Market may drift lower on weakness in Asian stocks

The market may edge lower tracking weakness in global markets. Caution may prevail ahead of the release of the weekly inflation data by the government after trading hours. US Senate’s nod for the Indo-US nuclear deal may lift shares of equipment makers for nuclear power plants.

Asian stocks dropped today, 3 October 2008, on fears that the global economy will worsen even if the US Congress passes a $700 billion bank rescue bill. Key benchmark indices in Hong Kong, Japan, Singapore and Taiwan were down by between 0.5% to 2.1%. Stock markets in China and South Korea were closed.

US stocks plunged on Thursday, 2 October 2008, as the number of people filing for unemployment benefits hit a seven-year high and another report showed steep drop in factory orders in August 2008.

European Central Bank President Jean-Claude Trichet said on Thursday, 2 October 2008, that Europe's economy was weakening.

The US Senate on Wednesday, 1 October 2008, passed the government's financial rescue plan after the House of Representatives rejected it in its original form. The House is expected to vote on the revised bill on Friday, 3 October 2008.

Meanwhile, the India-US nuclear deal on Wednesday, 1 October 2008, secured the approval of the US Senate which overwhelmingly voted a bill rejecting all the killer amendments and paving the way for its implementation. The landmark civil nuclear cooperation agreement, entered into between Prime Minister Manmohan Singh and US President George W. Bush in 2005, secured 86 votes while 13 Senators voted against it. The legislation, which has already been cleared by the House of Representatives, will now head to the White House for Mr. Bush signing it into a law.

The Indian government will today, 3 October 2008, release the weekly inflation data after trading hours. Inflation based on the whole price index rose 12.14% in year through 13 September 2008. Last month, central bank governor Duvvuri Subbarao said inflation was showing signs of moderating but it was too early to conclude whether this was a trend.

As per provisional data released by the stock exchanges, foreign funds sold shares worth a net Rs 274.90 crore on Wednesday, 1 October 2008. Domestic funds bought shares worth a net Rs 48.65 crore.

Foreign institutional investors (FIIs) have been pulling out their investments from India and other emerging markets to shore up resources to beat the global liquidity crunch. In India, FIIs sold shares worth a net Rs 8278.10 crore last month. The outflow has reached Rs 36707.50 crore in calendar year 2008.

With the end of third quarter of the calendar year 2008 on Tuesday, 30 September 2008, hedge fund are bracing for heavy redemption amid US financial sector crisis which has already spread to Europe. Investors in hedge funds are usually allowed to exit funds only on the final day of the financial quarter. Large-scale investor redemption in hedge funds may trigger further selling by foreign funds in India. Hedge funds mainly operate through the participatory notes route in India. However, there is not data available on the quantum of hedge funds’ investment in India.

The next major trigger for the market is Q2 September 2008 results. IT bellwether Infosys kickstarts the reporting season on 10 October 2008