Market may enter consolidation phase

After a solid surge in past few sessions, the market momentum is now aiming towards consolidation. The market will remain shut on Monday, 21 September 2009, on account of Ramzan Id. The derivatives expiry on Thursday, 24 September 2009, may keep key benchmarks choppy in the near term.

Among the major international cues, the US Federal Reserve will meet next on 22 and 23 September 2009. At the Federal Open Market Committee's meeting, the policy makers will assess the early signs of improvement now taking shape across the economy.

Back home, market may witness selective buying in sectors, which thrive on consumer demand like automobiles and consumer durables ahead of the festive season. Metal and shipping stocks may attract buyers on the back of rise in global industrial activity.

The 50-unit Nifty tested the iconic 5,000 mark on Thursday, 17 September 2009, but retreated to close some points below that level. The trigger was higher advance tax payments by companies for the September 2009 quarter, which boosted investor sentiment and pushed the benchmark index to a 15-1/2 month high.

According to numbers reported by newspapers, advance tax payments improved by as much as six times for some firms compared with the previous quarter. The robust advance tax payouts indicate that the economic recovery is underway.

Going forward, the upcoming earnings season will be closely watched by investors to get a hint of what is in store in terms of corporate earnings in the near term. The investors will also focus on the impact of drought in nearly half the country's districts. Drought in many parts may keep upward pressure on food prices, which may elevate inflation.

Data released by the government on Thursday, 17 September 2009, showed the headline inflation entered the positive territory after a gap of 13 weeks. Inflation based on the wholesale price index rose 0.12% in the year through 5 September 2009 compared to previous week's annual decline of 0.12%. A surge in food price index was responsible for the rise in the headline inflation.

The Union Cabinet on Thursday extended limits on stocks that can be held by traders of sugar, vegetable oils, lentils and rice until September 2010. The move is aimed at keeping a lid on prices of those commodities.

Liquidity has been the key driver in catapulting Indian equities since the lows of 9 March 2009, the fastest such surge since the early 1990s when economic liberalization boosted the market to dizzy heights.

Indeed, foreign institutional investors (FIIs), the largest investor category in local equities, have bought Indian stocks worth Rs 45011.10 crore this year (till 16 September 2009). In 2008, FIIs took out Rs 52987.10 crore from the Indian equities.