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Indian stocks to see negative opening: Monday Market Preview

Concerns about Greece an Italy’s ratings downgrade spooked markets worldwide

The Indian market is likely to open lower on dismal global cues following Fitch Ratings’ downgrade of Greece’s credit ratings and Standard & Poor’s warning that it would Italy’s rating that spooked the markets worldwide. The development led the US bourses closing lower on Friday and markets in Asia opening negative today. The SGX Nifty was 45.50 points down at 5,433.50 compared to its Friday’s close of 5,479.

Global factors and a mixed bag of corporate earnings resulted in the market closing with a negative bias for a fourth consecutive week. A steep Rs5 petrol price hike fuelled more speculation of a further interest rate hike by the Reserve Bank of India (RBI), slowing down the tempo and this does not look like changing in the near term.  

The market, settled with deep cuts on Monday and Tuesday, but the losses were reduced on Wednesday. On Thursday and Friday, the indices settled higher, recovering some of the earlier losses. Still, on a weekly basis, the market was 1% lower with the Sensex 205 points down at 18,326 and the Nifty off 58 points at 5,486.

While the expiry of the May futures and options contract mid-week is expected to keep the market range-bound, an imminent diesel price hike that will impact costs across the board will likely weigh on sentiments. The Nifty should stay in a range between 5,300 and 5,600.

Markets in Asia were weak in early trade on Monday, weighed down by the debt issues in Euro zone nations, which is expected to hurt the outlook of exporters in the region. The South Korean market decline was led by Hyundai and Kia Motors on account of a strike at a supplier’s facility.

The Shanghai Composite declined 0.94%, the Hang Seng tumbled 1.52%, the Jakarta Composite tanked 1.26%, the KLSE Composite fell by 0.36%, the Nikkei 225 shrank 1.38%, the Straits Times was 0.97% lower, the Seoul Composite sank 1.91% and the Taiwan Weighted declined 1.16%.

The US market fell on Friday on euro-zone debt worries while retailers lost ground after a weak profit outlook from Gap. Friday’s losses followed two consecutive days of gains for the Dow and S&P 500. Trading remained light as a lack of US economic data prompted some investors to take cautious positions heading into the weekend.

Fitch Ratings’ downgraded Greece’s credit ratings by three notches due to the scale of the country’s challenge in securing solvency. S&P last week cut Italy’s credit-rating outlook to negative from stable, citing slowing economic growth and “diminished” prospects for a reduction of government debt.

In corporate news, Gap plunged 17%, after the US largest apparel retailer by sales warned that raw-materials costs are rising faster than expected, and faster than it can raise prices.

The Dow declined 93.28 points (0.74%) to end at 12,512.04. The S&P 500 fell by 10.33 points (0.77%) at 1,333.27 and the Nasdaq Composite was down 19.99 points (.71%) to close at 2,803.32.

Back home, the government will begin its consultations on Monday with various stakeholders regarding a new set of rules on how stock exchanges should be owned and run, proposed by a Securities and Exchange Board of India (SEBI)-appointed committee last year.

Besides the exchanges, new ownership and governance rules have also been proposed by the committee, chaired by former Reserve Bank of India (RBI) RBI governor Bimal Jalan, for other market infrastructure institutions like depositories and clearing corporations.

After SEBI sought the government’s stand on the proposals made by the Jalan panel in this regard, a committee has been set up with representation from the ministry of corporate affairs, stock exchanges and industry bodies among others to study the proposed rules and suggest necessary changes.

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Range-bound movement expected: Weekly Market Report

Nifty will move between 5,300 and 5,600

Global factors and a mixed bag of corporate earnings resulted in the market closing with a negative bias for a fourth consecutive week. A steep Rs5 petrol price hike fuelled more speculation of a further interest rate hike by the Reserve Bank of India (RBI), slowing down the tempo and this does not look like changing in the near term.  

The market, settled with deep cuts on Monday and Tuesday, but the losses were reduced on Wednesday. On Thursday and Friday, the indices settled higher, recovering some of the earlier losses. Still, on a weekly basis, the market was 1% lower with the Sensex 205 points down at 18,326 and the Nifty off 58 points at 5,486.

While the expiry of the May futures and options contract mid-week is expected to keep the market range-bound, an imminent diesel price hike that will impact costs across the board will likely weigh on sentiments. The Nifty should stay in a range between 5,300 and 5,600.

State Bank of India's profit plunge dragged the stock down 12% this week, ending as the top loser on the Sensex. ONGC lost 10% on reports that the government is expecting the oil explorer to share a larger part of the subsidy burden. Reliance Communications (down 8%), Reliance Infrastructure and Jaiprakash Associates (down 7% each) were the other major losers. On the other hand, Larsen & Toubro was the top gainer (up 8%), bolstered by upgrades following a 17% increase in quarterly profit. TCS (up 4%), Cipla, HDFC Bank (up 3% each) and BHEL (up 2%) were other major gainers.

Among the sectors, BSE PSU and BSE Oil & Gas indices tumbled 5% each, but BSE Capital Goods rose 4% and BSE Consumer Durables gained 1%.

On Thursday, finance minister Pranab Mukherjee expressed relief over a marginal easing of inflation, saying "Both in food inflation and overall wholesale price index (WPI) inflation there is a declining trend."

The government said headline inflation for April was down to 8.66% from the revised 9.04% in March. (The revision was carried out as metal products were not incorporated earlier due to a programming error.) The inflation figure for February was similarly revised upward to 9.54% from the earlier 8.31%.

Food inflation slipped further to 7.47% for the week ended 7th May, from 7.70% in the previous week. This is the lowest rate of price rise in food items in the last 18 months, since separate data for food inflation started coming in. It is also the third consecutive week that food inflation has been lower.

But India's chief statistician TCA Anant warned that high global crude prices could impact economic growth in 2011-12. He projected that the gross domestic product (GDP) is likely to grow by around 8.5% during the fiscal. Mr Anant also expects headline inflation to fall below the 8% mark by August-September if the monsoon is normal.

On the political front, the Central Bureau of Investigation (CBI) filed its first charge-sheet in a Delhi court against Suresh Kalmadi, listing him as the main accused in a corruption case on a Commonwealth Games-related contract worth Rs141 crore. The agency, in its over 50-page charge-sheet, said Mr Kalmadi was the key person with all the powers to take decisions on awarding contracts.

On Friday, a special court sent DMK member of parliament Kanimozhi and Kalaignar TV managing director Sharad Kumar to jail, on charges of handling bribes in the 2G scam. Rejecting their bail applications, the court said that most of the witnesses against the DMK leader are employees of Kalaignar TV and hence the possibility of they being influenced cannot be ruled out.
 
On the international scene, the Japanese economy contracted more than expected in the first quarter after the March earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade. Gross domestic product contracted an annualised 3.7% in the three months through March and a revised 3% in the previous quarter.

Policymakers the world over continue to worry about the global economic slowdown, reducing demand for commodities like crude and metals, which hurt investor sentiments.  Domestically, with most corporates having declared their results, global cues will likely determine the direction of the market in the coming week.

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