Date:26/03/2007 URL: http://www.thehindubusinessline.com/2007/03/26/stories/2007032602120400.htm

Back Benchmarks may remain sideways

K. S. Badri Narayanan

Global cues to dictate direction

DOOM TO BLOOM: A stock dealer tracking the upward movement of the market in Mumbai as BSE Sensex gained 6.88 per cent last week. - Paul Noronha

The markets may remain in the sideways mode this week, at least on Monday, despite a sharp recovery in benchmarks last week, unless some strong global cues hurt sentiment.

However, intra-day volatility is likely to continue as derivative contracts for March are scheduled to expire on Thursday on the NSE.

Lingering fear of rising interest rates on the back of firm inflation rate will also check any sharp progress in the market. With most short positions being squared off in the futures and options segment, short coverings may not happen to help the market in gaining momentum.

With lack of positive triggers from the domestic front, the market is depending on global triggers for movement.

YEN: Contrasting signal

One of the important triggers that could impact markets globally is the movement of yen. Last week, global markets staged a smart recovery mainly on the back of a weak yen against most of the global currencies. The US dollar gained 1.1 per cent last week at 118.06 yen.

However, the yen may not swing wildly as has been happening in recent times as contrasting signals are emanating from the US and Japan.

Analysts have viewed upbeat comments about the economy by the Japanese Finance Minister, Mr Koji Omi, as a positive for yen and they hope that it could strengthen it. Mr Omi told a news conference that recent rises in Japan's land prices reflected a strengthening of the economic recovery. Yen could also strengthen ahead of the Japanese fiscal year end (on March 31), as the country's exporters tend to go for yen buying at the end of the year as they repatriate profits, say analysts.

On the other hand, a surprise increase in US home sales could keep the dollar firm, as global analysts do not expect the US Federal Reserve to cut interest rates. There was wide expectation in the global markets that US Fed will decrease the interest rate (due to slow down in the US economy), which could weaken the dollar as well as yen-carry trade.

In the meanwhile, both the major economies kept their respective interest rates on hold.

Geo-political tension

Another key concern for investors is the Iran issue. The UN Security Council had imposed fresh sanctions against that country over its suspect nuclear programme. Meanwhile, Iranian forces captured 15 British sailors, whom, Tehran claims, had entered its waters illegally. This has added to tensions caused by new sanctions ordered over Iran's nuclear programme. Any escalation of tension could further push crude price up and shake investors' confidence globally.

Key sectors

Banking stocks may remain under pressure following the firm inflation rate at 6.46 per cent, even after the Government's stringent measures to curb it; this has already raised fears in the minds of investors that the Reserve Bank of India could increase interest rate that would impact the banking business.

Oil marketing companies could also see some pressure as crude price topped the $62 a barrel mark.

However, metal stocks could see some interest on the back of firm LME prices for some metals. Copper and aluminium remained firm even as nickel slipped sharply.

On the other hand, appreciating rupee could weaken the information technology and textile (mainly export) sectors.

The cement sector is also likely to be under pressure as the Government has indicated that it may take steps to encourage imports in a bid to contain spiralling prices of construction material.