Market may remain volatile on expiry of October F&O contracts

High volatility is expected on the bourses in a truncated trading week. There are many variables for investors to grapple with, including corporate earnings, a policy review from the Reserve Bank of India (RBI), expiry of the near-month October 2011 futures & options (F&O) contracts and a European Union summit to finalise a package of comprehensive measures to tackle the euro-zone debt crisis. The near-month October 2011 derivatives contracts expire on Tuesday, 25 October 2011.

A special Muhurat trading session is being held on the bourses from 16:45 IST to 18:00 IST on Wednesday 26 October 2011 on account of Diwali. There is no regular trading session on that day. The market also remains closed on Thursday, 27 October 2011, on account of Diwali, the festival of lights.



Shares of exporters and IT firms may edge higher and those of importers may edge lower, with the rupee hitting a near 30-month low below 50 against the dollar on Friday, 21 October 2011. A weak rupee will increase the competitive advantage of Indian exporters by making their products cheaper for overseas buyers. On the other hand, for those firms with high imports, a weak rupee will increase import costs. As far the IT sector is concerned, a weak rupee boosts revenue of IT companies in rupee terms as the sector derives a lion's share of revenue from exports.

Stock-specific activity may dominate trade in the near-term as earnings flow in. 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. Cigarette major ITC, Sterlite Industries and Titan Industries unveil Q2 results on Monday, 24 October 2011. NTPC, Kotak Mahindra Bank and Dr. Reddy's Lab unveil Q2 results on Tuesday, 25 October 2011. Indian Hotels unveils Q2 results on Friday, 28 October 2011. Maruti Suzuki and LIC Housing Finance report Q2 results on Saturday 29 October 2011.

With inflation remaining at uncomfortably high level, the Reserve Bank of India (RBI) is seen delivering another rate hike at its half-yearly review of the monetary policy on Tuesday, 25 October 2011. A 25 basis points hike in repo rate is expected from the central bank on 25 October 2011. The annual rate of inflation in the food space increased in early October while inflation in the fuel group also edged up, data released by the government showed recently.

Germany and France have convened another European Union summit next week to finalise a package of comprehensive measures to tackle the euro-zone debt crisis. French President Nicolas Sarkozy and German Chancellor Angela Merkel on 20 October 2011 said that they would "provide a comprehensive and ambitious response to the current crisis in the euro area." The measures will be discussed on Sunday, 23 October 2011, at the summit meeting of European leaders and adopted at a second summit meeting no later than Wednesday, 26 October 2011, a statement released by both parties said.