Market may extend gains

The market may extend gains after a more than 9% surge in the week ended 17 July 2009. The undertone remains bullish as analysts expect a turnaround in the economy the near future as government stimulus packages take effect. Revival of the monsoon rains and initiatives on divestment may support stocks. With earnings season in progress, companies unveiling their June 2009 quarterly results will be in the spotlight.

Finance Secretary Ashok Chawla on 17 July 2009 said the finance ministry will introduce seven bills in parliament, including proposals for pension and banking reforms and efforts to raise the foreign investment limit in insurance companies. Chawla added that the government's record market borrowing of Rs 4, 51,000 crore in 2009-10 would not pressure bond yields and interest rates. Chawla also said that he sees economic growth of around 7% for 2009/10 and expects inflation to be between 2-3% by end March 2010.

A progress on disinvestment will lift sentiment. On 14 July 2009, the Union Finance Minister, Pranab Mukherjee, told Lok Sabha that the Finance Ministry has initiated discussions with other ministries and departments for identifying the state run firms where a portion of Government shareholding can be sold.

Earlier in his budget speech on 6 July 2009, the Finance Minister had pegged the revenue estimates from disinvestment at Rs 1,120 crore for 2009-10, lower than the Rs 1,165 crore garnered in 2008-09.

The government is reportedly considering to divest stake in four PSUs -- National Minerals Development Corporation (NMDC), Kudremukh Iron Ore Company (KIOCL), Manganese Ore (India) (MOIL) and Rashtriya Ispat Nigam (RINL) -- administered by the steel ministry, as part of a broader plan to mobilise resources to meet their funding needs.

Meanwhile, analysts expect a turnaround in the economy the near future as government stimulus packages take effect. As per government data released on 11 July 2009, India's industrial output rose by a higher-than-expected 2.7% in May 2009, indicating interest-rate cuts and stimulus measures are helping revive demand. This is significantly more than the downwardly revised 1.2% growth in April 2009.

At the global level, sentiment has been improving with the US Federal Reserve on 15 July 2009 lifting its forecast for the recession-hit American economy. It now forecasts that the economy will shrink between 1% to 1.5% in 2009 from its earlier forecast of a 1.3% to 2% contraction.

Renowned economist Nouriel Roubini said on 16 July 2009 said the worst of the financial crisis is over and the US economy was no longer in a free fall.

US retail sales grew for the second consecutive month, rising 0.6% in June 2009 as compared with 0.5% gain in May 2009. Eurozone industrial production rose for the first time in nine months in May 2009. Production in the 16 countries that use the euro recorded a monthly growth of 0.5% in May 2009, compared to a revised 1.4% fall in April 2009.

Closer home, the Supreme Court hearing on the Reliance Industries (RIL)-Reliance Natural Resources (RNRL) due on 20 July 2009 will be closely watched. RIL said on 17 July 2009 it has no unfettered rights to Krishna Godavari (KG) Gas. The company told the Supreme Court that it is bound by government policies on the pricing and sale of gas produced at the KG-D6 field, following a petition filed by Reliance Natural Resources (RNRL) seeking enforcement of a lower court order on supplying gas for less than the price set by the government.

The SC is scheduled to hear the dispute on 20 July 2009 in what could be the final stage of a wrangle sparked by the breakup of the Ambani family empire in 2005. The Bombay High Court ruled that RIL must honor a 2005 agreement to sell gas from the Bay of Bengal field to estranged brother Anil's company.

Earnings unveiled by Indian companies so far have been encouraging. The combined net profit of 122 firms rose 60% on 18% rise in sales in Q1 June 2009 over Q1 June 2008.

Wipro, Housing Development Finance Corporation, Bharat Heavy Electricals, ACC, Oil & Natural Gas Corporation, Maruti Suzuki India and Ranbaxy Laboratories will declare their June 2009 quarterly results in the forthcoming week.

Others companies that will unveil their June 2009 quarterly results next week include Petronet LNG, JSW Steel, Infrastructure Development Finance Company, Chambal Fertilizers & Chemicals, Dr Reddy's Laboratories, Thermax, Ultratech Cement, Mastek, Canara Bank, Siemens, Ambuja Cements, Biocon and Hindustan Construction Company.

Investors will also monitor the progress of India's annual monsoon. India's monsoon has revived this month after a dismal start last month. Rainfall in the week to 10 July was 6% more than the long-term average. For the 1 June-15 July period it was 27% below normal, improving from a deficit of 36% up to 8 July.

The weather office has also forecast widespread rainfall in the next five days in most regions of India where more than two-thirds of the people live in villages and 60% of the farm land depends on the annual rains.

The June-September monsoon rains are a major influence on the economy, as two-thirds of Indians depend on agriculture and large areas of the vast south Asian country suffer from a lack of modern irrigation facilities. Poor monsoon rains could dent rural demand, hurt corporate profitability and undermine sentiment in financial markets.