Down to sideways action

We expect the market to trade lower on Monday, but as of yet, there is no sign of significant reversal

The market was trading flat throughout last week. Although it came out of the narrow range of 17,000-17,200 on Tuesday by riding 209 points from the previous day’s close, absence of fresh triggers left the market subdued for the week.

The firm gain on Tuesday and Wednesday can be attributed to the encouraging advance tax figures for the 4th quarter of FY 2009-10. Several companies have paid a higher tax this quarter, according to preliminary data, indicating better fourth quarter results.

Reliance Industries has paid Rs770 crore as advance tax for the March quarter compared with Rs365 crore a year ago. Infosys's tax outgo has doubled to Rs250 crore from Rs125 crore. Tata Consultancy Services paid Rs178 crore, compared from Rs53 crore earlier.

Last week net inflows from Foreign Institutional Investors (FIIs) were as much as Rs2,622 crore, and the net outflows by domestic financial institutions were Rs525 crore. We expect the market to trade lower on Monday but as of yet, there is no sign of significant reversal.

The global ratings agency Standard &Poor’s has revised its outlook on India form ‘negative’ to ‘stable’ on Thursday on the possibility of a reduction of fiscal deficit. S&P also expects India’s GDP to grow 8% in the year ending 31 March 2011, higher than its forecast earlier. Inflation continued to rage.

While there has been some relief in food prices and the food price index has come down, the fuel price index was on the rise. Data released on Thursday showed the food price index rose 16.30% in the year to 6 March 2010, lower than an annual rise of 17.81% in the previous week. The fuel price index rose 12.68% in the year to 6 March 2010, up from an annual rise of 11.38% in the previous week.

On Thursday, the Reserve Bank of India’s (RBI) deputy governor, Dr KC Chakraborty, suggested that the central bank may take action against to tackle inflation even before its April credit policy meeting. This is contrary to its earlier decision of not taking any inter-policy steps. Indeed, on Friday evening, the RBI has increased repo rates to 5% from the existing 4.75%. It also raised the reverse repo rate to 3.5% from 3.25%.

On the international front, concern over Greek’s debt situation persists as the country plans to take help from International Monetary Fund (IMF), stating that the interest rate offered by the European Union is too high. The US jobless claim data was in line with estimates, which is a good sign.

The Economic Cycle Research Institute (ECRI) said that its weekly leading indicator of US economic growth rose for the seventh straight week. ECRI managing director Lakshman Achuthan said while US economic growth will soon begin to throttle back, fears of a double-dip recession remain unfounded.

In a surprising piece of negative data, China's official purchasing managers' index for non-manufacturing sectors plunged to a one-year low at 46.4 in February from 55.1 in January, according to the China Federation of Logistics and Purchasing (CFLP). It is the first time since February 2009 that the index has gone below 50, which shows contraction. This is in contrast to HSBC's China services sector PMI, which was 56.7 for February. China's non-manufacturing survey includes construction, postal, software, aviation, railway, retailing and catering sectors. The official manufacturing PMI, compiled by CFLP for the National Bureau of Statistics, was 52 in February, down from 55.8 in January.


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