Market may remain volatile ahead of F&O expiry

Expiry of the near-month December 2010 futures & options (F&O) contracts may cause volatility next week, the last trading week of calendar 2010. The near-month December 2010 derivatives contracts expire on Thursday, 30 December 2010.

Volumes may continue to remain low as foreign fund managers will be on year-end vacation. Public sector oil marketing companies could be in focus as the Empowered Group of ministers (EGoM) headed by Finance Minister Pranab Mukherjee is likely to propose a marginal hike in diesel prices at a meeting likely to be held on Thursday, 30 December 2010.



If the price of diesel is hiked next week, it will offset an expected decline in wholesale price inflation arising from a favourable base effect. Diesel is a key transportation fuel and any hike in diesel prices directly adds to inflationary pressure.

Corporate earnings for Q3 December 2010, which will start trickling in from the second week of January 2011, will set the direction for the market in the near term.

Foreign institutional investors (FII) have resorted to profit taking this month, having sold shares worth Rs 1259.50 crore (till 22 December 2010). FIIs had bought equities worth Rs 18,293.10 crore in November 2010. FIIs have made record purchases of Indian stocks this year.

On the global front, concerns of euro-zone debt crisis and possibility of another rate hike from China may cap upside on global equities.