Market may extend Tuesday's gains on firm global cues

The key benchmark indices may extend Tuesday's (18 August 2009) gains on positive global cues. However, weak monsoon, crucial for India's domestic-demand and fall in India's exports may dampen investor sentiment. Market may continue to track global cues in the absence of near term domestic trigger for the market.

Firm global cues helped domestic bourses recover some of the Monday's sharp losses. The BSE 30-share Sensex rose 250.34 points or 1.69% at 15,035.26 on Tuesday, 18 August 2009 after falling close to 4% on Monday.

As per the provisional figures on NSE, foreign funds sold shares worth Rs 721.84 crore and domestic funds bought shares worth Rs 467.44 crore on Tuesday.

Meagre monsoon rains have pushed India to the brink of drought, putting pressure on food prices and energy supplies and imperilling growth. 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.

Finance Minister Pranab Mukherjee said on Tuesday he expected growth in 2009/10 to be over six percent, as forecast earlier and in line with a central bank estimate, despite the monsoon shortfall. Low rainfall has slowed the refilling of India's main reservoirs, threatening the supply of hydro-electric power which accounts for a quarter of India's generation and reducing availability of water to irrigate winter-sown crops such as wheat and rapeseed. Farms minister Sharad Pawar said on Monday that India needed to increase the planting of winter-sown crops and improve irrigation to make up for the damage to farms.

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.

India's merchandise exports fell for the 10th straight month in July, but its balance-of-trade account improved as imports declined at a faster pace, Commerce Secretary Rahul Khullar said at a workshop on agricultural exports on Tuesday. The country's merchandise exports fell 26% from a year earlier in July as the economic crisis continued to hurt global demand, while the value of imports shrank 35%-36% he said.

The government will reportedly sell stakes in at least six to seven more state-run firms in the next 12-14 months after a strong response to an initial public offering last week. Last month, the government's budget for 2009/10 included plans to raise Rs 1120 crore ($230 million) from initial public offers of unlisted firms including Railways subsidiary RITES, Cochin Shipyard, Telecommunications Consultants India and Manganese Ore India. Firms including Oil India, Coal India, NMDC, NTPC, BHEL, Rural Electrification Corp and Shipping Corp of India are also candidates for stake sales.

Asian stocks were mixed today. Nomura Holdings Inc. turned “bullish” on Japan's auto industry. The key benchmark indices in China, South Korea and Taiwan rose by between 0.07% to 0.38%. The key benchmark indices in Hong Kong, Japan and Singapore fell by between 0.24% to 0.41%.

The US Markets made a broad-based rebound from the previous session's sharp decline, finishing near intra-day highs. The markets snapped a two-day losing streak. The Dow gained 82.60 points, or 0.9%, to 9,217.94. The S&P 500 index gained 9.94 points, or 1%, to 989.67, while the Nasdaq Composite Index added 25.08 points, or 1.3%, to 1,955.92.

The markets seemed to shrug off some weak economic data. Housing starts dropped 1% in July, well short of expectations after an upwardly-revised 6.5-percent jump in June. Meanwhile, overall producer prices dropped by 0.9% last month, compared with a 1.8-percent gain in June. However, core prices made a surprise 0.1% decline, suggesting that inflationary pressures remain restricted.

In important earnings from the US, Hewlett-Packard reported better-than-expected quarterly earnings and revenue on Tuesday.