Given that the market has witnessed a sharp and swift surge over the past few days, correction is inevitable after the sharp spurt. Q2 September 2007 results remain the key near term trigger for the market. The near term activity on the bourses is likely to be stock-specific based on Q2 result expectations.
Decent to strong Q2 results are expected from cement, steel, and telecom firms. Cement and steel firms are seen reporting strong Q2 numbers on the back of firm prices whereas robust subscription growth is expected to drive earnings of cellular services providers. IT firms are seen reporting good numbers on the back of volume growth and also because September 2007 quarter is seasonally the strongest of the four quarters for IT firms.
On the other hand, auto firms are seen reporting dismal numbers due to fall in volumes arising from higher interest rates.
FII inflow may remain strong due to ample global liquidity further enhanced by US Federal Reserve's last month's steep cut in the key benchmark interest viz. the fed funds rate by 50 basis points to 4.75%. A further cut in interest rate by Fed, if any, will only add to liquidity further which in turn ensure that FII inflow in India and emerging markets remain strong.
Emerging markets including India have witnessed strong FII inflows ever since the last month's Fed cut, given the improved fundamentals of emerging markets.
Domestic liquidity remains strong. Insurance firms have been channelising money raised through unit-linked insurance plans (with a high weightage for equities) into the markets. A sharp correction, if any, may lead to bargain bunting by domestic mutual funds which are said to be sitting on a cash pile of about Rs 14000 crore.
The market's fears that a political impasse over a nuclear energy deal with the United States would lead to early elections, too, has eased with Congress President Sonia Gandhi stating on Friday, 12 October 2007, she doesn't want early election. Gandhi said that the Left parties, which were opposing the deal, were not being unreasonable, and that the government was not looking for a confrontation with them because that was not the "coalition dharma."
Left front which is supporting the government from outside has been against operationalisation of the nuclear deal with the US, which had caused a rift between the government and the Left front. There had been fears that possibility of an early election could see the government announcing populist measures that would widen the fiscal deficit.
The near term trigger for the market is RBI's Mid Term Review Of Annual Policy due on 30 October 2007. It remains to be seen whether the central bank does away with a hawkish stance in the policy. However, a near term rate cut by RBI looks unlikely given that consumer price base inflation and liquidity remain high.
India's economy is expected to post decent to strong growth for a long period of time mainly due to favourable demographics.
No comments:
Post a Comment