Market may extend gains on firm global stocks

Key benchmark indices are likely to extend gain as sentiment across the globe remains upbeat after the US Federal Reserve said the world's largest economy US may be emerging from a 20-month recession. However, selling by foreign funds may cap the upside. The BSE Sensex gained 251.39 points or 1.66% to 15,411.63 in the week ended Friday, 14 August 2009.

The US Federal Reserve kept interest rates at near zero at ts two-day meet that ended on 12 August 2009. The central bank
in a statement said US economic activity was leveling out and the financial sector had continued to improve in the last few weeks. The Fed kept its benchmark federal funds rate at a 0-0.25% range and pledged to keep rates low 'for an extended period'.

Back home, India's industrial production expanded 7.8% in June 2009, the fastest pace since February 2008, adding to signs that the economy has been spared from the worst of the global recession and is well on its way to a turnaround. Data released by the government on 12 August 2009, showed that industrial growth was higher than the 5.45% seen in June 2008.

Meanwhile, a draft direct tax code released by the government on 12 August 2009, which proposes to reduce tax rates on individuals and corporates and scrapping of the Securities Transaction Tax (STT), has boosted sentiment.

On the flip side foreign funds, which were the key drivers of the recent rally, turned sellers in August 2009 after remaining net buyers in previous five months. FII outflow in August 2009 totaled Rs 522.90 crore (till 12 August 2009). FII inflow in calendar year 2009 totaled Rs 35,646.80 crore.

After being heavy net sellers of Rs 4545.30 crore in January 2009 and to the tune of Rs 2436.60 crore in February 2009, foreign fund turned net buyers in March 2009 when they bought shares worth Rs 530.30 crore. Their buying gathered steam in April 2009 when they pumped Rs 6508.20 crore. They continue their buying spree in May 2009 pouring Rs 20117.20 in equities. Foreign funds bought equities worth Rs 3830 crore in June 2009 and Rs 11066.30 crore in July 2009.

Also the monsoon situation remains grim with the country heading into the worst drought year over the last two decades. Monsoon was 56% below normal in week to 12 August 2009 and was 72% below normal in the soyabean growing central region in past one week, India Meteorological Department (IMD) said on 13 August 2009. Monsoon rains were 29% below normal during the period from 1 June 2009 to 12 August 2009.

The progress of monsoon is closely watched as more than two-thirds of the people live in villages and 60% of the farm land depends on the annual rains.

Meanwhile, there are concerns a glut of initial public offer may suck out liquidity from the secondary market. Among the companies likely to tap the primary market include Oil India, Coal India, Pipavav Shipyard, Indiablls Power, Usher Eco Power, MCX, Godrej Properties, ARSS Infrastructure Projects, Pride Hotels, Bharat Sanchar Nigam (BSNL), Great Eastern Energy, JSW Energy, Euro Multivision, and Radiant Info Systems