Market may remain choppy amid European debt worries

Domestic bourses will take cues from global markets as euro zone debt worries continue to haunt global stocks. More so given that the fourth quarter earnings season is nearing an end.

Investors are worried about the likely impact of euro zone fiscal problems on capital inflows in India. Foreign institutional investors (FIIs) are the key driver of the Indian market. FII outflow in May 2010 totaled Rs 2,355.70 crore, while the inflow in the calendar year 2010 totaled Rs 27,650.10 crore (till 12 May 2010). Redemption pressure for European funds in their home countries may force selling by European funds in emerging markets.

The fourth quarter corporate results announced so far have been fairly encouraging. The combined net profit of a total of 1,679 companies rose 26.6% to Rs 47896 crore on 27.5% rise in sales to Rs 478383 crore in the quarter ended March 2010 over the quarter ended March 2009.

Among the results due next week include Berger Paints, Clutch Auto, Uttam Sugar Mills, Godrej Properties, Rajshree Sugars, Munjal Showa, Rural Electrification Corporation, Amara Raja Batteries, Gangotri Textiles, Agro Tech Foods, Hindusthan National Glass, Transport Corporation of India, Shree Cement, Karur Vysya Bank, Simplex Realty, Dolphin Offshore and MRO-TEK.

On the macro front, the latest economic data showed industrial output rose lower than expected 13.5% in March 2010. The growth was also slower than February's 15.1% expansion. Manufacturing sector output rose 14.3% in March 2010. Industrial output rose 10.4% in the 2009/10 fiscal year, faster than the 2.6% growth clocked in the previous fiscal year.

The Indian Meteorological department (IMD) expects normal rainfall in the June-September monsoon season this year. Rainfall is likely to be 98% of the long-term average, the IMD said on 23 April 2010. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation. The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The quantum of rainfall in the crucial sowing month of July and distribution of rainfall during the monsoon season holds key.

The Reserve Bank of India expects India's economy to expand 8% in the year ending March 2011 (FY 2011) with an upward bias, assuming a normal monsoon this year and sustenance of good performance of the industrial and services sectors on the back of rising domestic and external demand. The RBI at its annual policy review on 20 April 2010 said it will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.

In its half-yearly World Economic Outlook, the International Monetary Fund (IMF) has pegged India's GDP growth at 8.75% in calendar 2010 and 8.5% in calendar 2011. According to the IMF, domestic demand in India will strengthen as the labour market improves, and investment is expected to be boosted by strong corporate profitability, rising business confidence and favourable financing conditions.