Market seen consolidating after sharp recent rally

Key benchmark indices are likely to consolidate as some profit booking might emerge after witnessing a stupendous rally in the past thirteen weeks. However a lot would also depend on global cues, foreign funds flows and the progress of monsoon.

The recent surge propelled the BSE Sensex and the S&P CNX Nifty to multi-month highs in anticipation of a strong push for economic reforms by the newly-elected United Progressive Alliance (UPA) government. Hopes of market friendly measures helped the BSE Sensex advance 478.30 points or 3.27% to 15,103.55 and the S&P CNX Nifty gained 137.95 points or 3.1% to 4586.90 in the week ended Friday, 5 June 2009.

However the broad sentiment on the stock market is likely to remain firm following upgrade in earnings of India Inc as thumping victory of the Congress-led United Progressive Alliance (UPA) in the 15th Lok Sabha elections means political stability for the next five years.

Market may even see a pre-budget rally on hopes of accelerated economic reforms and pro-reforms announcements. Finance Minister Pranab Mukherjee will present the Union Budget on 3 July 2009 while Railway Minister Mamata Banerjee will present the Rail Budget on 1 July 2009. The Economic Survey will be held on 2 July 2009. The Union Budget 2009 attains significant importance in the wake of the global financial crisis. Despite the country being relatively unharmed compared to the West, the UPA government will have many tasks on its to-do list, which includes boosting growth and demand, continuing to maintain liquidity, balancing inflation and also containing the country's worrying fiscal situation.

The Government has made its intention clear to push for reforms and pursue the disinvestment agenda, which was met with stiff opposition in the UPA's previous stint when the Left parties were members for a major part of the five-year tenure. The Congress party had in its manifesto released before polls promised to go ahead with disinvestment while retaining a majority holding in the state-run companies. Disinvestment programme was earlier put on backburner due to stiff opposition from the Left front.

Also the passage of the Bill to amend the Insurance Act, 1938 is likely to be touched upon in the full Budget likely to be announced in the first week of July 2009. Apart from raising the foreign investment ceiling to 49%, from 26% at present, the Bill had proposed to do away with the stipulation on Indian promoters having to mandatorily sell a part of their holdings after 10 years of operation.

While addressing to a joint session of both houses on 4 June 2009 President Pratibha Patil disclosing the agenda of the UPA coalition government said that the government would aim to revive economic growth with higher investments in sectors such as infrastructure, while adhering to fiscal prudence. Patil said steps would be taken to encourage foreign investment inflows, list shares of state-run firms and infuse more capital in banks. The government's immediate priority must be to focus on management of the economy that will counter the effect of the global slowdown, she added.

Patil said the new regime will develop a roadmap for listing public sector units, co-ordinate with other countries to bring back illegal money stashed in secret bank accounts, recapitalise public sector banks, and bring in the pension reforms bill.

On the economic front, the government's immediate focus would be on sectors that are adversely hit, especially small and medium enterprises, exports, textiles, commercial vehicles, infrastructure and housing.

Finance Minister Pranab Mukherjee on 26 May 2009 said that a sustained stimulus to economic growth is possible by next round of reforms. He said reviving growth momentum is a top priority for the government adding that fiscal prudence will also be kept in mind.

Mukherjee said the government will stick to fiscal deficit target of 5.5% of GDP in the current financial year that ends on March 2010 (FY 2010). He said the government is committed to fiscal consolidation in 2-3 years. The minister said he would be able to announce the full-budget for FY 2010 by the first week of July 2009 and try to get it approved by 31 July 2009. He said the common man will be the focus of the government policy.

The BSE Sensex has advanced 5456.24 points or 56.55% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex is up 6943.15 points or 85.08%.

Foreign institutional investors (FII) were the key drivers of the recent solid surge. After being heavy net sellers of Rs 4250.30 crore in January 2009 and to the tune of Rs 2707 crore in February 2009, foreign fund selling eased in March 2009, when they tuned net sellers of only Rs 1.1 crore. Their buying gathered steam in April 2009 when they pumped Rs 7384.50 crore. They continue their buying spree in May 2009 pouring Rs 20,606.80 in equities. Their inflow in calendar year 2009 stood at Rs 21,818.80 crore till 3 June 2009. Meanwhile, mutual funds, which are sitting on a large cash pile, are also likely to buy on dips.

Meanwhile annual monsoon rains may further advance to more parts during the next 48 hours, India Meteorological Department (IMD), said on its website late on Thursday, 4 June 2009. Monsoon rains, which hit the country's mainland on 23 May 2009 ahead of its normal schedule of 1 June 2009, encountered a weak phase in the last week of May 2009.

The IMD on 17 April 2009 forecast a near normal monsoon this year saying rainfall in the June-September 2009 monsoon season is expected to be 96% of the long-term average. The outlook is among the nation's most widely watched indicator as monsoon rains are a major influence on output of key crops, economic activity and also affects sentiment in the country's financial markets.

Jaiprakash Associates, Divi's Laboratories, Indiabulls Financial Services, Sadbhav Engineering, CESC will unveil their March 2009 quarterly earnings in the forthcoming week. Aggregate results of 2157 firms showed net profit rose 27.90% on 0.7% rise in sales in q4 march 2009 over q4 march 2008.