Market seen opening firm; volatility may zoom on F&O expiry

Key benchmark indices are seen opening firm on positive global cues. The SGX Nifty futures for June 2009 expiry jumped 45.50 points in Singapore. Volatility is likely to remain high as futures and options (F&O) contracts for June 2009 series expire today, 25 June 2009. However forecast of below normal monsoon rains for the first time in four years and recent selling from foreign funds may dampen sentiment.

As per reports, rollover of Nifty positions from June 2009 series to July 2009 series stood at 41% while stock futures rollover of positions was 52% as of Wednesday, 24 June 2009.

Monsoon rains, which runs from June to September, have weakened and are expected to be below normal, Prithviraj Chavan, minister of science and technology, said on Wednesday, 24 June 2009 in a briefing in New Delhi. The India Meteorological Department on 17 April 2009 predicted rains in the June- September period to be near normal. The minister said the 2009 monsoon rainfall would be 93% of the long-term average, lower than an earlier forecast of 96%.

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.

Asian markets were trading firm today, 25 June 2009 on the back of gains in commodity prices which helped spur metal shares. Key benchmark indices in Hong Kong, China, Taiwan, South Korea, Singapore and Japan were up by between 0.33% and 2.26%.

US markets ended on a mixed note on Wednesday, 24 June 2009 as the Federal Reserve failed to enthuse investor sentiments after the central bank held the federal funds rate steady in its 2-day policy meeting which began Wednesday, 24 June 2009 and reiterated concerns about the economic outlook. The Dow Jones Industrial Average was down 23.05 points, or 0.28%, at 8,299.86. But the Standard & Poor's 500 Index was up 5.84 points, or 0.65%, at 900.94 and the Nasdaq Composite index climbed 27.42 points, or 1.55%, at 1,792.34

In key economic data that was released, the durable goods orders for May 2009 saw a 1.8% jump, beating the consensus estimates of 0.9% decline in total orders. On the housing front, May 2009 new home sales data was down 0.6%. It showed an annualised rate of 342,000 units, below the 360,000 unit consensus.

The World Bank on Monday predicted that the global economy will shrink 2.9% this year, a deeper fall than the 1.7% contraction it predicted in March 2009.

The good news for India is that the World Bank has raised India's growth forecast for 2009 to 5.1% from earlier projection of 4%. It has projected an 8% growth for India in 2010 which will make it the fastest growing economy in the world in 2010, overtaking China's expected 7.7% growth relative to the robust performance prior to the current crisis.

In its semi-annual Economic Outlook released on 24 June 2009, the Organisation for Economic Co-operation and Development (OECD) called on the Indian government to restore fiscal discipline, speed up structural reform and increase sales of public-sector assets.

Brazil, India, China and Russia – collectively, the BRICs – held their first summit in Paris this month, underlining the quartet's growing political as well as economic clout.

The OECD had been forecasting GDP growth for India of 4.3% in 2009 and 5.8% in 2010. OECD said that with the gradual recovery of the global economy and easier financial conditions, growth is projected to gradually regain momentum.

But foreign funds sold shares recently after aggressively buying during the past three months or so. As per the provisional figures on the NSE, foreign institutional investors (FIIs) sold shares worth Rs 791.85 crore on Wednesday, 24 June 2009 while domestic institutional investors purchased shares worth Rs 728.26 crore.

The next major trigger for the market is the Union Budget 2009-2010. Many equity analysts have been raising earnings forecasts of India Inc on hopes that the new government will provide thrust on the infrastructure sector and push economic reforms to boost growth. Citigroup expects the economy to grow by 6.8% in the year ending March 2010 (FY 2010) and 7.8% in the year ending March 2011 (FY 2011).

Finance Minister Pranab Mukherjee would present the budget on 6 July 2009. The Railway Budget will be presented on 3 July 2009 and the Economic Survey would be presented on 2 July 2009.

A comfortable victory last month for the Congress-led United Progressive Alliance (UPA) government in elections for the 15th Lok Sabha has raised hopes for economic reforms. Reforms virtually came to a halt in the past five years of the Congress-led alliance government at the centre, when the Communists provided support to the government from outside for a large part of the five-year term. Left parties are opposed to economic reforms.

Investor expectations from the new government are high. Investors expect financial sector reforms such as increase in the cap on foreign direct investment in insurance sector to 49%, from 26% at present.

Indian stocks have soared in the past three months on a view that ample global liquidity and a return of risk appetite will help India Inc help raise funds for expansion which in turn will boost corporate profits. India Inc has already raised almost Rs 5,000 crore from three qualified institutional placements (QIPs) so far in 2009 and announced plans to raise another Rs 20,000 crore.