Market may extend recent strong gains

Market may extend recent strong gains on expectations of good Q2 earnings. Sustained buying by foreign funds helped market score gains last week as S&P CNX Nifty rose above 5,000 mark and BSE Sensex surged past the 17,000 mark. Both the indices hit their highest level in more than 16 months. The market sentiment remains firm with a string of data suggesting a recovery in the economy after last year's slowdown. Firm global stocks have supported domestic bourses and investors will continue to take cues from overseas markets. Shares of auto and cement firms will be in focus as they will unveil their monthly sales data for September 2009.

There is optimism about Q2 September 2009 results after advance tax collections registered a positive growth in the second quarter after witnessing a negative growth in the first quarter. IT bellwether Infosys will kickstart the result season by announcing its Q2 result on 10 October 2009.

The latest economic data showed that the economy is recovering from a slowdown last year. The HSBC Markit Purchasing Managers' Index (PMI), based on a survey of 500 companies, surged 55 in September 2009 from a five-month low of 53.2 in August 2009. A reading above 50 shows expansion while below 50 reading denotes contraction. The new orders index rose to 58.3 in September 2009, from August's 56.2, which was its lowest in four months.

The index of six core industries having a combined weight of 26.7% in the index of industrial production (IIP) registered a growth of 7.1% in August 2009 compared to a growth of 2.1% in August 2008. During April-August 2009-10, six core industries registered a growth of 4.8% as against 3.3% during the corresponding period of the previous year. Coal and cement sector boosted overall growth in the six infrastructure industries in August 2009.

The International Monetary Fund (IMF) on 1 October 2009 said China and India will lead Asia's expansion in 2010, growing at rates of 9% and 6.4%, respectively. The IMF said global economy will grow next year, but it will be a sluggish recovery that could stall if policymakers around the world announce a premature exit from accommodative monetary policy and fiscal policies.

The Fund said it now expects the world economy to contract 1.1% in 2009 before growing 3.1% in 2010. This is more upbeat than its last update in July 2009 when the Fund projected the world economy would shrink 1.4% in 2009, before expanding 2.5% in 2010.

Over the four years starting at the end of 2010, global growth is expected to average a little more than 4% a year, below the 5% growth rates before the financial crisis erupted, the IMF said.

Coming back to stocks, a section of the market is concerned that a glut in share sales may suck liquidity from the secondary market. The corporate sector has raised large sums of money through equity and equity related instruments in the past six months or so to either to retire high cost debt or to fund expansion. The supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary market.

As per one report, companies plan to raise at least Rs 40,000 crore through initial public offers (IPOs)/follow on public offers (FPOs) in the second half of the current financial year. Power companies such as GMR Energy, Indiabulls Power and JSW Energy and state-run Bharat Heavy Electricals and NTPC are likely to tap the primary market. A number of realty firms, too, are likely to tap the primary market in the coming months.

Reliance Infratel also announced on 22 September 2009, its intention to raise Rs 5,000 crore from the primary market. A number of companies are also in the fray to raise funds by way of qualified institutional placement (QIP), reports suggest.

Divestment of state-run firms by the government may also increase the supply of paper in the market. A decent debut of Oil India on the bourses on Wednesday, 30 September 2009, may boost government's divestment plan. S. Pradhan, the joint secretary of the department of disinvestment, Government of India, on 30 September 2009 said the government plans to sell stakes in at least five state-run firms by the end of the fiscal year in March 2010 following successful IPOs of two firms that raised $1.8 billion.

His statement comes close on the heels of media reports that the government is planning to announce a blueprint for selling its stake in state-owned firms in the first week of October 2009. The policy is expected to suggest how the government will eventually bring down its stake in public sector companies to 75% over a period of time.

A section of the market is worried of hedge fund redemptions after the one year moratorium on redemption ends in October 2009. Buried under redemption pressure in the aftermath of the collapse of US investment bank Lehman Brothers, hedge funds took a moratorium period of one year in October last year.