Market may remain volatile ahead of F&O expiry

Equities may remain volatile next week as investors rollover positions from July 2009 contacts to August 2009 contracts ahead of expiry of July 2009 futures and options (F&O) contract on Thursday, 30 July 2009. Profit taking cannot be ruled out after a recent sharp surge in share prices triggered by firm global cues and encouraging Q1 results of India Inc. Improvement in India's annual monsoon rains in July 2009 augurs well for companies in the fertilizers, agrochemicals, automobiles, and fast moving consumer goods sectors.

Investors will keenly watch the remaining Q1 June 2009 result of India Inc for further cues on the health of the corporate sector. The Q1 June 2009 results announced so far have been encouraging, with lower costs helping bottom-line growth. The combined net profit of 451 companies rose 17.4% to Rs 30691 crore on 5.5% growth in sales to Rs 2,02,529 crore in Q1 June 2009 over Q1 June 2008.

India's largest private sector bank by operating income ICICI Bank will announce its Q1 June 2009 result on Saturday, 25 July 2009. Tata Motors, Reliance Infrastructure, State Bank of India, Reliance Communications, NTPC, Hindustan Unilever, Tata Steel, DLF, Mahindra & Mahindra and Hindalco Industries, will announce their quarter ended June 2009 result next week.

Among non-Sensex stocks, Shasun Chemicals, Bank of India, Ispat Industries, Punj Lloyd, Karnataka Bank, Balrampur Chini, Bank of Baroda, Mic Electronics, Dena Bank, Vijaya Bank, among others, will announce their quarter ended June 2009 result next week.

India's monsoon rains were 15% above normal in the week to 22 July 2009, the second consecutive week of above-average rainfall after an exceptionally dry patch at the start of the season. Higher rainfall filled up India's main reservoirs to 23% of capacity in the past week up from 14% a week ago, helping hydropower supply, which accounts for a quarter of India's total generation capacity. Total rainfall since the beginning of June 2009 was 19% below average, improving from a 27% deficit in the previous week, the India Meteorological Department on 23 July 2009. More than two-thirds of the people live in villages and 60% of the farm land depends on the annual rains.

Investors will keenly watch for any surprises in central bank's monetary policy review on Tuesday, 28 July 2009. The central bank is likely to keep rates on hold at its policy review on Tuesday. The Reserve Bank of India (RBI) cut the repo rate, or its key short-term lending rate, by 425 basis points to 4.75% in six steps since October 2008 as it tried to guard a slowing economy against the global financial crisis. The central bank also slashed the reverse-repo rate by 275 basis points since early December 2008 and brought down the cash reserve requirement by 400 basis points to 5% since early October 2008 to keep credit flowing.

Government's stimulus measures late last year to counter slowdown in domestic economy have started to bear fruits. The latest economic data indicated improving economic activity. The six infrastructure industries -- crude oil, refining, coal, electricity, cement and steel -- together grew at an annual rate of 6.5% in June 2009, faster than the previous month's rise of 2.8%, data showed on Thursday, 23 July 2009. The infrastructure sector accounts for 26.7% of India's industrial output.

Inflation based on the wholesale price index declined 1.17% in the year through 11 July 2009, compared to previous week's fall of 1.21%, data released by the government showed on Thursday, 23 July 2009.

The market will closely watch global stocks which jumped to multi month highs on signs of revival in global economy. US stocks surged sending the Dow Industrials above the key 9,000 mark for the first time in seven months as strong corporate profits and rebounding US home sales spurred optimism about the economy. Sales of US existing homes rose for the third consecutive month in June 2009 by 3.6% to an annual rate of 4.89 million, up from 4.77 million in May 2009, the National Association of Realtors (NAR) said on Thursday, 23 July 2009.