Market may extend losses

Key benchmark indices may extend last two day's of losses as investors may continue to book profits after the recent solid surge. While positive Asia may support the market. Investors will closely watch the global developments for further cues. In political front, ruling party Congress and the Dravida Munnetra Kazhagam's altercation over berth sharing may act as a backburner. Volatility may remain high ahead of the expiry of May futures and options (F&O) contract next Thursday.

Most of the Asian stocks were trading higher today 22 May 2009. Key benchmark indices in China, Hong Kong, South Korea, Singapore and Taiwan rose by between 0.03% to 0.57%. But, Japan's Nikkei fell 0.08% as speculation the U.S. will lose its top credit rating lifted the value of Japan's currency against the dollar.

The US markets finished off their lows of the session, but still logged a triple-digit loss yesterday 21 May 2009 as the Fed's lowered outlook and disappointing economic data shook investor confidence. The Dow fell 129.91 points, or 1.5%, to 8,292.13. The S&P 500 index fell 15.14 points, or 1.7%, to 888.33, and the Nasdaq composite index fell 32.59 points, or 1.9%, to 1,695.25.

Standard & Poor's downgrade on the UK economy to "negative" from "stable” weighed on investor sentiment. This raised concerns about both UK and US credit rating. Initial jobless claims dropped by 12,000 to a seasonally adjusted 631,000 last week, slightly higher than expected.

Back home, the key benchmark indices fell for the second straight day on Thursday 21 May 2009 as investors booked profit taking cues from weak global markets and after recent sharp surge in prices. The BSE 30-share Sensex lost 324.12 points or 2.31% to 13,736.54 on that day. From a recent high of 14,302.03 on Tuesday, 19 May 2009, the Sensex has lost 566.49 points or 3.95%. Yet, the Sensex is up 4099.31 points or 42.48% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 5,576.14 points or 68.33%.

Foreign institutional investors turned sellers after recent agressiive buying in Indian stocks. As per the provisional figures on NSE foreign institutional investors sold shares worth Rs 2.14 crore yesterday after selling Rs 234.10 crore on Wednesday. Domestic funds sold shares worth Rs 371.48 crore yesterday. FII inflow in May 2009 totaled Rs 15134.70 crore (till 20 May 2009) while their inflow in calendar year 2009 totaled Rs 15491.20 crore.

In political news, although the swearing-in ceremony of the new Manmohan Singh-led government is scheduled for today evening, the berth-sharing talks between the Congress and the Dravida Munnetra Kazhagam (DMK) broke down dramatically on Thursday 21 May 2009 evening.

A major irritant is the Congress refusal to part with infrastructure ministries and instead offering the DMK portfolios of Labour, Food Processing and Textiles. The southern ally declared it would extend “outside support” to the new government, preferring to sit out of the Ministry to accepting the same number of berths it had last time. The announcement came after three rounds of talks between leaders of the two parties and a telephonic conversation between Prime Minister Manmohan Singh and Mr. Karunanidhi.

Announcing the breakdown of talks, DMK leader T.R. Baalu said the Congress formula was unacceptable to his party. The Congress remained outwardly unfazed by the DMK decision. The DMK wanted five Cabinet berths to accommodate the two outgoing Union Ministers, A. Raja and Mr. Baalu, besides Mr. Karunanidhi's two children, M.K. Azhagiri and Kanimozhi, and his grand-nephew Dayanidhi Maran. Also, the DMK wanted four Ministers of State. Crowding the Ministry with members of one family was unacceptable to the Congress and this is an issue that it has taken up with the Nationalist Congress Party (NCP) also.

Meanwhile, a comfortable victory for the Congress-led coalition government in election has raised expectations of a strong push for economic reforms by the government. 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.

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.

The Congress party-led coalition has the support of 322 lawmakers, Prime Minister-elect Manmohan Singh said on Wednesday, 20 May 2009, giving it a clear majority in 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 was renominated as Congress Parliamentary Party leader on Tuesday (19 May 2009).

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.

Meanwhile, the stock market will keep a close eye on the allocation of portfolios in the new government. It remains to be seen who get the key ministries viz. power, transport and education sectors. 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.