Market may remain volatile ahead of F&O expiry ahead

Equities
may remain volatile next week as investors roll over positions in the futures & options (F&O) contracts from August 2009 series to September 2009 series ahead of the expiry of the August 2009 series on Thursday, 28 August 2009. Global markets may continue to play a pivotal role in setting the direction. Scanty monsoon rains may weight on investor sentiment.

Poor rains this year have raised worries about growth in India's domestic-demand driven economy. Annual monsoon rains, running between June to September, are the main source of irrigation for farms and are crucial for Asia's third-largest economy as more than two-thirds of the people live in villages and 60% of the farm land depends on the annual rains.

Finance Minister Pranab Mukherjee said on Friday, 21 August 2009, the government will take all the required steps to control drought. Addressing a gathering of state agriculture ministers, Mukherjee said the monsoon situation in the country is difficult and that 246 districts were drought hit. He added late rains could help winter crop and said the government will import grains if needed. He said that the government has good buffer stock of grains.

Prime Minister Manmohan Singh recently said that India is equipped to handle a widespread drought as there is room for several fiscal steps to cushion the impact of a dry spell.

The rainfall deficit in the country narrowed to 26% during the period from 1 June 2009 to 19 August 2009 from 29% during the period from 1 June 2009 to 12 August 2009. Rains were 2% below normal in the week ended 19 August 2009, the Meteorological Department said on Thursday, 20 August 2009

Meanwhile, investor optimism about the global economy has soared to its highest level in nearly six years, with portfolio managers putting their cash back into equity markets, a global fund manager survey for August 2009 by a foreign brokerage house showed.

A net 75% of survey respondents believe the world economy will strengthen in the coming 12 months, the highest reading since November 2003 and up from 63% in July 2009. Confidence about corporate health is at its highest since January 2004. A net 70% of the panel respondents expect global corporate profits to rise in the coming year, up from 51% last month.

Trend in foreign fund flow holds key. It has been a major driver of secondary equity markets in India. Heavy buying by foreign funds has triggered a solid surge on Indian stocks this year. Foreign funds turned sellers after the recent strong buying in equity markets. Foreign institutional investors (FIIs) sold shares worth Rs 396.30 crore this month (till 19 August 2009). FII inflow in calendar year 2009 totaled Rs 35,761 crore