Markets may go up on Monday (i:e:24th Nov'08)

MUMBAI: Equities are expected to inch higher on Monday, led by expectations of rate cuts by the Reserve Bank of India (RBI) shortly, and a slight improvement in the mood
in global markets on Friday. But investors are sceptical of Friday’s rally sustaining for long, since there is an overhang of further adverse news globally, especially in the financial sector. Market watchers say that any upside in the near term is likely to be restricted to selective frontline stocks.

Last week, key components of major indices like Reliance Industries, ONGC and Infosys Technologies fared much better than the Sensex and the Nifty, which were down around 5% each. Brokers advise investors to stay clear of realty and metal shares, which are expected to see further volatility in the near term.

Shares of oil marketing companies HPCL and BPCL were among the best-performing large caps last week, and are expected to extend their gains. Dealers say that these two stocks could see a breakout on the upside, if the overall mood in the market remains positive.

Before Friday, equity benchmarks had shed 10-12% in seven consecutive sessions, leading to technical analysts believing that the recent fall was in excess. They feel that unless the Nifty does not pierce below the 2,500-level, its year’s low of 2,252.75 may not be under threat. On Friday, the index ended at 2,693.45. technical research people expects the Nifty to face resistance at the 2,850-level.

Expectations of a rate cut here, coupled with speculation about a likely restructuring in US banking major Citigroup, triggered sharp upsides in equities on Friday, led by short-covering. On Friday, US markets rose 5-6% after the US nominated its new treasury secretary Timothy Geithner, who has been closely involved in the rescue of Bear Stearns and AIG.

Investors have been relieved by the general perception that the US government would not allow Citigroup to languish, as the bank’s failure could wreck further havoc in the already bleeding credit markets, following the Lehman Brothers’ debacle. Allowing Citigroup to fail could have deeper repercussions on emerging equity markets, including India, given the banking major’s quantum of investments, directly and indirectly, in these countries.
Though fund managers note that a possible Citigroup rescue does not compensate for the bigger problem of deepening recession in the US and other major economies
, it is felt that the move would somewhat soothe bruised investor sentiments.

“Citigroup’s position has been in question for a long time, so some clarity in this regard got a warm welcome, especially when the market looked oversold,” said the CEO of a foreign mutual fund’s domestic arm.

Investors’ lack of conviction in Friday’s rally was because foreign institutions extended selling, while mutual funds were marginal buyers that day. Market participants
do not expect foreign institutional sales to recede, at least, till the year-end.

As speculation about a likely rate cut intensifies, a section of the market bets that an announcement to this effect would be likely, if the inflation this week slows further. Last week, inflation dropped to 8.9%, a five-month low.

Market participants say that prompt rate cuts are key for India to insulate itself from the global recession.

Via: E.T