Weekly Newsletter - March 5 2010

The Budget-day rally managed to extend for a couple of more sessions before the bulls ran out of steam. This was mainly to profit taking and partly due to lingering global concerns. What also weighed on the sentiment was an imminent spike expected in inflation on the back of a hike in petrol and diesel prices. However, the Government seemed to be convinced that higher fuel prices won't have that much of an impact on headline inflation. But, even without the fuel price hike, monthly inflation could touch the double digit mark in a few weeks. The latest monthly inflation numbers will be released in the middle of this month.

Meanwhile, the economic data to watch out for next week will be the IIP report. We expect robust growth in industrial production. Growth in services sector too appears to be on a firm wicket. The only missing piece from the jigsaw puzzle is agriculture, which is suffering due to a poor monsoon. In this context, southwest monsoon will assume significance. Another bad monsoon could put paid to any hopes of returning to the high growth path and might disrupt the Government's finances too. In the near-term though, the market might advance if the momentum in FII inflows persists. Valuations are not cheap and external headwinds still threaten to derail the fragile global recovery. Look for opportunities at a more opportune time.