Derivatives expiry, year-end reshuffling of positions may cause volatility

Expiry of the near-month March 2011 derivatives contracts may keep stocks choppy next week after this week's strong gains. Year-end reshuffling of positions by traders may also add to volatility. The near-month March 2011 derivatives contracts expire on Thursday, 31 March 2011.



Auto and cement shares could be focus ahead of the monthly sales data. On the macro front, a private survey due on Friday, 1 April 2011, will indicate the health of the manufacturing sector in March 2011. The manufacturing sector expanded at its fastest clip in three months in February 2011 as more new orders poured in. The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, rose to 57.9 in February 2011 from 56.8 in January 2011. The survey had also showed that input prices rose at a record pace.

The near-term trend on the bourses will be driven by expectations about Q4 March 2011 results. The Q4 results will start trickling in from about mid-April 2011.

High crude oil and other commodity prices remain a cause for concern both on the macro and micro front. On the micro front, high commodity prices will put pressure on profit margins of manufacturing firms. On the macro front, high crude oil prices, which are currently near 2-1/2-year highs, could add to inflationary pressure.

The Reserve Bank of India (RBI) raised key interest rates at a mid-quarter policy review on 17 March 2011 and the central bank also said it will continue with its anti-inflationary stance. The central bank also warned that continuing uncertainty about energy and commodity prices may vitiate the investment climate, posing a threat to the current economic growth trajectory. In particular, the weak performance of capital goods in the index of industrial production suggests that investment momentum may be slowing down, the RBI said.