Market may remain volatile ahead of F&O expiry; food inflation data eyed

Volatility may remain high as traders rollover positions in derivatives segment from the March 2010 series to the April 2010 series ahead of the expiry of the near-month March 2010 derivatives contracts today, 25 March 2010. Asian stocks were trading mixed today after Wall street closed in the red on Wednesday, 24 March 2010.

The government will unveil data on some wholesale price indices for the year through 12 March 2010 viz. the food price index, the primary articles index and the fuel price index at about 12:00 IST.

The stock market remained close on Wednesday, 24 March 2010, on account of Ram Navmi.

The demand-side pressure on the economy can build up further and it would be better to take some action now, Reserve Bank governor Duvvuri Subbarao said on Wednesday. The Reserve Bank of India, citing intensifying inflationary pressures and a steady economic recovery, caught investors offguard with a 25 basis point tightening in shorterm lending rates late on Friday 19 March 2010, after local markets had closed.

Prime Minister Manmohan Singh said India could return to 9% growth trajectory by 2011-12, but cautioned that uncertain global environment could still play spoilsport. He said demand creation by expanding investment in infrastructure should act as a counterweight to any weakness in export sector.

The Planning Commission has suggested course correction in various policy measures related to social, agriculture and infrastructure sectors to put the economy back on high growth trajectory, while lowering the growth target for the five years to 2012.

The Planning Commission in its mid-term appraisal (MTA) of the Eleventh Five Year Plan (2007-12) has scaled down the GDP growth target for the period to 8.1% from earlier projection of 9%.The MTA, which was cleared by the full Planning Commission on Tuesday, said the path of fiscal correction is crucial for macro-economic credibility and larger private investment. The MTA document will now be placed before the Cabinet and thereafter before the National Development Council (NDC) for final approval.

India must raise prices of fuel, fertiliser and food sold under welfare schemes to keep its subsidy bill at targeted levels, the deputy chairman of the Planning Commission, Montek Singh Ahluwalia, said on Tuesday. The government has said it would trim subsidies as part of measures to cut its large fiscal deficit.

The economy is expected to grow at 8.5% in this quarter, Kaushik Basu, chief economic adviser in the finance ministrysaid on Wednesday.

Coming back to stocks, encouraging Q4 March 2010 advance tax figures of top Indian firms, indicating good Q4 March 2010 results, had boosted the bourses last week. The market also witnessed a strong post-Budget rally driven by sustained buying by foreign funds since the presentation of the Union Budget 2010-2011 on 26 February 2010.

The stock market gave a thumbs up to the Union Budget 2010-2011 due to its thrust on infrastructure development, government's pledge to reduce fiscal deficit over the next three years, a smaller-than-expected 2% hike in excise duties, and reduction in taxes for individuals which will boost disposable income. The Finance Minister has assumed a modest GDP growth of about 8% and inflation of about 4.5% for 2010-2011.

Going ahead, the key triggers for the stock market are structural reforms such as decontrol of petrol and diesel prices, targeting of food subsidies, and financial sector reforms such as increase in foreign direct investment in insurance sector.

In stock specific news, Kuwait-based Zain Telecom's board cleared Bharti Airtel's proposal to buy its African assets for $10.7 billion (around Rs 48,600 crore), marking the Indian company's first successful attempt to acquire operations in Africa after two failures.Bharti had expressed its interest in Zain in the second week of February and the deadline for exclusive talks was to lapse today.

Asian stock markets were mixed on Thursday, after the Dow Jones industrials slipped following large gains in recent days. The key benchmark indices in China, Hong Kong, Singapore and Taiwan fell by between 0.23% to 1.41%. But, the key benchmark indices in Indonesia, Japan and South Korea rose by between 0.09% to 0.58%.

The US stocks snapped a two-day winning streak on Wednesday, 24 March 2010 after Fitch cut its rating on Portugal by one notch and warned that another downgrade could be on the way. The Dow Jones fell 52.68 points or 0.48% to 10,836.15. The Nasdaq declined 16.48 points or 0.68% to 2,398.76 and the S&P 500 fell 6.45 points or 0.55% to 1,167.72.

In economic news, new-home sales fell around 2% to 308,000, the lowest on record, in February. Mortgage applications fell for a second straight week last week as interest rates crept higher. Orders for durable goods rose 0.5% in February as inventories increased by the most since December 2008.

With unemployment high and inflation low, the Federal Reserve is in no hurry to raise interest rates, two Federal Reserve officials suggested on Tuesday.

European Union leaders hold what is likely to be a tense and difficult summit on Thursday, divided over how to help heavily indebted Greece and struggling to maintain confidence in the euro.

Close home, the key benchmark indices swayed between gains and losses on Tuesday, 23 March 2010 ahead of the derivatives expiry later this week. The BSE 30-share Sensex rose 40.45 points or 0.23% to 17,451.02 on that day.

As per provisional figures on NSE, foreign funds bought shares worth Rs 359.75 crore and domestic funds sold shares worth Rs 73.39 crore on Tuesday.