Market may move down

The market may snap recent sharp gains which saw the key benchmark indices scale 2-1/2 month highs on Monday, 21 June 2010. Asian stocks were in the red. Trading of the S&P CNX Nifty on the Singapore stock exchange indicated that the Nifty could fall 16.50 points at the opening bell.



Volatility may remain high as traders as traders roll over positions in the derivatives segment from the near-month June 2010 contracts to July 2010 contracts ahead of the expiry of the near-month June 2010 derivatives contracts on Thursday, 24 June 2010.

Asian stocks fell on Tuesday on renewed concern over Europe's economic crisis after Fitch Ratings cut its debt rating on French bank BNP Paribas SA. Fitch slashed BNP's long-term rating to AA-minus, the fourth-highest investment grade, from AA on deteriorating asset quality. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.03% to 0.6%. But, Indonesia's Jakarta Composite rose 0.17%.

US stocks closed lower on Monday, 21 June 2010, after investors lost some of their enthusiasm about China's decision to let its currency appreciate against the US dollar. The Dow Jones industrial average fell 8.23 points, or 0.08% at 10,442.41. The Standard & Poor's 500 Index was down 4.30 points, or 0.38% at 1,113.21. The Nasdaq Composite Index was down 20.71 points or 0.90% at 2,289.09.

Back home, most Indian firms including Reliance Industries, L&T, Tata Steel and Tata Motors, have paid higher advance tax in Q1 June 2010 over Q1 June 2009. Higher advance tax payment normally indicates higher profits for the period under review. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.

Investors will closely watch the progress of the monsoon rains. Between June 1-16, rains were 5% deficient due to super cyclone Phet over the Arabian sea. The cyclone slowed the initial progress of the monsoon which had hit the Kerala coast a day ahead of schedule on 31 May 2010. 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 south-west monsoon usually covers the entire country by mid-July. The weather office late April 2010 said rainfall is likely to be 98% of the long-term average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Meanwhile, in a major development, the government has ended the row over Ulip by promulgating an ordinance on Friday, 18 June 2010, stating that unit linked insurance policies with investment component are insurance products which will come under the regulatory jurisdiction of the Insurance Regulatory & Development Authority (Irda) and not the Securities & Exchange Board of India (Sebi). It amended four Acts to make it clear that Ulips are not securities and they did not form part of collective investment schemes or mutual funds.

These amendments nullify Sebi's April 9 ban on 14 insurance companies from issuing Ulips because they are made effective retrospectively from that date. While making it amply clear that Sebi has no regulatory jurisdiction over Ulips, the government has also ensured that Sebi or any other regulator will not step into the jurisdiction of other hybrid products.

Significantly, the ordinance has not only lifted the uncertainty that affected sale of Ulips but has also brought relief to thousands of unit holders who were worried about their investments ever since the turf war broke out between the regulators two months ago.

Rally in Asian and European stocks lifted the domestic market on Monday, 21 June 2010 after China said over the weekend that it will allow its currency more freedom to move against the US dollar, which should spur its economic growth. An end to the row over regulation of Unit Linked Insurance Products (Ulips), also aided the rally on the domestic bourses. The Sensex and the Nifty attained their highest closing level nearly 2-1/2 months. The BSE 30-share Sensex rose 305.73 points or 1.74% at 17,876.55, its highest closing level since 9 April 2010 on Monday.

As per the provisional figures on NSE, foreign funds bought shares worth Rs 1564.30 crore and domestic funds sold shares worth Rs 561.44 crore on Monday.

Foreign funds have made heavy purchases of Indian stocks over the past few days. The net inflow totaled Rs 4504.96 crore in June 2010 so far (till 21 June 2010) compared to a massive outflow of Rs 12071.13 crore in May 2010.

Domestic funds, which had absorbed some of the heavy selling from foreign funds last month, offloaded stocks worth a net Rs 2013.11 crore this month so far. Domestic funds had mopped up equities worth a net Rs 6361.17 crore in May 2010.