Market may edge higher

The market may extend Friday’s (29 August 2008) strong gains triggered by softening inflation. Inflation has been a major cause of worry for the domestic markets since the past few months. Market will also take cues from another meeting of Nuclear Suppliers group in Vienna that begins on 4 September 2008.

Inflation based on the wholesale price index rose 12.40% in 12 months to 16 August 2008, below the previous week's annual rise of 12.63% due to lower prices of some minerals and fuels, government data released on Thursday, 28 August 2008, showed. Nevertheless, the inflation remains far above the central bank's target of 7%.

On 29 July 2008, the Reserve Bank of India (RBI), at its quarterly policy review, raised repo rate by 50 basis points to a seven-year high of 9% to curb inflation and dampen inflationary expectations. RBI also raised the cash reserve ratio (CRR), the proportion of funds that banks must keep on deposit with it, by 25 basis points to 9%.

The gross domestic product (GDP) grew 7.9% in the June 2008 quarter from a year earlier, easing from the previous quarter's 8.8% rise as industrial activity slowed due to monetary tightening. The GDP growth in the first quarter of the current fiscal year was lower than market expectations of a rise of a little above 8%.

Market will closely watch developments on the Indo-US nuclear deal. As per reports, Japan plans to support a civil nuclear accord between the US and India. Japan will back the deal, at a two-day session of the Nuclear Suppliers group (NSG) in Vienna that begins on 4 September 2008. US plans to sell nuclear power plant technologies and fuel to India under a bilateral nuclear cooperation agreement. All 45 members of the Nuclear Suppliers Group including Japan must approve the nuclear accord, which the US Congress must also pass for the deal to come through.

A further rise in crude oil prices may act as a spoilsport for the stock markets. Crude oil for October 2008 delivery rose $1.41, or 1.2 %, to $117 a barrel on the New York Mercantile Exchange on Friday 29 August 2008. Crude oil headed for its biggest weekly gain in almost two months and natural gas rose as producers evacuated rigs ahead of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.

India’s southwest monsoon, crucial for the agriculture sector, was around 1% below the long period average (LPA) during the period from 1 June 2008 to 24 August 2008 and was deficient in six of the 36 meteorological subdivisions.

Foreign institutional investors (FIIs) sold shares worth Rs 1,211.70 crore in August 2008 (till 28 August 2008). FIIs sold shares worth Rs 28,513.60 crore in the calendar year 2008. Mutual funds sold shares worth Rs 700.40 crore in August 2008 (till 27 August 2008).