weekly market update

>> Friday, June 12, 2009

Markets saw further profit booking this week with downward ‘corrections’ being seen on Monday and Friday. However gains in the other three sessions were enough to keep the Sensex above 15,000, closing at 15,238 having gained 135 points or 0.9% on last weeks close. The Nifty ended the week on 4,584 having lost 4 points during the week.

Although significant domestic profit booking was a drag on the headline indices, FII inflows remained positive with another 2,000 Cr of net purchaes being made in the first three trading sessions of the week. Overall volumes were down slightly on the previous week but remain high in comparison to 12 month averages.

Industrial Output (IIP)numbers were released today and were a positive surprise for many, coming in at 1.4% year on year growth for April, versus a 0.7% fall the previous month. With economic output looking like it is bottoming out many analysts now speculate that further interest rate cuts this year are unlikely, leaving fiscal policy and legal reforms as the main levers at the government’s disposal.

Looking forwards, the upcoming budget remains the key event and although expectations regarding the centre’s reform agenda are positive, some concern should be given to the scope for budgetary expansion which the current defecit affords the government.

Looking specifically at market prospects in the pre-budget run in, the latest leg of the rally has left valuations, particularly in the large-cap arena, looking a little overweight. Many of the bellweathers are trading at or above 20 times earnings and these levels suggest there should be some resistance to further dramatic advances in the short term.

However on the other hand there remains a significant amount of domestic capital on the sidelines which ‘missed the boat’ with regards to the recent advances. This potential liquidity means that the impact of a correction in global markets would most likely to be tempered by the volume of funds waiting for that correction. Therefore the market is likely to trade in a fairly narrow range until the budget details are announced.

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