Eventful Week Ahead: Markets poised for a Turnaround

The markets are headed for an eventful week starting 25th February 2008. The Railway Budget and the General Budget will be presented during the week, The week will also see the expiry of February futures on 28th. The events of the coming week could well mark the end to the pessimism prevailing in the equity markets currently.


Here are some of the positive factors which could drive the markets:

• Negative Global cues have been more or less discounted, be it the sub prime crisis or the spectre of a US recession. Hovever, the chances of Us slipping into a long term recession are less than 20%. The Europian markets are also in a consolidation mode.


• The slowdown in IIP was attributed primarily due to the sluggishness on the export front. With the dollar holding firm against most currencies including the Rupee, the competiveness of Indian companies is likely to be restored in the short run. The Rupee breached the Rs40/$ mark last week after almost eight months.


• According to the data released by the Central Statistical Organisation, the Investment rate of the Indian economy was a decent 36% of the GDP in 2006-07. This is expected to rise to above 38% in the current year. This will take care that our GDP continues to grow close to 9% pa.


• Fresh Mop up by Mutual Funds: Various Mutual Fund schemes have collected/ are open for subscription, and are likely to collect over Rs. 20000 crores, which will have to be invested in the secondary markets.


• Anil Ambani's 'Brahmastra': After a euphoric oversubscription and the listing fiasco of Reliance Power, Anil Ambani is finally getting things under control. The better than expected ratio of 3:5 bonus for Retail investors, the post bonus price of acquisition in R-Power will be a reasonable Rs.281-269. What is commendable is that Ambani has foregone his personal shareholding in R-Power to compensate the Reliance Energy shareholders, the holding of Reliance Energy in R-Power will be protected at 45%. This augers well for the markets. This will, possibly, take the price of R-Power shares in the positive territory (Plus Rs.450 levels).
• Budget Expectations: A low open interest of less than Rs. 80000 crores (in the F&O segment) denotes low key expectations of the market players from the budget. This will protect the market from a major downside risk post budget. However, if the budget is able to deliver a few positive surprises the markets will take a positive cue. Their are expectations on some relief in the Personal/ Corporate income tax. The exemption limit on Personal income tax could be increased by Rs.15000-20000, the increase for women and senior citizens could be higher. On corporate tax front there could be a removal/ reduction of surcharge.
• The market has been consolidating between the sensex levels of 16500-17500 for quite sometime. This means that the the scrips have been picked up by strong hands, which augers well when the revival begins.

However, there are a few negative factors also. The surging inflation rate (WPI) close to 4.5% is a matter of serious concern by the markets. The low volumes/ liquidity constraints are also negative signals. The liquidity will remain low on 25-26th February due to the strike by employees of PSU banks.

Considering all the above factors, and barring any unforeseen developments in the Global markets, markets are likely to show a positive trend in the latter part of the week. The signals are to stay invested.