Market may extend gains on strong FII inflow

The market may extend gains next week with foreign investors pouring in money into Indian stocks, tempted by the country's rapid economic growth. The widely tracked BSE Sensex galloped past 20,000 points recently and is a few points away from an all-time peak of 21,206.77.



Foreign institutional investors (FIIs) bought shares worth a staggering Rs 2,496.39 crore on Thursday, 30 September 2010, as per the provisional data from the stock exchanges. FII inflow in September 2010 totaled Rs 23612.43 crore, as per data from the stock exchanges. FII inflow in the calendar year 2010 totaled Rs 43107.53 crore (till 30 September 2010).

Net equity inflow in 2010 now stands at a record $18.37 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India. The Sebi data includes FII inflow through primary and secondary market route.

The US is trying hard to ward off a double-dip recession, while Europe is hoping that the overstretched banking system does not go bust. The outlook for world trade is subdued and economies that depend on exports to drive growth could face pain.

India's $1.3-trillion economy thrives on vast domestic consumption. According to recent, International Monetary Fund forecast, Indian economy will expand 9.4% in 2010. It is this growth potential that is attracting foreign investors. India's low reliance on exports and a widening savings investment gap also makes it attractive for foreign investors.

The domestic financial institutions have been taking money off the table. Retail investors are not participating in this rally in a big way because the bitter memory of the 2008 slump is still fresh in their mind.

For the near term, a section of the market is concerned that the large initial public offer (IPO) of state-run Coal India in mid-October 2010 would soak liquidity from the secondary equity markets. The government plans to raise about Rs 15000 crore to Rs 16000 crore from divestment of 10% stake in Coal India. The IPO is billed as the country's largest issue ever.

The next major trigger for the market is Q2 September 2010 results of India Inc. Software bellwether Infosys Technologies will kick start Q2 result season on 15 October 2010.