Volatility expected ahead of F&O contracts expiry

The market may take a deep breath after Tuesday’s 208-point surge triggered by Reserve Bank of India (RBI) keeping all policy rates unchanged at its annual monetary policy review. Weak Asian markets may weigh on the domestic bourses today. Volatility is likely to remain high ahead of the expiry of the April 2007 derivative contracts on Thursday (26 April 2007).

Corporate results announced so far have been strong. The key Q4 results of Grasim, Reliance Energy, National Aluminium Company and Infrastructure Development Finance Company (IDFC) will be declared today.

FII inflow will dictate the trend. After a heavy inflow of the past few days, FIIs turned sellers on Monday (23 April 2007). They were net sellers to the tune of Rs 68.50 crore on that day. Their inflow for April 2007 (till 23 April) reached Rs 5051.20 crore.

As per provisional data, FIIs were net buyers to the tune of Rs 340 crore on Tuesday (24 April 2007), the day when the Sensex had surged 208 points following RBI’s decision to hold rates steady. Domestic institutional investors were net buyers to the tune of Rs 184 crore on Tuesday.

In its monetary policy announced Tuesday, RBI forecast that annual wholesale price inflation, which was running just above 6% in early April 2007, will be close to 5% at the end of March 2008. The RBI forecast GDP growth at 8.5% in the fiscal year ending March 2008, lower than the 9.2% expected for 2006/07.

The outcome of the ongoing seven-phased Uttar Pradesh assembly elections, is a key political event to watch out for. The UP vote is seen as a barometer of national political trends.

Asian stocks fell on Wednesday and the dollar stuck near a two-year low to the euro after data suggested economic growth in the United States, the top overseas market for Asian firms, will keep slowing. The latest data showed US existing home sales posted their biggest monthly drop in 18 years and consumer sentiment hit an eight-month low. Key benchmark indices in Japan, South Korea, Singapore and Taiwan were down between 0.15 - 0.96%.

The Dow Jones industrial average rose on Tuesday, as IBM boosted its dividend by a third and as companies such as DuPont Co posted strong earnings. But weak economic data weighed on the broader market and tempered the Dow's late surge toward the 13,000 milestone. The Dow hit an intraday record of 12,989.86, but pared gains in the last hour of trade. It ended up 34.54 points, or 0.27%, at 12,953.94. The Standard & Poor's 500 Index slipped 0.52 point, or 0.04%, to close at 1,480.41. The Nasdaq Composite Index ended up 0.87 point, or 0.03%, at 2,524.54.

IBM's surge accounted for more than 26 points of the Dow's rise of 34.54 points, which also was boosted by a 3.3% gain in the shares of Honeywell International Inc.