the prime minister, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, Trade Minister Kamal Nath, and External Affairs Minister Pranab Mukherjee. As per market talks, P Chidambaram could retain his home portfolio.

This week so far, The BSE 30-share Sensex lost 241.37 points or 1.69% to 14,060.66 on Wednesday 20 May 2009 on profit taking. The BSE Sensex had crawled up marginally on Tuesday, 19 May 2009 extending gains for the second straight day after Indian stocks had witnessed a historic rally on Monday, 18 May 2009, when the key indices viz. the Sensex and the Nifty surged more than 17% each on hopes a new stable government will be able to push reforms.

The Sensex has risen 4413.35 points or 45.74% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has surged 5,900.26 points or 72.3%.

Foreign funds turned sellers after buying aggressively in Indian stocks. As per the provisional figures on NSE, the foreign institutional investors (FIIs) sold shares worth a net Rs 985.53 crore on Wednesday, 20 May 2009 and domestic funds bought shares worth Rs 4.99 crore. FII inflow in May 2009 totaled Rs 15,368.80 crore (till 19 May 2009) while their inflow in calendar year 2009 totaled Rs 15,725.30 crore.