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Indian shares to see positive opening: Monday Market Preview

Continuing tensions in the Middle East, which is set to impact crude prices, remains a cause for worry

The domestic market is likely to witness a positive opening today. The Asian markets were trading in the positive zone even though China, on Friday, increased its required reserve requirements for banks by 50 basis points. Continuing turmoil in the Middle East and North Africa, however, is expected to keep investors on their toes.

The US markets ended with gains on Friday amid news that the Libyan government forces have agreed to a ceasefire. Meanwhile, Britain and France were contemplating a no-fly zone over Libya to restrain Maommar Qaddafi’s forces from attacking civilians. The SGX Nifty was 43.50 points higher at 5,426.50, up from its previous close of 5,383 on Friday.

The local market is breaking down in a slow motion. For the entire February and March, market indices have been moving sideways. A short sell-off before the Union Budget was followed by a short rally thereafter. But last week it suddenly took a turn for the worse. The trigger was Reserve Bank of India’s (RBI) credit policy. The RBI has hiked the interest rates by 0.25% to control inflation. This follows a series of hikes RBI has been making over the past one year. The impact will be instant.

Loans for business and individuals will become costlier. In a rising inflation and a rising interest rate situation, it becomes difficult for stocks to maintain high valuations. While companies may be able to absorb a slightly higher cost of borrowing, the environment becomes uncertain and stock prices go down.

The next few weeks will be a testing time. If the Sensex goes below 17,700 in the next few days, more declines will happen.

Wall Street closed with gains on Friday on easing of political tensions in Libya following announcement of a cease fire by the government. Bank shares jumped as the Federal Reserve stated that it will allow some banks to boost or restart dividend payments. The collective efforts of the Bank of Japan and the G7 nations to intervene in the currency markets to curb the yen’s rise also boosted investors’ sentiments. However stocks came off their highs to close in the green.

The Dow gained 83.93 points (0.71%)  at 11,858.52. The S&P 500 added 5.49 points (0.43%) at 1,279.21. The Nasdaq rose 7.62 points (0.29%) to close at 2,643.67.

Markets in Asia were trading in the green on optimism as factories are seen restarting operations after the devastating earthquake earlier this month, which brought industrial activity to a standstill in the world’s third largest economy.

Meanwhile, the Chinese central bank on Friday hiked the required reserve ratio for banks by 50 basis points, the third this year and the sixth since November 2010. The move is expected to curb liquidity in a bid to control rising prices. However, continuing tensions in the Middle East remains a cause for worry.

The Shanghai Composite gained 0.43%, the Hang Seng jumped 1.26%, the Jakarta Composite rose 0.45%, the KLSE Composite added 0.01%, the Straits Times advanced 0.86%, the Seoul Composite was up 0.88% and the Taiwan Weighted gained 0.98%. Markets in Japan are closed today for a local holiday.

 Back home, total under recoveries for the oil marketing companies (OMCs) will go up to Rs98,000-crore in FY12 if average crude oil prices continue to remain at $100 per barrel in the coming months,, a report by a brokerage firm IIFL said.

With the crude oil prices touching $100 per barrel mark in February, the under recoveries for FY11 is expected to touch Rs72,000-crore, the report said. For the period April-December 2010, the gross under recoveries of OMCs were Rs47,000-crore based on average crude oil price of $80 per barrel.

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