Domestic bourses to track global equities

Domestic bourses have been closely tracking global markets for the past few days since US sub-prime worries heightened, causing global risk aversion. They will continue to track global equities in the near term. Asian markets have been rocked by fears that the fallout from the US subprime mortgage crisis and tighter lending conditions will ultimately hit US economy. Early in the new week, Asian markets will react to any surprises in the US non-farm payrolls report due later on Friday, 3 August 2007.

Markets will also closely watch out of US Federal Reserve's policy meeting on Tuesday, 7 August 2007. Any soothing comments from the US central bank about the health of the world's biggest economy may support global equities.

Strong domestic liquidity may support Indian bourses at declines. Domestic private insurance firms have been putting in money raised through unit linked insurance plans (with a very high weighting in equity) in equities. Further, domestic mutual funds have raised Rs 6,000-7,000 crore in the past month or two, of which very little has been deployed in the market so far.

Corporate fundamentals remain strong. ITC, Reliance Industries, HDFC, HDFC Bank, State Bank of India, Maruti Udyog, L&T, Bharti Airtel, Reliance Communications, Ranbaxy Laboratories, Dr Reddy’s Lab, ACC, Grasim reported decent-to-strong Q1 results. But the earnings of IT firms were hit by wage hike and appreciation of the rupee verses the US dollar.

India’s long-term growth drivers are a favourable demography (large share of young population), robust domestic consumption and acceleration in infrastructure creation.