Market may remain volatile ahead of F&O expiry

Fears of weak Q2 September 2011 results may continue to weigh on Indian stocks, which witnessed a steep slide recently. Volatility is expected to rise as traders roll over positions in the futures & options (F&O) segment from the near-month September 2011 series to October 2011 contracts. The September 2011 derivatives contracts expire on Thursday, 29 September 2011.

Nearly a quarter of top 100 companies have paid lower advance tax in Q2 September 011, reflecting the slowdown in growth and pressure on margins because of rising input costs and higher interest rates. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter.



Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011.

Shares of firms with major exports to US and Europe may extend recent losses on concerns of economic slowdown in US and Europe. Bilateral trade between India and European Union is currently worth about $92 billion. Bilateral trade between India and the US stood at $36.5 billion in 2010. The silver lining for exporters is the falling rupee. Falling rupee is good for exporters as they get more rupees for every dollar they earn.

Recent data highlighted the prospect of a sharp slowdown in the euro zone economy in the second half of the year. The euro zone flash composite purchasing managers index fell in September 2011, marking the first contraction in private sector business activity in two years, with the second successive monthly fall in the manufacturing sector. The Federal Reserve said at the end of a two-day policy meeting on 21 September 2011 that there are significant downside risks to the US economic outlook and also noted strain in global financial markets.

Shares of firms depending on rural income may edge higher on strong monsoon rains. A late surge in rainfall has pushed this season's rains 4% above the 50-year average.