WEEK AHEAD >>Market may extend gains on rate cut hopes

Although the key benchmark indices edged higher last week, the market sentiments remain fragile due to global recession worries and heavy selling by foreign funds this year.
Global markets rallied after the US Federal Reserve cut its main policy rate to 1% on Wednesday, 29 October 2008 to stave off the credit crunch. China reduced rates earlier on Wednesday, 29 October 2008 with Taiwan and Hong Kong following up with rate cuts on Thursday, 30 October 2008. The Bank of Japan annnounced a 20 basis points cut in interest rate on Friday, 31 October 2008.
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, FII were net sellers of Rs 14272.40 crore in October 2008 so far (till 28 October 2008). FIIs have sold Indian shares amounting to Rs 51064.10 crore in calendar 2008. On the other hand, mutual funds have been buying. Their net inflow in October 2008 totaled Rs 848.20 crore (till 28 October 2008).
Concerns about corporate results will continue to haunt investors. India Inc's report card for the September 2008 quarter so far shows a dismal performance, partly due to ballooning interest cost. Aggregate results of 1401 companies showed a 20% fall in net profit on a 32.6% increase in net sales in Q2 September 2008 over Q2 September 2007. Interest cost jumped 34.7% in Q2 September 2008 over Q2 September 2007.
India's inflation rate fell below 11% for the first time since May, 2008, raising hopes for a rate cut by the central bank that left its key policy rates unchanged in the mid-year review of monetary policy on 24 October 2008. Inflation, based on the wholesale price index (WPI), slipped to 10.68% in the week ended 18th October 2008, from 11.07% in the previous week. The figure is much higher than 3.11% a year ago. Experts feel that the wholesale price index is expected to move downward, and will eventually come down to single-digit numbers by January 2009.