Post Market Commentary-Monday, June 23, 2008

Sensex down 1404 points in four days on political uncertainty, fears of hike in interest rates

Indian stocks suffered losses for the fourth straight session today to settle at 10-month low on sustained selling pressure throughout the day. Concerns of further policy tightening by the Reserve Bank of India with inflation reaching 13-year high early this month and political uncertainty, weighed on the market sentiment today. The Capital Goods index, BSE Power index, BSE Realty index, BSE Auto index, BSE Bankex, BSE PSU index touched 52-week lows. The market breadth was weak.

Shares from capital goods, banking, realty, metal and power sector suffered sharp losses. But ONGC gained ahead of its Q4 and year ended March 2008 results scheduled on 25 June 2008.

As per provisional data, foreign funds today, 23 June 2008, sold shares worth a net Rs 665.56 crore. Domestic funds bought shares worth a net Rs 91.75 crore.

RBI governor Y V Reddy today, 23 June 2008, said RBI will play its part in moderating and managing demand and may have to build on actions it has already taken. Reddy said the central bank was in the midst of an intensive examination of issues and options. He added that he does not see any adverse impact of inflation on growth as of now.

In an important political development during the weekend, Uttar Pradesh chief minister Mayawati’s Bahujan Samaj Party (BSP) withdrew its support to the Congress-led UPA government. Given its current strength of 17 members of parliament (MPs) in the Lok Sabha, the BSP's decision to withdraw its support is unlikely to upset the UPA government’s standing.

Meanwhile, the Samajwadi Party, at loggerheads with the BSP, is reportedly in talks with the Congress on extending its support to the Indo-US nuclear deal. The Samajwadi Party has 39 MPs in the Lok Sabha (including two dissidents).

The nuclear energy deal appears headed for an imminent showdown that threatens to trigger early elections, reports suggest. The UPA government may have only a week or so to make up its mind if the pact is to have any chance of final approval before US President George W. Bush leaves office, reports suggest.

The 30-share BSE Sensex lost 277.97 points or 1.91% at 14,293.32.

S&P CNX Nifty was down 81.15 points or 1.87% to 4266.40

Morgan Stanley in a note to clients today lowered the Sensex’s December 2008 fair value to 13,224, from 14,540 set in April 2007. Turmoil in global financial markets, coupled with the slowing of growth and resurgence of inflation, was the reason for the cut in fair value.