Profit Booking To Continue Ahead Of Expiry

Yesterday the Indian equity markets closed the trading session on a lower note as investors turned cautious and booked profits with oil and financial shares leading the decline. The Sensex closed lower by 167 points at 24,550 mark and the Nifty slipped by 41 points at 7,318 levels. The Sensex and Nifty touched an intra-day low of 24,422 and 7,275 levels, respectively.

Among broader markets, BSE Midcap and Smallcap indices fell between 0.4-1%. The market breadth in BSE ended weak with 1,652 shares declining and 1,296 shares advancing. We are of the opinion that the market will remain volatile in the near future as traders roll over positions in the futures & options segment from the May 2014 series to June 2014 series. The near month May 2014 derivatives contract expire on Thursday. Foreign institutional investors (FIIs) sold shares worth a net Rs 84.13 crore on Monday, as per provisional data from the stock exchanges. And we fell ahead of the expiry the FIIs investment would remain negative.  

On the political front, Prime Minister Narendra Modi assumed office today, a day after being sworn-in by President Pranab Mukherjee. Investors are expecting measures from the new government to revive the Indian economy. India's GDP growth slowed sharply at 4.7% in Q3 December 2013. Investors expect the new government to accelerate policy reforms and overhaul the country's poor infrastructure. Modi is favored by business leaders because of his record in Gujarat, which he's led since 2001. With Modi at the helm of affairs, Gujarat's economy expanded by 10.1% a year, on average and adjusting for inflation, from 2001 and 2012, compared with 7.7% growth a year for India's economy as a whole. Modi has pledged to fight inflation by cracking down on food hoarders, creating a national agriculture market and improving rural infrastructure.

In addition, complying with the Supreme Court directive, the new government on its first day in office today constituted a special investigative team (SIT) headed by a former Supreme Court Judge to unearth black money.

Providing importers with greater flexibility in hedging, Reserve Bank yesterday allowed them book forward foreign exchange contracts up to 50 percent of the eligible limit. In the notification RBI stated that “it has been decided to allow importers to book forward contracts, under the past performance route, up to 50 percent of the eligible limit”. We expect the move to be a positive one.

World shares hovered just off an all-time high and the euro was steady on Tuesday, as the European Central Bank made sure there was little doubt in investors’ minds that global liquidity will continue. Britain's FTSE 100 opened up 0.3% as it played catch-up after a holiday. The European markets closed in Green with significant gains.

US stocks rose yesterday as the S&P 500 scored a second straight record close, buoyed by the latest round of merger activity and as expectations for rate cuts by the European Central Bank stoked investors' appetite for equities. While the Dow closed at 16675 (Up 69 points), the S&P Closed at 1912 (Up 11points). Asian stocks resumed gains, with the regional index rising for the fourth time in five days after signs of improvement in the US economy sent the Standard & Poor’s 500 Index to a record high. While the equities moved upwards, Gold slid to a more than 15-week low. Nikkei is trading with miniscule gains and Hang Seng is trading with gains of 0.35%.

The SGX Nifty is trading at 7298 (Down 0.14%). We expect the Indices to open in red and then remain under pressure throughout trading session the ahead of May month F&O expiry tomorrow.