Profit booking may pull market lower

Weak Asian stocks may trigger profit taking on the domestic bourses, which surged sharply this month. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could fall 5.50 points at the opening bell.



Most Asian stock markets retreated on Tuesday tracking lackluster showing by Wall Street on Monday triggered by worries European government finances are worsening, raising concern the global recovery will stall. The key benchmark indices in China, Hong Kong, Japan and South Korea fell by between 0.07% to 0.76%. But, the key benchmark indices in Indonesia, Singapore and Taiwan rose by between 0.03% to 0.36%.

Indian stocks may remain volatile this week as traders roll over positions from the near-month September 2010 series to October 2010 series ahead of the expiry of the near-month September 2010 derivatives contracts on Thursday, 30 September 2010.

Foreign funds have made heavy purchases of Indian stocks this month. Foreign institutional investors (FIIs) bought shares worth a net Rs 1136.81 crore on Monday, 27 September 2010, on the top of an inflow of Rs 1149.80 crore on Friday, 24 September 2010, as per data from the stock exchanges.

FII inflow in September 2010 totaled Rs 19,786.04 crore (till 27 September 2010), as per data from the stock exchanges. FII inflow in the calendar year 2010 totaled Rs 39,281.14 crore (till 27 September 2010).

On the macro front, the food price index rose 15.46% while the fuel price index climbed 11.48% in the year to 11 September 2010, government data on Thursday, 23 September 2010 showed. In the prior week, annual food and fuel inflation stood at 15.10% and 11.48% respectively.

The primary articles index was up 16.80% in the latest week compared with an annual rise of 16.22% in the previous week, which was the first reading of a new series of data with a different base year of 2004-05, new components and weightings. The wholesale price index the most widely watched gauge of prices in India rose 8.5% in August.

At a mid-term policy review on Thursday, 16 September 2010, the Reserve Bank of India (RBI) signaled that it may be nearing a pause in its current tightening cycle. The central bank said its rate and liquidity actions since October 2009 have been driven by two considerations -- normalisation of the monetary policy stance as the crisis abated and inflation management. The Reserve Bank of India believes that the tightening that has been carried out over this period has taken the monetary situation close to normal, it said. Consequently, the role of normalisation as a motivation for further actions is likely to be less important, the RBI said.

The RBI on Thursday, 16 September 2010 raised its repo rate, or benchmark lending rate, by a quarter point to 6%, at a mid-term monetary policy review. The central bank also hiked the reverse repo rate, or the rate at which it borrows funds, by half a point to 5%. Both these changes will take place with immediate effect.

The cumulative rainfall in the country during 1 June to 22 September was 4% above normal, IMD data showed. Meanwhile, reports suggested monsoon rains have finally started withdrawing from grain-producing regions of northwest India. 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 key benchmark indices eked out small gains to attain their highest closing levels in more that 32 months on Monday, 27 September 2010 as firm global stocks and the recent strong foreign fund inflows underpinned sentiment. The BSE 30-share Sensex was up 72.20 points or 0.36% to 20,117.38, its highest closing since 15 January 2008.