Market to stay cautious ahead of key events

The market is likely to stay highly cautious ahead of key events today and in near future. Volatility will be intense in times to come.

An important set of data marketmen would be keenly awaiting today (25 May 2007) is that of inflation. India's wholesale price inflation rate is forecast at 5.24% for the 12 months to 12 May 2007, the lowest since early September 2006l. The data will be released around noon. Annual inflation in the previous week was 5.44%.

The annual rate had hit 6.69% on 27 January 2007, its highest in more than two years, but has since moderated as the central bank tightened policy and the government cut duties on a range of items to rein in prices.

Rumors of the Reserve Bank of India (RBI), which has already raised the cash reserve ratio (CRR) thrice since December 2006, contemplating another hike, though only on incremental deposits this time, in weighing on the bourses. There is a buzz in the market that the decision can come today evening. CRR is the percentage of deposits that banks are required to keep with the RBI.

RBI is particularly concerned about absorbing excess liquidity since it has lowered the inflation target from 5-5.5% to 4-4.5% for 2007-08.

The market is seriously worried about big IPOs lined up June onwards. It is believed to be the highest-ever capital mobilisation. Lot of liquidity will be sucked off from the secondary market. This will make its way to the primary market.

Real estate giant DLF has set a price band of Rs 500-550 per share for its initial public offer and lowered its mop-up target to a maximum of Rs 9,625 crore, against earlier estimates of up to Rs 13,600 crore. The issue will open on 11 June and close on 14 June 2007.

DLF would come out with a public issue of 17.5 crore equity shares of Rs 2 each through 100% book-building process. The post-issue dilution of the issue would be over 10%. This public issue would still be largest IPO as ONGC had raised Rs 10,500 crore through follow-on-offer, a company official said.

Also the country’s second largest bank, ICICI Bank, has sought approval from Sebi to sell Rs 17,500 crore of shares to local and overseas investors. The bank has set a target of launching the issue in June. The offer may be raised to Rs 20,100 crore depending on demand, the sale document said.

Asian markets were trading weak. Japan's Nikkei plunged 1.59% or 280.86 points at 17,416.11, while Hong Kong's Hang Seng index tumbled 1.38% or 286.48 points at 20,512.49.

Taiwan's Taiwan Weighted (down 0.82% or 67.63 points at 8,148.78), Singapore's Straits Times (down 1.09% or 38.45 points at 3,491.81) and South Korea's Seoul Composite (down 0.42% or 6.89 points at 1,639.70), were also trading lower.

Wall Street retreated yesterday after housing data showed sales surged in April by the largest amount in 14 years and damped hopes that an interest rate cut would be needed to stimulate the economy.

The Dow Jones industrial average fell 84.52 points, or 0.62%, to 13,441.13. The shift in the direction of the Dow and the other major indexes Thursday was pronounced. The Dow rose nearly 100 points to 13,624.55 early in the session -- eclipsing its previous trading high of 13,609.75 reached Wednesday -- before pulling back.

Broader stock indices also declined. The Standard & Poor's 500 index lost 14.77 points, or 0.97%, to 1,507.51, and the Nasdaq composite index fell 39.13 points, or 1.52%, to 2,537.92.

Except Patni Computers, all the Indian ADRs ended with sharp declines. Rediff plummeted 3.66% and VSNL crashed 3.19% while, Infosys, Satyam, Wipro, HDFC Bank and Tata Motors dropped 1-2% each.

Crude oil rose from a one-week low in New York on speculation U.S. refiners will have to increase fuel production to restore stockpiles and meet peak summer demand. Crude for July delivery rose as much as 35 cents, or 0.6%, to $64.53 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $64.38 at 10:30 a.m. in Singapore.

The contract fell $1.59, or 2.4%, to $64.18 yesterday, a one-week low and the biggest one-day decline since 9 April.

Brent for July delivery was at $70.67 a barrel on the London-based ICE Futures exchange, after rising 0.2% to $70.72 yesterday, its highest close since 28 August.

Technically, the Sensex has strong support at 14,000 level and on the upside faces a stiff resistance at 14,600 level. Similarly, the Nifty has support of 4,180 on the downside, while on the upside there is a near term resistance at 4,300.

The annual monsoon is predicted to strike the Kerala coast Sunday, 27 May 2007, four days ahead of its normally scheduled date of arrival on 1 June 2007. From Kerala the monsoon travels upwards to the parched central Indian plans and is expected to bring rains to New Delhi by the end of June