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Indian stocks may open marginally higher: Wednesday Market Preview

Global analysts opine that the markets are still going nowhere as investors see some more bad news, going ahead

The local market is likely to open marginally higher tracking its Asian peers which were mostly in the green in early trade on Wednesday. On the other hand, Wall Street continued its losing spree, settling lower for the third day in a row on dismal reports from Wal-Mart and Hewlett-Packard, however, a late recovery helped to cap the losses. The SGX Nifty was 12.50 points higher at 5,462.50 against its previous close of 5,450.

A couple of negative corporate news reports pulled down the indices in trade yesterday. State Bank of India and ONGC emerged as the top losers as the country’s biggest lender reported a huge decline in profit and the oil explorer was hurt by buzz that it would have to share more of the subsidy burden to offset the losses incurred by oil majors.

Earlier, the market opened sideways, tracking weak cues from bourses across Asia. The Sensex opened 29 points up at 18,374 and the Nifty resumed trade at 5,496, down three points from its previous close. Even though headline inflation for April was lower at 8.66%, investors are worried that the government and the Reserve Bank of India (RBI) will continue to take harsh steps to moderate prices. The market touched the day's high at around 9.45am, with the Sensex at 18,436 and the Nifty touching 5,524.

After staying in the green for almost an hour, the indices lost steam and slipped into negative terrain. The market was range-bound in the absence of any major trigger. Oil & gas was the biggest sectoral loser on reports that the government has increased the contribution of upstream oil companies towards sharing the subsidy burden of fuel marketing firms for FY10-11.

The benchmark indices slipped further in afternoon trade, on lacklustre results from the State Bank of India. The news pulled down the banking sector, which ended as the second-biggest sectoral loser. The market staged a minor recovery in the last hour, but still closed in the negative for a second day in a row. The Sensex closed 208 points lower at 18,137 and the Nifty ended the session down 60 points at 5,439.

The market is losing ground and is expected to fall further. The next support for the Nifty lies at 5,340.

Markets in the US ended lower for the third straight day, but a late recovery ensured a close above the day’s lows. The decline was led by negative news from Wal-Mart and Hewlett-Packard. Wal-Mart Stores Inc said same-store sales have now fallen for two years, dragging the 0.9% down, HP tumbled 7.3% after cutting its forecast due to problems stemming from Japan’s earthquake and lower PC sales.

In economic news, the Commerce Department said on Tuesday housing starts declined 10.6% to a seasonally adjusted annual rate of 523,000 units. Figures for March were revised up to a 585,000-unit pace from the previously reported rate of 549,000 units. The Federal Reserve is considering subjecting US banks to annual stress tests, reserving the right to veto dividend pay-outs if they do not pass. A draft of the new rule is set to be approved by the Fed’s board and put out for public comment within weeks. Factory production fell 0.4% in April, its first decline in 10 months. Excluding motor vehicles and parts, factory production rose 0.2% in April.

The Dow declined 68.79 points (0.55%) to 12,479.58. The S&P 500 fell 0.49 of a point (0.04%) to 1,328.98. On the other hand, the Nasdaq gained 0.90 of a point (0.03%) to 2,783.21.

Markets in Asia were mostly in the green, brushing aside global issues. The markets took support from a weak yen, which boosted the outlook for corporates in the region. However, developments in Europe kept investors guarded.

Also, Tokyo Electric Power expects to cool reactors at its stricken Fukushima Dai-Ichi plant by as early as October, maintaining its earlier timetable in an updated plan on resolving the worst nuclear crisis in 25 years.

The Shanghai Composite advanced 0.21%, the Hang Seng gained 0.45%, the Jakarta Composite was up rose 0.59%, the KLSE Composite was up 0.34%, the Nikkei 225 surged 0.88%, the Straits Times added 0.10%, the Seoul Composite jumped 1.13% and the Taiwan Weighted rose 0.25% in early trade.

Back home, India’s market capitalisation to gross domestic product (GDP) ratio has reached a record level of 132.47% in financial year 2010-11 from 23.28% in 2002-03. Market capitalisation to GDP ratio is an indicator of the total listed wealth of a country as a percentage of its GDP.

“The reason for such substantial rise can be attributed to two major factors, first, more and more Indian companies started accessing the capital market through IPOs, secondly, there was a continuous rise in valuations in the capital market; thanks to the bull phase between 2002 and 2003 and between 2007 and 2008,” SMC Global Securities said in a report.

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