Volatility may remain high ahead of June F&O contract expiry tomorrow high

Volatility in key benchmark indices may remain high ahead of the expiry of June 2009 futures and options (F&O) contracts on Thursday, 25 June 2009. Recent selling by foreign funds may also weigh on investor sentiment. Poor start for India's annual Monsoon may also dampen investor sentiment.

Asian stocks fluctuated today as gains among technology and energy shares overshadowed declines by finance companies. The key benchmark indices in China, Hong Kong, Taiwan and Singapore rose by between 0.31% to 1.51%.

Japan's Nikkei fell 0.06% after Japan's export slump deepened in May 2009, casting doubt on the nation's growth prospects as the economy struggles to emerge from its worst postwar recession. Shipments abroad dropped 40.9 % from a year earlier, more than April's 39.1 % decline, the Finance Ministry said today in Tokyo.

After a day of deep losses, Wall Street ended Tuesday trade flat. Stocks had opened higher, but slipped after a report showed home sales rose but not as much as expected. Bank stocks gained. The Dow slipped 16.10 points, or 0.2%, to 8,322.91. The S&P 500 index rose 2.06 points, or 0.2%, to 895.10, and the Nasdaq composite index fell 1.27 points, or 0.1%, to 1,764.92.

In economic data, US existing home sales data for May 2009 rose 2.4%, but fell short of expectations, existing-home sales rose to 4.77 million in May 2009, higher than the previous month but less than the 4.81 million rate expected.

In other major event, all eyes will watch out for the Federal Reserve's latest policy statement today after the 2 day meet. Interest rates are expected to be unchanged, but close attention will be paid to whether the fed will be using any new policy tools to help the US economy.

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.

But 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.

On the flip side, the latest data showed the Consumer Price Index (CPI), inflation based on rural and agricultural workers rose to 10.2% in May 2009. The higher consumer inflation may cause Reserve Bank of India to reverse the expansionary monetary policy and might even curb the central government's spending plans which may cause hindrance in efforts to boost the slowing economy.

India's fiscal deficit in April 2009 was at Rs 54,158 crore ($11 billion), or 16.3 % of the full-year target, the government said in a statement on Tuesday.

Meanwhile, the south-west monsoon, which had been stalled since 7 June 2009, revived on 21 June 2009 and is likely to cover more parts of Maharashtra, Karnataka and Andhra Pradesh, the weather department said on Monday morning. The revived monsoon may cover Maharashtra and Madhya Pradesh by first week of July 2009.

A patchy start to India's annual monsoon has raised doubts about a nascent economic upturn, as the poor rainfall in June 2009 could hurt growth, push up food prices and prompt more government spending to support farmers. The monsoon, crucial to a farm sector that accounts for about a sixth of economic output, has stalled after an early start. In the week ended 17 June 2009, rains were 51 % below normal, the Meteorological Department said last week. Rural demand has been strong in recent years due to good monsoon in the past few years.

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.

But foreign funds sold shares recently after aggressively buying during the past three months or so. As per the provisional figures on NSE, foreign funds sold shares worth Rs 654.97 crore on Tuesday, 23 June 2009. Foreign funds sold shares totaling Rs 1,908.90 crore in six trading sessions from 15 June 2009 to 22 June 2009. FII inflow in June 2009 totaled Rs 4,223.40 crore (till 22 June 2009). FII inflow in calendar year 2009 totaled Rs 25,542.80 crore (till 22 June 2009).

Meanwhile, the data on advance tax payments reported last week for the first quarter of the financial year indicated banks and fast moving consumer goods (FMCG) firms have done well in the first quarter, but realty companies continue to perform badly. Automobile sector have also paid higher taxes this year, show the revenue department's initial estimates. Indian companies paid around Rs 23,000 croe in advance tax for the first quarter of FY 2010, almost flat at the previous year's receipts.