Domestic bourses to take cue from global equities

With no major domestic trigger, the equity market is expected to move in tandem with the global markets. But upward momentum is likely to continue as sentiment in the market remains positive.

Sentiments in the Indian market are closely linked to the sentiment of the foreign investors as they have been large buyers in equities over the past few months and have been the main driver of the recent bull run. Foreign institutional investors (FIIs) inflow in November 2009 totaled Rs 2,727.10 crore, while the FII inflow in the calendar year 2009 totaled Rs 71,168.20 crore (till 11 November 2009).

The market will also keep a close watch on the US dollar. Investors are borrowing money at cheap rates in US dollars and buying risky assets like emerging market stocks and commodities. Experts believe that a rebound in the US currency may possibly lead to outflows from the emerging equity markets like India.

The Dollar Index, which measures the currency's value against six major units including the euro, gained on Thursday, 12 November 2009, after a weekly jobless report triggered strength in the currency. The US Dollar Index rose as much as 0.8% to 75.743 on Thursday. The dollar index gained strength on the back of risk aversion that led to a decline in equities and higher demand for the safe-haven dollar.

The 30-share BSE Sensex, which has doubled from its 2009 low in March, was one of the worst performers in October falling over 7% as investors began taking profits ahead of the close of the calendar year. The index, however, resumed its upwards march in November 2009, rising over 8% to 16696.03 on 12 November 2009, from a recent low of 15404.94 on 3 November 2009.

However, market participants are expected to remain cautious of accelerating inflation which tends to put upward pressure on interest rates and undermine equities. The government will unveil monthly inflation data for October 2009 on Saturday, 14 November 2009.

Although the Reserve Bank of India (RBI) held its main policy rates unchanged, as widely expected, at its review last month, the central bank gave enough indications that monetary tightening was round the corner with the focus shifting to tackling inflationary pressures.

Chairman of the Prime Minister's economic advisory council C. Rangarajan said on Wednesday stimulus measures may need to be withdrawn next year. He said excise duties, which were lowered twice between December 2008 and February 2009, needed to be adjusted while the government's expenditure needed to be cut in 2010/11 to reduce the fiscal deficit by 1% to 1.5%.

Rangarajan, a former central bank governor, said the economy could grow 7-8% in 2010/11 (April-March), but Finance Secretary Ashok Chawla said on Wednesday the economy cannot return to the 8-9% growth trajectory until exports revive.

Exports declined 11.4% in October from a year earlier, their 13th drop in a row, and trade secretary Rahul Khullar said exports would start growing only from January.

India's industrial output rose 9.1% in September 2009 over September 2008, data released by the government on Thursday showed. The government revised upwards the industrial production growth for August 2009 to 11% from 10.4%.

Consumer durable goods output surged by an annual 22.2%, manufacturing production rose 9.3%, mining output was up 8.6% and power generation rose 7.9% in September 2009 over September 2008