Key economic data will dictate trend on the bourses today. However, traders may refrain from building fresh positions ahead of an extended weekend. The market remains closed on Monday 14 April 2008 on account of Dr. Babasaheb Ambedkar Jayanti.
The government will today release data on industrial production for February 2008. Data released early this month which showed an improvement in infrastructure sector growth has raised expectation of improvement in industrial production for the month. Industrial production growth had slumped to 5.3% in January 2008. Infrastructure sector which account for nearly 27% of industrial output, grew 8.7% in February 2008, much faster than a downwardly revised 3.1% growth in January 2008. Industrial production accounts for about a fifth of gross domestic product (GDP).
Another data due today is inflation for the year through 29 March 2008. Inflation had surged to a three year high of 7% in the week ended 22 March 2008, sparking concerns that the Reserve Bank of India may tighten monetary policy. That in turn has caused volatility in bank stocks.
The near term trigger for the market is Q4 March 2008 results of India Inc. Analysts will be closely watching what the company managements have to say about the outlook for the year ending March 2009 (FY 2009). Analysts will also scrutinize disclosures that companies may make regarding foreign exchange derivatives products that they have bought on the advice of their bankers. A steep decline in the value of the US dollar against the Japanese Yen and the Swiss Franc hit Indian corporates which have used these two currencies (Yen and Franc) extensively to swap their rupee denominated debt. As per estimates by a domestic brokerage, the mark-to-market losses of corporate India under forex derivatives could be around $4 billion.
What added to the gloom regarding corporate earnings was lower-than-expected provisional results announced by Bharat Heavy Electrical (Bhel), India's biggest power equipment firm by revenue, recently. Slower than expected execution rate and project specific delays could be the reasons for the lower-than-expected growth in the top line of Bhel.
Recent government action to rein in inflation has also added to uncertainty about outlook on corporate profits. The government has scrapped import duty on crude edible oil and banned the export of rice and pulses. It also surged steelmakers to cut prices of the alloy.
Prospects of further outflow by foreign funds to offset losses incurred by them in the US sub-prime mortgage market continue to weight on the market sentiment. In the calendar year so far, FIIs sold shares worth a net Rs 11455.60 crore (till 9 April 2008), to offset their huge losses in the US sub-prime mortgage market. As per provisional data, FIIs sold shares worth a net Rs 462.34 crore on Thursday, 10 April 2008.
As far as domestic liquidity is concerned, inflows to equity mutual funds and unit linked insurance plans (with high weightage for equity) have slowed after the sharp setback on the bourses in the past two months. As per provisional data, domestic funds bought shares worth a net Rs 594.48 crore on Thursday, 10 April 2008.
US stocks rose on Thursday after a brokerage upgrade of chip makers lifted technology stocks and on optimism that poor March sales may have been the low point for retailers this year.
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