Caution may prevail

Market may take direction from outcome of assembly polls in three states; caution may prevail ahead of budget

The market will take direction today from the outcome of assembly elections in three states. The counting for assembly elections held in Punjab, Uttarakhand and Manipur began at 8:00 IST today. The performance of the ruling Congress party in Punjab and Uttarakhand holds key, given that Congress leads the UPA government at the Centre.

The market witnessed a strong intra-day rebound after a near sharp fall on Monday 26 February 2007 following the announcement of the Railway budget where freight rates on petrol, diesel, iron ore and limestone were cut by 5-6%. Nifty March futures settled at 3953.95, a premium of 11.95 points over spot Nifty closing of 3942.

Fears of nasty surprises in the Union Budget 2007-08 have caused a sharp correction on the bourses in the past few days. It plunged 723 points last week (week ended 23 February). At current 13,649.52, it is off 6.8% from the lifetime high of 14,652.09 of 8 February 2007. It is down about 1% in calendar 2007 thus far.

Market men fear that short-term capital gains tax on the sale of shares may be hiked from 10% to between 12.5%-15% in the budget. The securities transaction tax (STT) may also go up further. The STT was raised in the previous budget. The removal of 10% corporate surcharge may be offset by removal of certain open-ended exemptions. On the flip side, analysts also expect the finance minister to give a big impetus to agriculture and infrastructure in the budget.

FIIs pressed heavy sales in index-based futures for the second day in a row on Monday. FIIs were net sellers to the tune of Rs 1036 crore in index based futures on Monday. They were net buyers to the tune of Rs 219 crore in individual stock futures. As per provisional data, FIIs were net sellers to the tune of Rs 596 crore in the spot market on Monday.

Asian markets drifted lower on Tuesday (27 February). Key benchmark indices in Hong Kong, Japan, South Korea and Singapore were down by between 0.26% to 1.7%.

US stocks skidded on Monday as resurgent economic worries and a jump in oil prices outweighed excitement about a bid for Texas power company TXU Corp., which would be the largest private-equity buyout ever. The Dow Jones industrial average declined 15.22 points, or 0.12 percent, to end at 12,632.26. The Standard & Poor's 500 Index slipped 1.82 points, or 0.13 percent, to finish at 1,449.37. The Nasdaq Composite Index dropped 10.58 points, or 0.42 percent, to close at 2,504.52.

US crude rose for a fifth day, up 23 cents to $61.62 a barrel on Tuesday and just below a 2007 peak, as a cold snap in the United States ignited heating fuel demand, and as world powers decided to work on a new UN sanctions resolution to pressure Iran over its nuclear programme.