Market may extend gains on firm Asian equities

The market may extend Wednesday 16 May 2007’s rally today on firm global markets. But an intermittent surge in sales by FIIs this month may cap upside. A key event to watch today is a union cabinet meeting which is scheduled later in the day to take up a proposal to allow public sector enterprises to invest their surplus funds in mutual funds. With state owned companies sitting on huge cash surpluses, even a small percentage of this money entering equities indirectly through mutual funds will pep up markets.

Some important March 2007 quarter results are scheduled today and the market will take its cue from these results. Bajaj Auto and Tata Steel report Q4 results on Thursday, 17 May 2007. The board of Bajaj Auto will also consider proposal to split the company into two. Tata Motors and Dr Reddy’s Laboratories unveil Q4 results on Friday, 18 May 2007.

Bank stocks have led rally on the domestic bourses in the past four days on a view that interest rates may be near their peaks. Firm global markets have aided the rally. From a recent low of 13771.23 on 10 May 2007, Sensex gained 356.08 points or 2.58% in four trading sessions to 14127.31 on 16 May 2007.

FIIs pressed sales worth a net Rs 330.80 crore on Tuesday 15 May 2007, as compared to an inflow of Rs 60.50 crore on Monday 14 May 2007. There has been lack of direction regarding FII investment this month. However, there has been an intermittent surge in their outflows. FIIs pulled out a net Rs 553.50 crore from Indian equities this month, till 15 May 2007. FIIs had made heavy purchases in April 2007, aiding the market stage a solid rebound from lower level. Their inflow in April 2007 totaled Rs 6679.20 crore.

As per provisional data, FIIs were net sellers to the tune of Rs 245 crore on Wednesday 16 May 2007, the day when Sensex had surged 198 points. Domestic institutional investors were net buyers to the tune of Rs 403 crore on that day.

Over the next few months, the progress of the June-September monsoon will hold the key to the direction of the domestic bourses. The Indian meteorological department on Monday, 14 May 2007, forecast annual monsoon rains would arrive in Kerala on 24 May 2007. The weather office said last month that this year's monsoon rains were likely to be 95% of the long-term average, with a 5% margin of error. The annual monsoon is vital for India's economic health as it provides the main source of water for agriculture, which generates more than a fifth of gross domestic product (GDP).

Asian stock markets were higher on Thursday, 17 May 2007 boosted upbeat data showing unexpectedly strong growth in US housing starts and industrial output last month. MSCI's measure of Asia Pacific stocks excluding Japan gained 0.30% and was within striking distance of a record high set on Monday, 14 May 2007.

US stocks advanced on Wednesday, 16 May 2007 amid expectations of further corporate takeovers, driving the blue-chip Dow to another record closing high. Dow gained 103.69 points or 0.77% to 13,487.53. The tech laden Nasdaq Composite Index gained 22.13 points or 0.88% to 2,547.42.

In recent days, a spate of merger and acquisition activity as well as increasingly eye-popping takeover bids have helped propel many global indices to record highs. However, the sharp and swift surge has raised concerns of a steep correction.