Market to remain weak on fresh global crisis fears

Fears of a fresh global crisis on account of debt defaults in the Euro region and further strengthening of the dollar are expected to have a negative impact on the Indian equity market. Analysts will also keep an eye on some macro-economic data that will be announced by the government during the week.

The benchmark 30-share Sensex has lost more than 10 per cent or 1,785 points in the last one month. The broader Nifty, which ended the week at 4,757, is dangerously close to the 200 daily moving average (DMA) — an important indicator of market direction. Incidentally, the markets remained opened on Saturday last week as the National Stock Exchange (NSE) wanted to test its upgraded trading system.

“The strengthening dollar is leading investors, who had hedged against the dollar, to exit any non-dollar investment,” said Raamdeo Agrawal, Director and co-founder of Motilal Oswal Financial Services. Agrawal thinks that the “markets can get an impetus if the government shows strong resolve to balance the fiscal deficit”. “If we see positive moves by the government in implementing recommendations of the Kirit Parikh report then the markets will get a booster,” he added.

ICICI Direct, in a note to its clients, said that the consecutive three weeks of fall in the market renewed the concerns of further correction. The weak response, especially from non-institutional investors, in the follow-on offering of NTPC also fuelled concerns of investor appetite. Jubilant Foodworks, which sells pizzas under Domino’s brand, would list on the bourses on Monday. The IPO was priced at Rs 145.

Among the various global factors that could play spoilsport, the biggest concern is from the Euro region where Greece, Portugal and Spain are facing the risk of debt defaults. China would also be closely watched as the world’s fastest growing economy looks at ways to cool down. Meanwhile, Indian markets are likely to see a more direct impact of a stronger dollar.

The strengthening of the US greenback is a major cause for concern as hedge funds are looking at every available opportunity to unwind their positions. Till recently, dollar carry trade — borrowing cheap dollar in the US and investing overseas — was popular as US Federal Reserve lowered interest rates to fight recession. Dollar was available cheap and emerging markets were showing sings of revival. With the trends reversed, foreign investors are now looking at reversing their carry trades by pressing the sell button.

According to provisional data, FIIs have already net sold equities worth nearly Rs 9,700 crore in the current calendar year. Among the data to be watched included the Centre of Statistical Organization (CSO) will release advance estimates of GDP growth for 2009-10 on Monday. Meanwhile, the government will announce the industrial output data for December 2009 on Friday.

Incidentally, the industrial output rose 11.7 per cent in November 2009. The government will also unveil data on some wholesale price indices.