Market may remain weak

The market might extend Friday (11 July 2008)'s sharp fall on gloomy domestic and global scene. Higher crude oil prices, rising inflation, weak industrial production numbers, fears of further rise in interest rates, fluid domestic political situation and tension in Middle East will weight on the investor sentiment.

Infosys kickstarted the Q1 June result season on 11 July 2008 on a positive note. Infosys has revised upwards earnings and revenue guidance for the year ending March 2009 (FY 2009). Infosys has forecast 24.4% to 26.6% growth in earnings per share as per Indian GAAP at between Rs 98.79 to Rs 100.51 in FY 2009 over the year ended March 2008 (FY 2008). It has forecast a between 27.5% to 29.5% growth in revenue at between Rs 21278 crore and Rs. 21622 crore in FY 2009 over FY 2008.

The overall earnings of the corporate sector are seen rising about 15% in Q1 June 2008 over Q1 June 2007. That would be well below the 20-25% growth seen over the past few years.

Political uncertainty will continue to haunt the bourses. Prime Minister Manmohan Singh is likely to seek a vote of confidence in parliament shortly following Left’s withdrawal of support to the government over the India-US civil nuclear agreement. There was speculation that the government may choose a date around 22 July 2008 to call a special Lok Sabha session for the vote.

With Left parties withdrawing support to the United Progressive Alliance (UPA) government, India Inc. hopes the slow-moving economic reforms program will now be put on the fast track. Over the last four years, Left parities had stalled privatisation of state-run firms, pension reforms, higher foreign limits in insurance and more liberal norms for foreign bank.

Capping inflation has been a major priority for India’s central bank. Inflation based on the wholesale price index rose 11.89% in 12 months to 28 June 2008, above the previous week's annual rise of 11.63%, government data released on 11 July 2008, afternoon showed. It was at highest level in more than 13 years.

Reserve Bank of India on 24 June had hiked both repo rates and cash reserve ratio by 50 basis points each to tame rising inflation. There are expectations of further monetary tightening in quarterly monetary policy review of RBI scheduled on 29 July 2008 as inflation is showing no signs of abatement.

Industrial production rose 3.8% in May 2008, much lower than revised 6.2% growth in April 2008, the government data released on Friday, 11 July 2008, showed. Industrial production growth for April 2008 revised downwards to 6.2% from earlier 7%.

Crude oil has created a major havoc on global bourses. Crude oil for August delivery rose as much as $1.54, or 1.5%, to $143.19 a barrel on Friday 11 July 2008 on the New York Mercantile Exchange as Brazilian oil workers threatened a strike and on concern that Middle East and Nigerian supplies may be disrupted.

In the light of above worries, foreign institutional investors (FIIs) sold shares worth Rs 1,012.20 crore in the month of July 2008 so far, till 9 July 2008. FIIs sold shares worth Rs 26,477.50 crore in the calendar year 2008. Mutual funds have bought shares worth Rs 712.30 crore in the month of July so far.