Expect a volatile week 2 - 6 March 2009

The domestic bourses are likely to track global markets in the near term. Fears of more bad news from the US financial sector is likely to keep sentiments subdued. Yet, stock-specific buying on a likely interest rate cuts could restrict losses.

Global investors are offloading India stocks. Foreign institutional investors (FIIs) outflow in February 2009 totaled Rs 2436.60 crore (till 26 February 2009). FIIs had pulled out a massive Rs 52,998.70 crore in calendar year 2008, as against an inflow of a huge Rs 71,486.50 crore in calendar year 2007.

Inflation fell to 3.36% for the year through 14 February 2009 and is reported to be on course to turn negative by first week of April 2009 as falling commodity prices and shrinking demand build up downward pressure. Falling inflation has provided room for the Reserve Bank of India (RBI) to cut interest rates further to shield the domestic economy from the impact of the global financial sector crisis and recession in key global economies.

Expectations of rate cuts have increased after the RBI governor D Subbarao's comments in a conference held earlier this month in Tokyo that there is more room for slashing benchmark interest rates. Marketmen are expecting at least a 50 basis point (bps) cut in the repo and reverse repo rates each.

Meanwhile, Standard & Poor's (S&P) Ratings Services on 24 February 2009, warned it may cut India's credit rating to junk, saying the nation's fiscal position may be unsustainable in the medium term.

The warning followed government's forecast that fiscal deficit for current fiscal year ending 31 March 2009 will balloon to 6% of gross domestic product from the initial target of 2.5%. For the next fiscal year, it expects the fiscal deficit at 5.5% of gross domestic product (GDP).

Meanwhile, gloomy US unemployment data reinforced fears the world's largest economy is in a severe slump. For the week ended 21 February 2009, a total of 6,67,000 Americans filed initial claims for unemployment insurance, up 36,000 from a revised 631,000 the previous week, according to a Labour Department report released Thursday, 26 February 2009.